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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
_________________ to _________________
Commission file number 1-10389
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WESTERN GAS RESOURCES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 84-1127613
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12200 N. Pecos Street, Denver, Colorado 80234-3439
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(Address of principal executive offices) (Zip Code)
(303) 452-5603
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Registrant's telephone number, including area code
No Changes
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(Former name, former address and former fiscal year, if changed since last
report)
Title of each class Name of exchange on which registered
- ----------------------------- ------------------------------------
Common Stock, $0.10 par value New York Stock Exchange
$2.28 Cumulative Preferred Stock,
$0.10 par value New York Stock Exchange
$2.625 Cumulative Convertible Preferred
Stock, $0.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
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The aggregate market value of voting common stock held by non-affiliates of the
registrant on March 15, 1999 was $130,274,224
As of March 15, 1999, there were 32,147,993 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report (Items 10, 11, 12 and 13) is
incorporated by reference from the registrant's proxy statement to be filed
pursuant to Regulation 14A with respect to the annual meeting of stockholders
scheduled to be held on May 21, 1999.
Indicate by check mark if disclosure of delinquent filers to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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Western Gas Resources, Inc.
Form 10-K
Table of Contents
<TABLE>
<CAPTION>
Part Item(s) Page
- ------ ----------- ----
<S> <C> <C>
I. 1 and 2. Business and Properties.............................................. 3
General.............................................................. 3
Principal Facilities................................................. 5
Gas Gathering, Processing, Storage and Transmission.................. 6
Significant Acquisitions, Projects and Dispositions.................. 7
Marketing............................................................ 10
Producing Properties................................................. 11
Competition.......................................................... 12
Regulation........................................................... 12
Employees............................................................ 13
3. Legal Proceedings.................................................... 13
4. Submission of Matters to a Vote of Security Holders.................. 13
II. 5. Market for Registrant's Common Equity and Related Stockholder Matters 14
6. Selected Financial Data.............................................. 15
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 16
8. Financial Statements and Supplementary Data.......................... 27
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. 58
III. 10. Directors and Executive Officers of the Registrant................... 58
11. Executive Compensation............................................... 58
12. Security Ownership of Certain Beneficial Owners and Management....... 58
13. Certain Relationships and Related Transactions....................... 58
IV. 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 58
</TABLE>
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
Western Gas Resources, Inc. (the "Company") is an independent gas gatherer and
processor and energy marketer providing a full range of services to its
customers from the wellhead to the sales delivery point. The Company designs,
constructs, owns and operates natural gas gathering, processing, treating and
storage facilities in major gas-producing basins in the Rocky Mountain, Mid-
Continent, Gulf Coast and Southwestern regions of the United States. The
Company connects producers' wells to its gathering systems for delivery to its
processing or treating plants, processes the natural gas to extract natural gas
liquids ("NGLs") and treats the natural gas in order to meet pipeline
specifications. The Company markets gas and NGLs nationwide and in Canada,
providing risk management, storage, transportation, scheduling, peaking and
other services to a variety of customers. The Company owns and operates certain
producing properties, primarily in Wyoming and Louisiana. The Company also
explores and develops gas reserves, primarily in Wyoming, in support of its
existing facilities.
Historically, the Company has derived over 95% of its revenues from the sale of
gas and NGLs. Set forth below are the Company's revenues by type of operation
(000s):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1998 % 1997 % 1996 %
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Sale of gas...................................... $1,611,521 75.5 $1,657,479 69.5 $1,440,882 68.9
Sale of NGLs..................................... 449,696 21.1 611,969 25.7 561,581 26.9
Processing, transportation and storage revenues.. 44,743 2.1 40,906 1.7 44,943 2.1
Sale of electric power........................... 20 - 59,477 2.5 30,667 1.5
Other, net....................................... 27,586 1.3 15,429 .6 12,936 .6
---------- ----- ---------- ----- ---------- -----
$2,133,566 100.0 $2,385,260 100.0 $2,091,009 100.0
========== ===== ========== ===== ========== =====
</TABLE>
Historically, the Company has expanded through acquisitions, joint ventures,
internal project development and increased marketing activity. This expansion
has strengthened the Company's position in major producing basins and increased
its access to natural gas markets. The Company's current strategy focuses on
developing opportunities within the active basins in which it operates. The
table below illustrates the Company's growth over the last five years:
<TABLE>
<CAPTION>
Average for the Year Ended
Average --------------------------------------
Average NGL Gas Gas NGL
Gas Sales Sales Throughput Production Production
(MMcf/D) (MGal/D) (MMcf/D) (MMcf/D) (MGal/D)
---------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
December 31, 1993...... 755 2,941 804 575 2,239
December 31, 1998...... 2,200 4,730 1,162 984 1,912
% increase (decrease).. 191 61 45 71 (15)
</TABLE>
The Company's long-term four-part business plan is designed to increase
profitability through: (i) investing in projects that complement and extend its
core gas gathering, processing, production and marketing business; (ii) creating
ventures with producers who dedicate additional acreage to the Company; (iii)
maintaining or expanding its energy sales volumes and margins by maximizing its
asset base, firm transportation and storage contracts and other contractual
arrangements; and (iv) optimizing the profitability of existing operations and
in certain cases, considering the disposal of non-growth assets.
Historically, crude oil prices have been volatile and the oil and gas industry
is currently experiencing ten year lows in these prices. As of March 1, 1999
such prices had declined to approximately $12.25 per barrel. Most NGL value is
tied closely to crude oil, accordingly this pricing environment is having a
detrimental effect on the Company's results of operations.
The Company's 1999 plan provides for the improvement of the balance sheet and
liquidity while ensuring the continued development of its two primary growth
projects, the Powder River Basin coal bed methane and Southwest Wyoming
operations. In order to reduce the Company's overall debt level and provide it
with additional liquidity, the Company has signed agreements in March 1999
providing for the sale of its Giddings Gathering System and the Katy Facility
for total proceeds of approximately $136 million. These transactions will
result in an after-tax loss in 1999 of approximately $14.9 million and are
expected to close in the second quarter of 1999, subject to various regulatory
approvals and the satisfaction of certain contractual conditions. See further
discussion in "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Business Strategy."
This section, as well as other sections in this Form 10-K, 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,"
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"will," "expect," "anticipate," "estimate," or "continue" or the negative
thereof or other variations thereon or comparable terminology. This Form 10-K
contains forward-looking statements regarding the expansion of the Company's
gathering operations, its project development schedules, marketing plans,
throughput capacity and anticipated volumes that involve a number of risks and
uncertainties, including the composition of gas to be treated and the drilling
schedules and success of the producers whose acreage is dedicated to the
Company's facilities. In addition to the important factors referred to herein,
numerous other factors affecting the gas processing industry generally and in
the markets for gas and NGLs in which the Company operates, could cause actual
results to differ materially. See further discussion in "Financial Statements
and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 -
Summary of Significant Accounting Policies - Use of Estimates and Significant
Risks."
The Company's principal offices are located at 12200 North Pecos Street, Denver,
Colorado 80234-3439, and its telephone number is (303) 452-5603. The Company
was incorporated in Delaware in 1989.
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PRINCIPAL FACILITIES
The following table provides information concerning the Company's principal
facilities. The Company also owns and operates several smaller treating and
processing facilities located in the same areas as its other facilities.
<TABLE>
<CAPTION>
Average for the Year Ended
December 31, 1998
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>
Texas
Bethel Treating (6)............ 1997 86 350 61 57 -
Edgewood (6)(7)(8)............. 1964 - - 20 6 48
Giddings Gathering (16)........ 1979 661 80 49 41 72
Gomez Treating................. 1971 385 280 118 112 -
Midkiff/Benedum................ 1955 2,138 165 151 100 966
Mitchell Puckett Gathering..... 1972 86 85 80 53 1
MiVida Treating (6)............ 1972 289 150 58 56 -
Rosita Treating................ 1973 - 60 49 49 -
Louisiana
Black Lake..................... 1966 56 75 13 8 27
Toca (7)(9).................... 1958 - 160 72 68 56
Wyoming
Coal Bed Methane
Gathering..................... 1990 378 95 73 67 -
Granger (7)(10)(11)(12)........ 1987 431 235 154 142 185
Hilight Complex (7)............ 1969 622 80 41 35 93
Kitty/Amos Draw (7)............ 1969 313 17 10 7 52
Lincoln Road (12).............. 1988 149 50 29 27 28
Newcastle (7).................. 1981 146 5 2 2 17
Red Desert (7)................. 1979 111 42 19 17 34
Reno Junction (10)............. 1991 - - - - 49
Oklahoma
Arkoma......................... 1985 64 8 5 5 -
Chaney Dell.................... 1966 2,049 180 66 52 212
Westana........................ 1986 789 45 61 53 65
New Mexico
San Juan River (6)............. 1955 139 60 27 24 2
Utah
Four Corners Gathering......... 1988 104 15 4 3 5
----- ----- ----- ---- -----
Total......................... 8,996 2,237 1,162 984 1,912
===== ===== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Average for the
Year Ended
December 31, 1998
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 (13)(16)........... 1994 17 20 - 200
MIGC (14)........................ 1970 245 - 130 98
MGTC (15)........................ 1963 252 - 18 10
----- ----- --- ----
Total.......................... 514 20 148 308
===== ===== ==== ====
</TABLE>
_________________________________
Footnotes on following page.
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(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%); Newcastle (50%) and Coal Bed Methane Gathering (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 December 31, 1998.
(3) Gas throughput capacity is as of December 31, 1998 and represents capacity
in accordance with design specifications unless other constraints exist,
including permitting or field compression limits. MMcf/D means million
cubic feet per day.
(4) Aggregate wellhead natural gas volumes collected by a gathering system,
aggregate volumes delivered over the header at the Katy Hub and Gas Storage
Facility (the "Katy Facility") or volumes transported by a pipeline.
(5) Volumes of gas and NGLs are allocated to a facility when a well is
connected to that facility; volumes exclude NGLs fractionated for third
parties. MGal/D means thousand gallons per day.
(6) Sour gas facility (capable of processing or treating gas containing
hydrogen sulfide and/or carbon dioxide).
(7) Fractionation facility (capable of fractionating raw NGLs into end-use
products).
(8) On October 29, 1998, the Company sold its Edgewood gathering system,
including its undivided interest in the producing properties associated
with this system.
(9) Straddle plant (a plant located near a transmission pipeline that processes
gas dedicated to or gathered by a pipeline company or another third party).
(10) NGL production includes conversion of third-party feedstock to iso-butane.
(11) In February 1998, the Company sold a 50% undivided interest in a small
portion of the Granger gathering system for approximately $4.0 million.
This amount approximated the Company's cost in such facilities.
(12) The Company and its joint venture partner at the Lincoln Road facility have
agreed to process such gas at the Company's Granger facility as long as
there is available capacity at the Granger facility. Accordingly,
operations at the Lincoln Road facility were temporarily suspended for the
period between February 1998 and June 1998.
(13) Hub and gas storage facility.
(14) MIGC is an interstate pipeline located in Wyoming and is regulated by the
FERC.
(15) MGTC is a public utility located in Wyoming and is regulated by the Wyoming
Public Service Commission.
(16) In March 1999, the Company signed agreements for the sale of these
facilities. These transactions are anticipated to close in the second
quarter of 1999, subject to various approvals.
Largely as a result of low commodity prices, primarily affecting NGL products,
the Company has reduced its budget for capital expenditures in 1999 from the
levels expended in 1997 and 1998. Capital expenditures related to existing
operations are expected to be approximately $67.0 million during 1999,
consisting of the following: (i) capital expenditures related to gathering,
processing and pipeline assets are expected to be approximately $39.6 million,
of which $6.3 million is for maintaining existing facilities; (ii) capital
expenditures on exploration and production activities are expected to be
approximately $24.6 million; and (iii) capital expenditures for miscellaneous
items are expected to be approximately $2.8 million. Overall, capital
expenditures in the Powder River Basin coal bed methane development and in
Southwest Wyoming operations represent 53% and 22%, respectively, of the total
1999 budget.
Gas Gathering, Processing, Storage and Transmission
Gas Gathering and Processing
The Company contracts with producers to gather raw natural gas ("natural gas")
from individual wells located near its plants or gathering systems. Once a
contract has been executed, the Company connects wells to gathering lines
through which the natural gas is delivered to a processing plant or treating
facility. At a processing plant, the natural gas is compressed, raw NGLs are
extracted and the remaining dry gas is treated to meet pipeline quality
specifications ("residue gas" or "gas"). Six of the Company's processing
plants can further separate, or fractionate, the mixed NGL stream into ethane,
propane, normal butane and natural gasoline to obtain a higher value for the
NGLs, and three of the Company's plants are able to process and treat natural
gas containing hydrogen sulfide or other impurities which require removal prior
to transportation. At a treating facility, dry gas, which does not contain
liquids that can economically be extracted, is treated to meet pipeline quality
specifications by removing hydrogen sulfide or carbon dioxide. For a further
discussion of the revenue, operating profit and attributable assets of this
business segment, see "Item 8 - Financial Statements and Supplementary Data."
6
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The Company acquires dedicated acreage and natural gas supplies in an effort to
maintain or increase throughput levels to offset natural production declines.
Such natural gas supplies are obtained by purchasing existing systems from third
parties, by connecting additional wells, through internally developed projects
or through joint ventures. Historically, while certain individual plants have
experienced declines in dedicated reserves, the Company has been successful in
connecting additional reserves to more than offset the natural declines. There
has been a reduction in drilling activity, primarily in basins that produce oil
and casinghead gas, from levels that existed in prior years. However, higher
gas prices in 1997 and 1998 (relative to 1995 and 1994), improved technology
(e.g., 3-D seismic and horizontal drilling) and increased pipeline capacity from
the Rocky Mountain region have stimulated drilling in the Powder River Basin and
Southwest Wyoming. Company-wide, the level of drilling will depend upon, among
other factors, the prices for gas and oil, the drilling budgets of third-party
producers, the energy policy of the federal government and the availability of
foreign oil and gas, none of which are within the Company's control. There can
be no assurance that the Company will continue to be successful in replacing the
dedicated reserves processed at its facilities. In 1998, including the reserves
associated with the Company's joint ventures and partnerships and excluding the
facilities sold during the year, the Company connected new reserves to its
gathering systems to replace approximately 86% of 1998 production. On a
Company-wide basis, primarily as a result of the sale of the Perkins and
Edgewood facilities and a downward revision in the reserves associated with the
Bethel facility, dedicated reserves decreased from approximately 3.3 Tcf as of
December 31, 1997 to approximately 3.1 Tcf at December 31, 1998.
Substantially all gas flowing through the Company's facilities is supplied under
long-term contracts providing for the purchase, treating or processing of
natural gas for periods ranging from five to twenty years, using three basic
contract types. Approximately 70% of the Company's plant facilities' gross
margin (revenues at the plants less product purchases) for the year ended
December 31, 1998 resulted from percentage-of-proceeds agreements in which the
Company is typically responsible for arranging for the transportation and
marketing of the gas and NGLs. The price paid to producers is a specified
percentage of the net proceeds received from the sale of the gas and the NGLs.
This type of contract permits the Company and the producers to share
proportionally in price changes.
Approximately 20% of the Company's plant facilities' gross margin for the year
ended December 31, 1998 resulted from contracts that are primarily fee-based
whereby the Company receives a set fee for each Mcf of gas gathered and/or
processed. This type of contract provides the Company with a steady revenue
stream that is not dependent on commodity prices, except to the extent that low
prices may cause a producer to curtail production. The proportion of fee-based
contracts is expected to increase as the volumes from the Powder River coal bed
methane development and Southwest Wyoming increase. See further discussion in
"-Significant Acquisitions, Projects and Dispositions."
Approximately 10% of the Company's plant facilities' gross margin for the year
ended December 31, 1998 resulted from contracts that combine gathering,
compression or processing fees with "keepwhole" arrangements or wellhead
purchases. Typically, producers are charged a gathering and compression fee
based upon volume. In addition, the Company retains a predetermined percentage
of the NGLs recovered by the processing facility and keeps the producers whole
by returning to the producers at the tailgate of the plant an amount of residue
gas equal on a Btu basis to the natural gas received at the plant inlet. The
"keepwhole" component of the contracts permits the Company to benefit when the
value of the NGLs is greater as a liquid than as a portion of the residue gas
stream. However, when the value of the NGLs is lower as a liquid than as a
portion of the residue gas stream, the Company will be adversely affected.
Transmission
The Company owns and operates MIGC, an interstate pipeline located in the Powder
River Basin in Wyoming, and MGTC, an intrastate pipeline located in Northeast
Wyoming. As of December 31, 1998, MIGC charges a FERC approved tariff and is
connected to the Colorado Interstate Gas Pipeline, the Williston Basin
Interstate Pipeline and the Pony Express Pipeline. During July 1998, MIGC
received approval from the FERC to increase its pipeline capacity from 90 MMcf
per day to 130 MMcf per day. The first two compressors associated with this
expansion began operating in December 1998 and the third compressor in the first
quarter of 1999. See further discussion in "-Significant Acquisitions, Projects
and Dispositions," and for a further discussion of the revenue, operating profit
and attributable assets of this business segment, see "Item 8-Financial
Statements and Supplementary Data."
Significant Acquisitions, Projects and Dispositions
The Company's significant acquisitions, projects and dispositions since January
1, 1996 are:
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Coal Bed Methane
The Company is expanding its Powder River Basin coal bed methane natural gas
gathering system and developing its own coal seam gas reserves in Wyoming. The
Company has acquired drilling rights in the vicinity of known coal bed methane
production. The Company and other operators in the area have established
production from wells drilled to depths of 400 to 1,200 feet. The typical
drilling, completion and gathering costs associated with such activities have
approximated $65,000 per well. As deeper wells are drilled, the average cost
per well is expected to increase. Production from the Powder River coal bed
methane play has been expanding, and the Company estimates that approximately
110 MMcf per day of gas volumes are 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 for redelivery to gas markets in the
Rocky Mountain and Midwest regions of the United States. The Company's capital
budget in this area provides for expenditures of approximately $35.8 million
during 1999. This capital budget includes approximately $18.5 million for
drilling costs, production equipment and undeveloped acreage, $15.3 million for
compression and $2 million for the Company's investment in the Fort Union Gas
Gathering, L.L.C., as described below. Depending upon future drilling success,
additional capital expenditures may be required to continue expansion in this
basin. However, because of drilling and other uncertainties beyond the
Company's control, there can be no assurance that this level of capital
expenditure will be incurred or that additional capital expenditures will be
made. During the years ended December 31, 1998 and 1997, the Company had
expended approximately $46.7 million and $32.2 million, respectively, on this
project.
In October 1997, the Company sold a 50% undivided interest in its Powder River
Basin coal bed methane gas operations to Barrett Resources Corporation
("Barrett"). This sale provided the Company with a substantial acreage
dedication for gathering and compression services within an area of mutual
interest ("AMI"), additional man-power resources to accelerate development in
this area and more technical expertise in exploration and production. The sale
involved gathering assets, producing properties, production equipment and
certain undeveloped acreage in this area. The final adjusted purchase price was
$17.9 million, resulting in a pre-tax gain of $4.7 million, which was recognized
in the fourth quarter of 1997.
The AMI with Barrett encompasses approximately 2.1 million acres in the Powder
River coal bed methane play. Both parties will continue to develop certain
specified areas within the AMI, with Barrett becoming the operator of the
producing wells on July 1, 1999. The Company has committed to gather and
compress for a fee, all gas produced from the jointly-owned properties within
the AMI under a long-term agreement.
In December 1998, the Company joined with other industry participants to form
Fort Union Gas Gathering, L.L.C., which plans to build a 106-mile, 24-inch
gathering header to gather coal bed methane in the Powder River Basin in
northeast Wyoming. The Company will have an approximate 13% interest and be the
construction contractor and field operator of the header and a related gas
treating facility. The new gathering header is expected to have an initial
capacity of approximately 450 MMcf per day of natural gas with expansion
capability. The header will deliver coal bed methane gas to a treating facility
to be constructed near Glenrock, Wyoming and will access interstate pipelines to
gas markets in the Rocky Mountain and Midwest regions of the United States.
Construction is scheduled to begin in April 1999 with operations anticipated to
commence on or about the end of the third quarter of 1999. It is anticipated
that the new gathering header and treating system will be project-financed,
requiring a cash investment by the Company of approximately $2 million.
Southwest Wyoming
The Company's facilities in Southwest Wyoming are comprised of the Granger
facility and a 72% ownership interest in the Lincoln Road facility (collectively
the "Granger Complex"). These facilities have a combined operational capacity
of 225 MMcf per day and in the year ended December 31, 1998 processed an average
of 183 MMcf per day. The Granger Complex processes gas produced in the prolific
Greater Green River Basin. Despite the low commodity prices experienced in
1998, drilling activity in this area remained at a high level, as 65 new wells
were connected to these facilities. The Company believes that as governmental
drilling restrictions affecting a portion of this basin are removed in the
fourth quarter of 1999, the Company may have the opportunity to expand these
facilities in the year 2000. The Company's capital budget in this area provides
for expenditures of approximately $14.5 million during 1999. This capital
budget includes approximately $6.1 million for drilling costs and production
equipment and approximately $8.4 million related to gathering, transportation
and expansion of the Granger facility. Because of drilling and other
uncertainties beyond the Company's control, there can be no assurance that this
level of capital expenditure will be incurred or that future capital
expenditures will be made. During the years ended December 31, 1998 and 1997,
the Company has expended approximately $16.0 million and $6.2 million,
respectively, on this project.
In 1997, the Company entered into an agreement with Ultra Resources, Inc.
("Ultra") to participate in the exploration, development, gathering and
processing in the Hoback Basin in Southwestern Wyoming. Under the agreement, a
1.8 million acre AMI was established, in which Ultra currently controls
approximately 350,000 acres. The Company has the option to participate in
exploration and production activities within the AMI for approximately a
15% working interest. The Company and Ultra have also entered into
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agreements for the gathering and processing of natural gas, which is developed
on 16 prospects within the AMI, through the Company's Granger facility.
Additionally, the Company entered into two separate agreements with RIS
Resources (USA) Inc. ("RIS"), an affiliate of Ultra, to sell RIS undivided
interests in certain assets. Under the first agreement, in February 1998, the
Company sold RIS a 50% undivided interest in a small portion of the Granger
gathering system servicing the Ultra AMI for approximately $4.0 million. This
amount approximated the Company's cost in such facilities. RIS and the Company
expect to install jointly additional gathering assets in this area as needed.
Under the second agreement with RIS, the Company granted RIS the option to
purchase up to 50% of the Granger Complex. In conjunction with this agreement,
in February 1998, RIS paid a $1 million non-refundable option payment to the
Company. RIS's option to acquire an interest in these facilities expired in the
fourth quarter of 1998.
Bethel Treating Facility
In 1996 and 1997 the Pinnacle Reef trend was rapidly developing into a very
active lease acquisition and exploratory play using 3-D seismic technology. The
initial discoveries in the play indicated a very large potential gas
development. Based on the Company's receipt of large acreage dedications in this
area, the Company constructed the Bethel Treating facility for a total cost of
approximately $102.8 million with a throughput capacity of 350 MMcf per day.
In 1998, the production rates from the wells drilled in this field and the
recoverable reserves from these properties, were far less than originally
expected by the producers. As a result, in 1998, the Bethel Treating facility
averaged gas throughput of approximately 61 MMcf per day. Due to the unexpected
poor drilling results and reductions in the producers' drilling budgets, the
number of rigs active in this area has decreased from 18 in July 1998 to one
active rig in March 1999.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"), requires that long-lived assets be reviewed whenever events or
changes in circumstances indicate that the carrying value of such assets may
not be recoverable. SFAS No.121 also requires that an impairment loss be
recognized when the carrying amount of an asset exceeds its fair market value or
its expected future undiscounted net cash flows. Because of uncertainties
related to the pace and success of third-party drilling programs, declines in
volumes produced at certain wells and other conditions outside the Company's
control, the Company determined that such an evaluation of the Bethel Treating
facility was necessary. The Company compared the net book value of the assets to
the discounted expected future cash flows of the facility and determined a pre-
tax, non-cash impairment charge of $77.8 million in the fourth quarter of 1998
was required.
Edgewood
In two transactions which closed in October 1998 the Company sold its Edgewood
gathering system, including its undivided interest in the producing properties
associated with this facility, and its 50% interest in the Redman Smackover
Joint Venture ("Redman Smackover"). The combined sales price was $55.8 million.
The proceeds from these sales were used to repay a portion of the balances
outstanding under the Revolving Credit Facility. After the accrual of certain
related expenses, the Company recognized a pre-tax gain of approximately $1.6
million during the fourth quarter of 1998.
Perkins
In November 1997, the Company entered into an agreement to sell its Perkins
Facility. In March 1998, the Company completed the sale of this facility, with
an effective date of January 1, 1998. The sales price was $22.0 million and
resulted in a pre-tax gain of approximately $14.9 million. The proceeds from
this sale were used to repay a portion of the balances outstanding under the
Revolving Credit Facility.
Giddings
In March 1999, the Company entered into an agreement to sell its Giddings
Facility for $36.0 million, which will result in an approximate pre-tax loss
of $4.8 million. This agreement is subject to various approvals and is
anticipated to close in the second quarter of 1999.
9
<PAGE>
Katy
The Company continues to view access to storage capacity as a significant
element of its marketing strategy. However, as a result of an increase in
third-party storage services available in the marketplace combined with the
Company's 1999 business plan objective of improving its balance sheet, the
Company entered into an agreement in March 1999 to sell all the outstanding
common stock of its wholly-owned subsidiary, Western Gas Resources Storage,
Inc., for $100.0 million. This transaction will result in an approximate
pre-tax loss of $18.5 million. The only asset of this subsidiary is the Katy
Facility. This agreement is subject to various regulatory approvals and the
satisfaction of certain contractual conditions and is anticipated to close in
the second quarter of 1999. The Company has the option to sell approximately 5.4
Bcf of stored gas in the Katy Facility to the same purchaser for total sales
proceeds of approximately $10.0 million (which would approximate its cost of the
inventory). To meet the needs of its marketing operations, the Company will
continue to contract for storage capacity. Accordingly, the Company will enter
into a long-term agreement with the purchaser for approximately 3 Bcf of storage
capacity at market rates.
Other
The Company routinely reviews 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 or third party-owned facilities,
dismantlement, asset swap or outright sale.
MARKETING
Gas
The Company markets gas produced at its plants and purchased from third parties
to end-users, local distribution companies ("LDCs"), pipelines and other
marketing companies throughout the United States and in Canada. Historically,
the Company's gas marketing was an outgrowth of the Company's gas processing
activities and was directed towards selling gas processed at its plants to
ensure their efficient operation. As the Company expanded into new basins and
the natural gas industry became deregulated and offered more opportunity, the
Company began to increase its third-party gas marketing. For the year ended
December 31, 1998, the Company's gas sales volumes averaged 2.2 Bcf per day.
Third-party sales and gas storage, combined with the stable supply of gas from
the Company's facilities, enable the Company to respond quickly to changing
market conditions and to take advantage of seasonal price variations and peak
demand periods. The Company sells gas under agreements with varying terms and
conditions in order to match seasonal and other changes in demand. Most of the
Company's current sales contracts range from a few days to two years.
In general, the Company does not expect to increase its third-party sales
volumes significantly from levels achieved during the year ended December 31,
1998. The Company's 1999 gas marketing plan emphasizes growth through its asset
base and storage and transportation capacities which it controls. During 1997,
the Company created a wholly-owned subsidiary to operate a marketing office in
Calgary, Alberta. The Calgary office provides the Company with information
regarding gas supplies being transported from Canada and establishes a presence
in an evolving gas market.
The Company continues to view access to storage capacity as a significant
element of its marketing strategy. The Company customarily stores gas in
underground storage facilities to ensure an adequate supply for long-term sales
contracts and for resale during periods when prices are favorable. As of
December 31, 1998, the Company had contracts in place for approximately 16.2 Bcf
of storage capacity, including storage through its Canadian subsidiary, for
resale during periods when prices are favorable. The fees associated with such
contracts currently do not exceed $.61 per Mcf and the associated periods range
from two months to six years. As of December 31, 1998, the Company also had
contracts for approximately 490 MMcf per day of firm transportation;
approximately 30% of such contracts expire during 1999. The fees associated with
such contracts do not exceed $.33 per Mcf, and the associated periods range from
seven months to thirteen years. Certain of these long-term storage and firm
transportation contracts require an annual renewal. In addition, certain
contracts contain provisions which would require the Company to pay the fees
associated with such contracts whether or not the service was used.
The Company held gas in storage and held imbalances of approximately 19.9 Bcf at
an average cost of $2.13 per Mcf at December 31, 1998 compared to 6.0 Bcf at an
average cost of $1.97 per Mcf at December 31, 1997, at various storage
facilities, including the Katy Facility. At December 31, 1998, the Company had
hedging contracts in place for anticipated sales of approximately 18.6 Bcf of
stored gas at a weighted average price of $2.41 per Mcf for the stored
inventory. See further discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources
- - Risk Management Activities."
During the year ended December 31, 1998, the Company sold gas to approximately
475 end-users, pipelines, LDCs and other customers. No single gas customer
accounted for more than 4% of consolidated revenues for the year ended December
31, 1998.
10
<PAGE>
NGLs
The Company markets NGLs (ethane, propane, iso-butane, normal butane, natural
gasoline and condensate), produced at its plants and purchased from third
parties, in the Rocky Mountain, Mid-Continent, Gulf Coast and Southwestern
regions of the United States. A majority of the Company's production of NGLs
moves to the Gulf Coast area, which is the largest NGL market in the United
States. Through the development of end-use markets and distribution
capabilities, the Company seeks to ensure that products from its plants move on
a reliable basis, avoiding curtailment of production. For the year ended
December 31, 1998, NGL sales averaged 4,730 MGal per day, an increase from 2,941
MGal per day in 1993, primarily due to the increase in third-party sales,
acquisitions and facility expansions during the five-year period.
Consumers of NGLs are primarily the petrochemical industry, the petroleum
refining industry and the retail and industrial fuel markets. As an example, the
petrochemical industry uses ethane, propane, normal butane and natural gasoline
as feedstocks in the production of ethylene, which is used in the production of
various plastics products. Over the last several years, the petrochemical
industry has increased its use of NGLs as a major feedstock and is projected to
continue to increase such usage. Further, propane is used for home heating,
transportation and for certain agricultural applications. Demand for NGLs is
primarily affected by price, seasonality and the economy.
The Company increased sales to third parties by approximately 385 MGal per day
for the year ended December 31, 1998 compared to 1997. In general, the Company
does not anticipate that sales to third parties in 1999 will increase at the
rate experienced in prior years. The Company's NGL marketing plan contemplates:
(i) continued growth in sales to end-users; (ii) maximizing profitability on
volumes produced at the Company's facilities; and (iii) efficient use of various
third-party storage facilities to increase profitability while limiting carrying
risk.
The Company leases NGL storage space at major trading locations, primarily near
Houston and in central Kansas, in order to store products for resale during
periods when prices are favorable and to facilitate the distribution of
products. In addition, as of December 31, 1998, the Company had contracts in
place for approximately 30,450 MGal of storage capacity. The base fees
associated with such contracts currently do not exceed $.03 per gallon and the
associated periods range from three months to four years. Certain of the long-
term contracts require an annual renewal and contain provisions which would
require the Company to pay the fees associated with such contracts whether or
not the service was used.
The Company held NGLs in storage of 16,900 MGal, consisting primarily of propane
and normal butane, at an average cost of $.24 per gallon and 14,400 MGal at an
average cost of $.37 per gallon at December 31, 1998 and 1997, respectively, at
various third-party storage facilities. At December 31, 1998, the Company had no
significant hedging contracts in place for anticipated sales of stored NGLs. The
Company generally intends that stored NGLs turn over on an annual basis.
NGL sales were made to approximately 175 different customers and no single
customer accounted for more than 2% of the Company's consolidated revenues for
the year ended December 31, 1998. Revenues are also derived from contractual
marketing fees charged to some producers for NGL marketing services. For the
year ended December 31, 1998, such fees were less than 1% of the Company's
consolidated revenues.
Power Marketing
In July 1996, the FERC issued its final order requiring investor-owned electric
utilities to provide open access for wholesale transmission. This action allowed
companies to participate in a market previously controlled by electric
utilities. During 1996 and 1997, the Company traded electric power in the
wholesale market and entered into transactions that arbitraged the value of gas
and electric power. During the second half of 1997, the Company elected to
discontinue wholesale trading of electric power, due to a lack of profitability.
For a further discussion of the revenue, operating profit and attributable
assets of the Marketing segment, see "Item 8 -Financial Statements and
Supplementary Data."
PRODUCING PROPERTIES
During 1997, the Company began to invest more capital in oil and gas producing
activities primarily to replace declining reserves which are processed at the
Company's facilities and to encourage expansion in basins where the Company's
facilities are located. See "Business and Properties - Significant Acquisitions,
Projects and Dispositions - Coal Bed Methane and -Southwest Wyoming". The
Company believes that in order to secure additional gas supply for its
facilities, it must be willing to consider its participation
11
<PAGE>
in exploration and production activities. Revenues derived from the Company's
producing properties comprised approximately 1.3%, 1.3% and 1.6% of consolidated
revenues, respectively, for the years ended December 31, 1998, 1997 and 1996.
For a further discussion of the revenue, operating profit and attributable
assets of this business segment, see "Item 8 - Financial Statements and
Supplementary Data."
The net annual production volumes are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
Gas Oil Gas Oil Gas Oil
State (MMcf) (MBbl) (MMcf) (MBbl) (MMcf) (MBbl)
- ------------------------- ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Colorado................. 274 2 243 6 73 6
Louisiana................ 2,810 75 4,760 108 7,255 117
Texas (1)................ 1,787 5 6,092 21 7,193 32
Wyoming:
Coal Bed Methane....... 7,136 - 1,751 - 12 -
All Other.............. 3,283 40 1,752 19 233 3
------ ---- ------ --- ------ ---
Total.................... 15,290 122 14,598 154 14,766 158
====== ==== ====== === ====== ===
</TABLE>
(1) The Company sold its producing properties in Texas during 1998.
As a result of a review of the reserves at the Company's Black Lake facility,
and by comparing the net book value of the assets to the undiscounted expected
future cash flows, determined by applying future prices estimated by management
over the lives of the associated reserves, the Black Lake reserves and the
processing facility associated with such reserves were written down in
accordance with SFAS No. 121 to the net present value of expected cash flows
discounted using an interest rate commensurate with the risk associated with the
underlying asset. Accordingly, the Company recognized a pre-tax, non-cash loss
of $28.8 million for the year ended December 31, 1998. In addition, the Company
recognized a pre-tax, non-cash loss on the impairment of property and equipment,
primarily related to its Black Lake facility and Sand Wash Basin assets, of
$34.6 million for the year ended December 31, 1997.
Reserve estimates are subject to numerous uncertainties inherent in the
estimation of quantities of proved reserves and in the projection of future
rates of production and the timing of development expenditures. The accuracy of
such estimates is a function of the quality of available data and of engineering
and geological interpretation and judgment. Estimates of economically
recoverable reserves and of future net cash flows expected therefrom prepared by
different engineers or by the same engineers at different times may vary
substantially. Results of subsequent drilling, testing and production may cause
either upward or downward revisions of previous estimates. Further, the volumes
considered to be commercially recoverable fluctuate with changes in prices and
operating costs. Any significant revision of reserve estimates could materially
adversely affect the Company's financial condition and results of operations.
COMPETITION
The Company competes with other companies in the gathering, processing, treating
and marketing businesses both for supplies of natural gas and for customers for
its gas and NGLs. Competition for natural gas supplies is primarily based on a
processors' efficiency and reliability in providing services, and in the
availability of transportation to market centers to obtain a satisfactory price
for the producers' natural gas. Competition for customers is primarily based
upon reliability and the market price of deliverable gas and NGLs. For customers
that have the capability of using alternative fuels, such as oil and coal, the
Company also competes primarily on the basis of price against companies capable
of providing such alternative fuels. The Company's competitors for obtaining
additional natural gas supplies, for gathering and processing natural gas and
for marketing gas and NGLs include national and local gas gatherers, brokers,
marketers and distributors of various sizes, financial resources and experience.
REGULATION
The purchase and sale of natural gas and the fees received for gathering and
processing by the Company have generally not been subject to regulation and,
therefore, except as constrained by competitive factors, the Company has
considerable pricing flexibility.
12
<PAGE>
Many aspects of the gathering, processing, marketing and transportation of
natural gas and NGLs by the Company, however, are subject to federal, state and
local laws and regulations which can have a significant impact upon the
Company's overall operations.
As a processor and marketer of natural gas, the Company depends on the
transportation and storage services offered by various interstate and intrastate
pipeline companies for the delivery and sale of its own gas supplies as well as
those it processes and/or markets for others. Both the performance of
transportation and storage services by interstate pipelines, and the rates
charged for such services, are subject to the jurisdiction of the FERC under the
Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. The availability
of interstate transportation and storage services necessary to enable the
Company to make deliveries and/or sales of gas can at times be pre-empted by
other system users in accordance with FERC-approved methods for allocating the
system capacity of "open access" pipelines. Moreover, the rates charged by
pipelines for such services are often subject to negotiation between shippers
and the pipelines within certain FERC-established parameters and will
periodically vary depending upon individual system usage and other factors. An
inability to obtain transportation and/or storage services at competitive rates
can hinder the Company's processing and marketing operations and/or adversely
affect its sales margins.
In 1997, the State of Texas adopted a statute that will require the Company to
obtain a pre-construction permit for certain gas gathering lines containing more
than 100 parts per million of hydrogen sulfide and grants affected persons, in
certain circumstances, the right to request a hearing relating to the issuance
of such a permit. This may increase the time and cost associated with
constructing hydrogen sulfide gathering lines. The Company operates the MiVida
and the Bethel facilities in Texas which removes hydrogen sulfide from
the natural gas.
Generally, gathering and processing prices are not regulated by the FERC or any
state agency. However, in May 1995, the Oklahoma Corporation Commission (the
"OCC") was granted limited authority in certain circumstances, after the filing
of a complaint by a producer, to compel a gas gatherer to provide open access
gathering and to set aside unduly discriminatory gathering fees. The Oklahoma
state legislature is considering legislation that would expand the authority of
the OCC to compel a gas gatherer to provide open access gas gathering and to
establish rates, terms and conditions of services provided by a gas gatherer. In
addition, the state legislatures and regulators in certain other states in which
the Company gathers gas are also contemplating additional regulation of gas
gathering. The Company does not believe that any of the proposed legislation of
which it is aware is likely to have a material adverse effect on the Company's
financial position or results of operation. However, the Company cannot predict
what additional legislation or regulations the States may adopt regarding gas
gathering.
EMPLOYEES
At December 31, 1998, the Company employed approximately 870 full-time
employees, none of whom was a union member. The Company considers relations with
employees to be excellent.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 8 of the Company's Consolidated Financial Statements
in Item 8 of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
ended December 31, 1998.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of March 15, 1999, there were 32,147,993 shares of Common Stock outstanding
held by 321 holders of record. The Common Stock is traded on the New York Stock
Exchange under the symbol "WGR." The following table sets forth quarterly high
and low sales prices as reported by the NYSE Composite Tape for the quarterly
periods indicated.
HIGH LOW
--------- ---------
1998
Fourth Quarter..................... $ 9 7/8 $ 5 5/16
Third Quarter...................... 15 1/8 8
Second Quarter..................... 19 5/8 13 7/8
First Quarter...................... 22 1/8 15 7/8
1997
Fourth Quarter..................... 25 9/16 20
Third Quarter...................... 22 1/2 16 3/4
Second Quarter..................... 20 1/2 14 7/8
First Quarter...................... $21 3/8 $17 3/4
The Company paid annual dividends on the Common Stock aggregating $.20 per share
during the years ended December 31, 1998 and 1997. The Company has declared a
dividend of $.05 per share of Common Stock for the quarter ending March 31, 1999
to holders of record as of such date. Declarations of dividends on the Common
Stock are within the discretion of the Board of Directors. In addition, the
Company's ability to pay dividends is restricted by certain covenants in its
financing facilities, the most restrictive of which prohibits declaring or
paying dividends that exceed, in the aggregate, the sum of $50 million plus 50%
of the Company's consolidated net income earned after June 30, 1995 (or minus
100% if a net loss), plus the aggregate net cash proceeds received after June
30, 1995 from the sale of any stock. At December 31, 1998, availability under
this covenant amounted to $51.5 million. This amount is expected to be reduced
by approximately $14.9 million as a result of the after-tax losses recognized on
the sales of the Giddings and Katy facilities.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and operating
data for the Company. Certain prior year amounts have been reclassified to
conform to the presentation used in 1998. The data for the years ended December
31, 1998, 1997 and 1996 should be read in conjunction with the Company's
Consolidated Financial Statements included elsewhere in this Form 10-K. The
selected consolidated financial data for the years ended December 31, 1995 and
1994 is derived from the Company's audited historical Consolidated Financial
Statements. See also Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- --------------- -------------- ---------------- ----------
(000s, except per share amounts and operating data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues.............................. $2,133,566 $ 2,385,260 $2,091,009 $1,256,984 $1,063,489
Gross profit (a)...................... 66,568 93,755 105,479 75,211 72,556
Income (loss) before income taxes..... (105,623) (b) 2,220 (b) 41,631 (8,266) (c) 11,524
Provision (benefit) for income taxes.. (38,418) 733 13,690 (2,158) 4,160
Net income (loss)..................... (67,205) (b) 1,487 (b) 27,941 (6,108) (c) 7,364
Earnings (loss) per share of
common stock......................... (2.42) (.28) .66 (.84) (.19)
Earnings (loss) per share of
common stock - assuming dilution..... (2.42) (.28) .66 (.84) (.19)
CASH FLOW DATA:
Net cash provided by operating
activities........................... (35,570) 114,755 168,266 86,373 31,866
Capital expenditures.................. 105,216 198,901 74,555 78,521 100,540
BALANCE SHEET DATA
(at year end):
Total assets.......................... 1,219,377 1,348,276 1,361,631 1,193,997 1,167,362
Long-term debt........................ 504,881 441,357 379,500 529,500 493,000
Stockholders' equity.................. 385,216 468,112 480,467 371,909 436,683
Dividends declared per share of
common stock......................... $ .20 $ .20 $ .20 $ .20 $ .20
OPERATING DATA:
Average gas sales (MMcf/D)............ 2,200 1,975 1,794 1,572 1,097
Average NGL sales (MGal/D)............ 4,730 4,585 3,744 2,890 2,970
Average gas volumes
gathered (MMcf/D).................... 1,162 1,229 1,171 1,020 934
Facility capacity (MMcf/D)............ 2,237 2,302 1,940 1,907 1,560
Average gas prices ($/Mcf)............ $ 2.01 $ 2.30 $ 2.19 $ 1.53 $ 1.77
Average NGL prices ($/Gal)............ $ .26 $ .36 $ .41 $ .31 $ .28
</TABLE>
_________________________________________
(a) Excludes selling and administrative, interest, restructuring and income tax
expenses and loss on the impairment of property and equipment. See further
discussion in notes (b) and (c).
(b) SFAS No. 121 requires that an impairment loss be recognized when the
carrying amount of an asset exceeds the fair market value of or the expected
future undiscounted net cash flows. In accordance with SFAS No. 121, the
Company recognized a pre-tax, non-cash loss on the impairment of property
and equipment of $108.5 million, ($69.0 million, after-tax) and $34.6
million, pre-tax, ($22.0 million, after-tax) for the years ended December
31, 1998 and 1997, respectively.
(c) In accordance with SFAS No. 121, the Company recognized a pre-tax, non-cash
loss for the year ended December 31, 1995 on the impairment of property and
equipment of $17.6 million, and $12.4 million, after-tax. Also, the Company
implemented a cost reduction program to reduce operating and selling and
administrative expenses. As a result of this program, a $2.1 million, pre-
tax, and $1.3 million, after-tax, restructuring charge was incurred,
primarily related to employee severance costs.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis relates to factors that have affected the
consolidated financial condition and results of operations of the Company for
the three years ended December 31, 1998. Certain prior year amounts have been
reclassified to conform to the presentation used in 1998. Reference should also
be made to the Company's Consolidated Financial Statements and related Notes
thereto and the Selected Financial Data included elsewhere in this Form 10-K.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
(000S, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<TABLE>
<CAPTION>
Year Ended
December 31, Percent
-------------------------
1998 1997 Change
------------- ---------- -------
<S> <C> <C> <C>
FINANCIAL RESULTS:
Revenues............................................ $2,133,566 $2,385,260 (11)
Gross profit........................................ 66,568 93,775 (29)
Net income (loss)................................... (67,205) 1,487 -
Loss per share of common stock...................... (2.42) (.28) (764)
Loss per share of common stock - assuming dilution.. (2.42) (.28) (764)
Net cash provided by (used in) operating activities. $ (35,570) $ 114,755 -
OPERATING DATA:
Average gas sales (MMcf/D).......................... 2,200 1,975 11
Average NGL sales (MGal/D).......................... 4,730 4,585 3
Average gas prices ($/Mcf).......................... $ 2.01 $ 2.30 (13)
Average NGL prices ($/Gal).......................... $ .26 $ .36 (28)
</TABLE>
Net income decreased $68.7 million for the year ended December 31, 1998 compared
to 1997. The decrease in net income for the year was primarily due to a $69.0
million, after-tax, charge for impairment recorded in connection with the
evaluation of a decrease in product prices and the impact on the Company's
Bethel, Black Lake and Sand Dunes facilities, as required by SFAS No. 121.
Revenues from the sale of gas decreased approximately $46.0 million for the year
ended December 31, 1998 compared to 1997. Average gas sales volumes increased
225 MMcf per day to 2,200 MMcf per day for the year ended December 31, 1998
compared to 1997, primarily due to an increase in the sale of gas purchased from
third parties. The increase in volumes sold was more than offset by a decrease
in average gas prices. Average gas prices realized by the Company decreased $.29
per Mcf to $2.01 per Mcf for the year ended December 31, 1998 compared to 1997.
Included in the realized gas price is approximately $71,000 of loss recognized
in the year ended December 31, 1998 related to futures positions on equity
volumes. The Company has entered into futures positions for a portion of its
equity gas for 1999 and 2000. See further discussion in "Liquidity and Capital
Resources - Risk Management."
Revenues from the sale of NGLs decreased approximately $162.3 million for the
year ended December 31, 1998 compared to 1997. Average NGL sales volumes
increased 145 MGal per day to 4,730 MGal per day for the year ended December 31,
1998 compared to 1997, primarily due to an increase in the sale of NGLs
purchased from third parties. The increase in sales volumes was more than offset
by a decrease in average NGL prices. Average NGL prices realized by the Company
decreased $.10 per gallon to $.26 per gallon for the year ended December 31,
1998 compared to 1997. Included in the realized NGL price was approximately $7.4
million of gain recognized in the year ended December 31, 1998 related to
futures positions on equity volumes. The Company has entered into futures
positions for a portion of its equity production for 1999. See further
discussion in "-Liquidity and Capital Resources - Risk Management."
Revenue associated with electric power marketing decreased approximately $59.5
million for the year ended December 31, 1998 compared to 1997, as the Company
discontinued wholesale trading of electric power in 1997, due to a lack of
profitability.
16
<PAGE>
Other net revenue increased approximately $12.2 million for the year ended
December 31, 1998 compared to 1997. The increase was primarily due to a $14.9
million gain on the sale of the Company's Perkins facility and a $1.0 million
option payment received from RIS in connection with the potential sale of a
portion of certain of the Company's assets in Southwest Wyoming. These increases
were offset by decreases of approximately $2.8 million in earnings from the
Company's investments in joint ventures, primarily due to the decreases in
product prices and the sale of its interest in Redman Smackover. See further
discussion at "Business and Properties - Significant Acquisitions, Projects and
Dispositions - Southwest Wyoming and Significant Acquisitions, Projects and
Dispositions - Redman Smackover Joint Venture."
The reduction in product purchases of $232.1 million to $1.9 billion for the
year ended December 31, 1998 compared to 1997, was primarily due to a decrease
in commodity prices. Overall, combined product purchases as a percentage of
sales of all products increased from 92% to 93% for the year ended December 31,
1998 compared to 1997. Over the past several years, the Company has experienced
narrowing margins in its third-party sales as a result of increasing
competitiveness of the natural gas marketing industry. During the year ended
December 31, 1998, margins on the sale of third-party gas declined and averaged
approximately $.02 per Mcf compared to approximately $.03 per Mcf for 1997.
Contributing to the increase in the product purchase percentage for the year
ended December 31, 1998 were higher payments 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 gas. Also included in product purchases were lower of cost or market
writedowns, primarily related to NGL inventories, of $826,000 and $1.1 million
for the years ended December 31, 1998 and 1997, respectively.
Plant operating expense increased approximately $7.2 million for the year ended
December 31, 1998 compared to 1997. The increase was primarily due to
compression costs associated with the increasing Powder River Basin coal bed
methane production activities and expenses incurred at the Bethel Treating
facility, which became partially operational during the third quarter of 1997.
Interest expense increased $6.1 million for the year ended December 31, 1998
compared to 1997. The increase is the result of less interest capitalized to
capital projects, primarily the Bethel Treating facility, and larger debt
balances outstanding during the year ended December 31, 1998 compared to 1997.
The larger debt balances resulted primarily from higher product inventory
positions, capital expenditures associated with the Bethel Treating facility and
reduced cashflow from operations.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
(000S, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<TABLE>
<CAPTION>
Year Ended
December 31, Percent
-------------------------
1997 1996 Change
------------- ---------- -------
<S> <C> <C> <C>
FINANCIAL RESULTS:
Revenues....................................................... $2,385,260 $2,091,009 14
Gross profit................................................... 93,775 105,479 (11)
Net income..................................................... 1,487 27,941 (95)
Earnings (loss) per share of common stock...................... (.28) .66 -
Earnings (loss) per share of common stock - assuming dilution.. (.28) .66 -
Net cash provided by operating activities...................... $ 114,755 $ 168,266 (32)
OPERATING DATA:
Average gas sales (MMcf/D)..................................... 1,975 1,794 10
Average NGL sales (MGal/D)..................................... 4,585 3,744 22
Average gas prices ($/Mcf)..................................... $ 2.30 $ 2.19 5
Average NGL prices ($/Gal)..................................... $ .36 $ .41 (12)
</TABLE>
Net income decreased $26.5 million for the year ended December 31, 1997 compared
to 1996. The decrease in net income for the year was primarily due to a $22.0
million, after-tax, impairment loss recorded in connection with the evaluation
of certain property and equipment, primarily related to its Black Lake facility
and Sand Wash Basin assets, as required by SFAS No.121. Net income in 1997
increased by a $3.0 million after-tax gain associated with the sale of a 50%
interest in the Company's coal bed methane operations.
Revenues from the sale of gas increased approximately $216.6 million for the
year ended December 31, 1997 compared
17
<PAGE>
to 1996. Average gas sales volumes increased 181 MMcf per day to 1,975 MMcf per
day for the year ended December 31, 1997 compared to 1996, primarily due to an
increase in the sale of gas purchased from third parties. Average gas prices
realized by the Company increased $.11 per Mcf to $2.30 per Mcf for the year
ended December 31, 1997 compared to 1996. Included in the realized gas price was
approximately $5.6 million of loss recognized in the year ended December 31,
1997 related to futures positions on equity volumes.
Revenues from the sale of NGLs increased approximately $50.4 million for the
year ended December 31, 1997 compared to 1996. Average NGL sales volumes
increased 841 MGal per day to 4,585 MGal per day for the year ended December 31,
1997 compared to 1996, largely due to an increase of approximately 800 MGal per
day in the sale of NGLs purchased from third parties. Average NGL prices
realized by the Company decreased $.05 per gallon to $.36 per gallon for the
year ended December 31, 1997 compared to 1996. Included in the realized NGL
price was approximately $5.2 million of gain recognized in the year ended
December 31, 1997 related to futures positions on equity volumes.
Revenue associated with electric power marketing increased $28.8 million for the
year ended December 31, 1997 compared to 1996, primarily because the Company had
minimal transactions in this market during 1996. Due to a lack of profitability,
the Company elected to discontinue trading electric power and began to evaluate
its role in this emerging business, during the second half of 1997.
The increase in product purchases of $302.3 million to $2.1 billion for the year
ended December 31, 1997 compared to 1996, is primarily a combination of higher
gas prices and increased sales of NGLs purchased from third parties.
Contributing to the increase in product purchases for the year ended December
31, 1997 compared to 1996 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 gas. Also contributing to the increases in product
purchases for the year ended December 31, 1997 compared to 1996, were lower of
cost or market write-downs of NGL and gas inventories of $1.1 million and
$129,000, respectively.
Plant operating expense increased approximately $5.0 million for the year ended
December 31, 1997 compared to 1996. The increase was primarily due to additional
compression cost associated with the MIGC pipeline. In addition, results of
operations for the year ended December 31, 1997 were adversely affected by
additional costs associated with the Bethel Treating facility. As a result of
start-up costs associated with opening the facility and depreciation, the Bethel
Treating facility did not contribute positively to earnings in 1997.
Depreciation, depletion and amortization decreased $4.0 million for the year
ended December 31, 1997 compared to 1996. The decrease was primarily due to
decreases in produced volumes related to the Company's Black Lake facility which
resulted in a decrease in the associated depletion.
Interest expense decreased $7.0 million for the year ended December 31, 1997
compared to 1996. The decrease in interest expense was primarily 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.
Overall, profitability for the year ended December 31, 1997 was less than
anticipated due to several factors. Combined product purchases as a percentage
of all product sales increased from 91% to 92% for the year ended December 31,
1997 compared to 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 year ended December 31, 1997, the Company's
marketing margins were reduced by approximately 50% compared to 1996. Included
in the sale of gas and product purchases for the last half of 1997, is the sale
of approximately 11.5 Bcf of gas, previously stored in the Katy Facility, at a
margin of approximately $.20 per Mcf.
BUSINESS STRATEGY
The Company's long-term, four-part business plan is designed to increase
profitability through: (i) investing in projects that complement and extend its
core gas gathering, processing, production and marketing business; (ii) creating
ventures with producers who dedicate additional acreage to the Company; (iii)
maintaining or expanding its energy sales volumes and margins by maximizing its
asset base, firm transportation and storage contracts and other contractual
arrangements; and (iv) optimizing the profitability of existing operations and
in certain cases, considering the disposal of non-growth assets.
Historically, crude oil prices have been volatile and the oil and gas industry
is currently experiencing ten year lows in these prices. As of March 1, 1999
such prices had declined to approximately $12.25 per barrel. Most NGL value is
tied closely to crude oil, accordingly this pricing environment is having a
detrimental effect on the Company's results of operations.
18
<PAGE>
The Company's 1999 plan provides for the improvement of the balance sheet and
liquidity while ensuring the continued development of its two primary growth
projects, the Powder River Basin coal bed methane and Southwest Wyoming
operations. In order to reduce the Company's overall debt level and provide it
with additional liquidity, the Company has signed agreements in March 1999
providing for the sale of its Giddings Gathering System and Katy Facility for
total proceeds of approximately $136 million. These transactions will result in
an after-tax loss in 1999 of approximately $14.9 million and are expected to
close in the second quarter of 1999, subject to various regulatory approvals and
the satisfaction of certain contractual conditions.
Expansion of Core Business
The Company will continue to evaluate investments in projects that meet its
objectives of complementing existing operations, expanding into new areas or
providing enhanced marketing opportunities. These projects typically include gas
gathering, treating, processing, producing properties, transportation or storage
assets and NGL product upgrade equipment. In 1999, the Company's capital
expenditures will be reduced compared to levels expended in 1998 and 1997, and
will be concentrated on the Powder River Basin coal bed methane and Southwest
Wyoming operations. Expenditures on these projects are anticipated to comprise
53% and 22%, respectively, of the total 1999 budget. See further discussion in
"Business and Properties -Significant Acquisitions, Projects and Dispositions."
Increase Dedicated Acreage
The Company enters into agreements which provide it with new dedicated acreage
and wells to replace declines in reserves and generate additional volumes for
gathering and processing at its facilities. The Company has increased its
participation in exploration and production activities. Over the past several
years, the Company has attempted to structure its contracts to minimize the
impact of fluctuating NGL prices. This has been accomplished by entering fee
based contracts and minimizing the use of keep-whole contracts. See further
discussion in "Business and Properties - Significant Acquisitions, Projects and
Dispositions."
Maintain or Expand Energy Marketing Services and Volumes
The Company is a full-service marketer of gas and NGL products. The Company
focuses on the individual needs of its customers, primarily in the Rocky
Mountain region, and is committed to developing products and services that are
tailored to meet their requirements. The Company plans to maintain or expand its
energy marketing activities by: (i) maximizing profitability on volumes produced
at the Company's facilities; (ii) efficient use of various firm transportation
and storage contracts and other contractual arrangements to increase
profitability while limiting carrying risk; (iii) continuing to pursue higher-
margin, end-use markets, primarily in the Rocky Mountain region; and (iv)
maintaining third-party gas and NGL sales volumes. The Company believes it
competes effectively with other marketers due to its national marketing presence
and the marketing information gained thereby, the services it provides and its
physical asset base.
Optimize Profitability
The Company seeks to optimize the profitability of its operations by: (i)
maintaining or increasing natural gas throughput levels; (ii) increasing its
efficiency through the consolidation of existing facilities; (iii) investing in
assets that enhance NGL value; (iv) selling non-growth assets; and (v)
controlling operating and overhead expenses. In order to maximize its
competitive advantages, the Company continually monitors the economic
performance of each of its operating facilities to ensure that a desired cash
flow objective and operating efficiency is achieved.
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 its 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 seek alternative
financing sources. In 1998, sources of liquidity also included the sale of the
Perkins Facility and the Edgewood Facility and related production. Additionally,
the Company entered into agreements in March 1999 for the sale of the Giddings
Facility and the Katy Facility for amounts approximating $136 million in gross
proceeds. These transactions are expected to close in the second quarter of
1999, subject to various regulatory approvals and the satisfaction of certain
contractual conditions. The net proceeds from these sales will be used to reduce
debt. Net cash provided by operating activities is primarily affected by product
prices, 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, the margin on third-party product purchased for resale, as well as
the timely collection of the Company's receivables.
19
<PAGE>
The Company's future growth will be dependent upon obtaining additions to
dedicated plant reserves, acquisitions, new project development, marketing,
efficient operation of its facilities and its ability to obtain financing at
favorable terms.
Given the depressed oil and NGL prices the Company has been experiencing and the
disappointing results from the Bethel Treating Facility, the Company sought and
has successfully negotiated amendments to certain covenant requirements in its
various financing facilities and has negotiated amendments to these financing
facilities which are intended to provide more flexibility in a low price
environment. There can be no assurance that further amendments or waivers can be
obtained in the future, if necessary, or that the terms would be favorable to
the Company. To strengthen credit ratings and to reduce its overall debt
outstanding, the Company will continue to dispose of non-strategic assets (such
as the Giddings and Katy facilities) and investigate alternative financing
sources (including project - financing, joint ventures, public debt and
operating leases).
The Company believes that the amounts available to be borrowed under the
Revolving Credit Facility, together with net cash provided by operating
activities and the sale of non-strategic assets, will provide it with sufficient
funds to connect new reserves, maintain its existing facilities and complete its
current capital expenditure program. Depending on the timing and the amount 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
financing facilities, although it may request additional borrowing capacity from
its lenders, seek waivers from its lenders to permit it to borrow funds from
third parties, seek replacement financing facilities from other lenders, use
stock as a currency for an acquisition, sell existing assets or a combination of
such alternatives. 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. Despite the current
depressed oil prices, the Company also believes that cash provided by operating
activities and amounts available under its Revolving Credit Facility will be
sufficient to meet its debt service and preferred stock dividend requirements
for the remainder of 1999.
The Company's sources and uses of funds for the year ended December 31, 1998 are
summarized as follows (000s):
SOURCES OF FUNDS:
Borrowings on Revolving Credit Facility................... $3,230,400
Proceeds from the dispositions of property and equipment.. 78,775
Proceeds from exercise of common stock options............ 23
----------
Total sources of funds.................................. $3,309,198
==========
USES OF FUNDS:
Payments related to long-term debt agreements............. $3,166,920
Capital expenditures...................................... 105,216
Net cash used in operating activities..................... 35,570
Dividends paid............................................ 16,869
----------
Total uses of funds..................................... $3,324,575
==========
Additional sources of liquidity available to the Company are its inventories of
gas and NGLs in storage facilities. The Company stores 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 gas in storage and held
imbalances of approximately 19.9 Bcf at an average cost of $2.13 per Mcf at
December 31, 1998 compared to 6.0 Bcf at an average cost of $1.97 per Mcf at
December 31, 1997, at various storage facilities, including the Katy Facility.
At December 31, 1998, the Company had hedging contracts in place for anticipated
sales of approximately 18.6 Bcf of stored gas at a weighted average price of
$2.41 per Mcf for the stored inventory. See "Item 1 and 2 - Business and
Properties - Significant Acquistions, Projects and Dispostions - Katy". The
Company held NGLs in storage of 16,900 MGal, consisting primarily of propane and
normal butane, at an average cost of $.24 per gallon and 14,400 MGal at an
average cost of $.37 per gallon at December 31, 1998 and 1997, respectively, at
various third-party storage facilities. At December 31, 1998, the Company had no
significant hedging contracts in place for anticipated sales of stored NGLs.
Historically, while certain individual plants have experienced declines in
dedicated reserves, the Company has been successful in connecting additional
reserves to more than offset the natural declines. There has been a reduction in
drilling activity, primarily in basins that produce oil and casinghead gas, from
levels that existed in prior years. However, higher gas prices in 1997 and 1998,
improved technology (e.g., 3-D seismic and horizontal drilling) and increased
pipeline capacity from the Rocky Mountain region have stimulated drilling in the
Powder River Basin and Southwest Wyoming. Company-wide, the level of drilling
will depend upon, among other factors, the prices for gas and oil, the drilling
budgets of third-party producers, the energy policy of the federal government
and the availability of foreign oil and gas, none of which are within the
Company's control. There is no assurance that the Company will continue to be
successful in replacing the dedicated reserves processed at its facilities. In
1998, including the reserves associated with the Company's joint ventures and
partnerships and excluding the facilities sold during the year, the Company
connected new reserves
20
<PAGE>
to its facilites to replace approximately 86% of 1998 production. On a
Company-wide basis, primarily as a result of the sale of the Edgewood and
Perkins facilities and a downward revision in the reserves associated with the
Bethel Facility, dedicated reserves decreased from approximately 3.3 Tcf as of
December 31, 1997 to approximately 3.1 Tcf at December 31, 1998.
The Company has effective shelf registration statements filed with the
Securities and Exchange Commission for an aggregate of $200 million of debt
securities and preferred stock (along with the shares of common stock, if any,
into which such securities are convertible) and $62 million of debt securities,
preferred stock or common stock.
Capital Investment Program
For the years ended December 31, 1998, 1997 and 1996 the Company expended $105.2
million, $198.9 million and $74.6 million, respectively, on new projects and
acquisitions. For the year ended December 31, 1998, the Company's expenditures
consisted of the following: (i) $50.4 million for new connects, system
expansions, the Bethel Treating facility and asset consolidations; (ii) $10.6
million for maintaining existing Facilities; (iii) $41.6 million for exploration
and production activities and acquisitions; and (iv) $2.6 million of
miscellaneous expenditures.
Largely as a result of low commodity prices, primarily affecting NGL products,
the Company has reduced its budget for capital expenditures in 1999 from the
levels expended in 1997 and 1998. Capital expenditures related to existing
operations are expected to be approximately $67.0 million during 1999,
consisting of the following: (i) capital expenditures related to gathering,
processing and pipeline assets are expected to be approximately $39.6 million,
of which $6.3 million is for maintaining existing facilities; (ii) capital
expenditures on exploration and production activities are expected to be
approximately $24.6 million; and (iii) capital expenditures for miscellaneous
items are expected to be approximately $2.8 million. Overall, capital
expenditures in the Powder River Basin coal bed methane development and in
Southwest Wyoming operations represent 53% and 22%, respectively, of the total
1999 budget.
Financing Facilities
Revolving Credit Facility. The Company's variable rate Revolving Credit
Facility was restated and amended in May 1997. The Revolving Credit Facility is
with a syndicate of banks and provides for a maximum borrowing commitment of
$300 million, $235.5 million of which was outstanding at December 31, 1998. The
interest rate payable on the facility at December 31, 1998 was 6.2%. The Company
has reached an agreement with the agent bank on a term sheet for a restated
facility which will reflect the following changes. The restated Revolving Credit
Facility is with a syndicate of banks and will provide for an aggregate
borrowing commitment of $300 million consisting of a $100 million 364-day
Revolving Credit Facility ("Tranche A") and a five year $200 million Revolving
Credit Facility ("Tranche B"). The Revolving Credit Facility will bear interest
at certain spreads over the Eurodollar rate, at the Federal Funds rate plus .50%
or at the agent bank's prime rate. The Company will have the option to determine
which rate will be used. The Company also will pay a facility fee on the
commitment. The interest rate spreads and facility fee will be adjusted based on
the Company's debt to capitalization ratio and will range from .75% to
2.00%. Pursuant to the Revolving Credit Facility, the Company will be required
to maintain a debt to capitalization ratio of not more than 60% through December
31, 2000 and of not more than 55% thereafter, and a senior debt to
capitalization ratio of not more than 40% beginning September 30,1999 through
December 31, 2001 and of not more than 35% thereafter. The agreement also
requires a ratio of EBITDA to interest and dividends on preferred stock as of
the end of any fiscal quarter of not less than 1.35 to 1.0 beginning June 30,
1999 increasing to 3.25 to 1.0 by December 31, 2002. Tranche A and Tranche B
will be reduced on a pro rata basis to a total of $250 million by September 30,
1999. The Revolving Credit Facility will be guaranteed and secured via a pledge
of the stock of the Company's significant subsidiaries. Documentation reflecting
this agreement is expected to be completed on or about the end of the first
quarter of 1999. 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.
21
<PAGE>
Master Shelf Agreement. In December 1991, the Company entered into a
Master Shelf agreement (as amended and restated, the "Master Shelf") with The
Prudential Insurance Company of America ("Prudential"). Amounts outstanding
under the Master Shelf agreement at December 31, 1998 are 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 $ 16,667 7.51% October 27, 2000 $8,333 on each of October 27, 1999 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
--------
$191,667
========
</TABLE>
The Company has reached an agreement on an amendment with Prudential which will
be effective as of January 1999 with the following provisions. The Company will
be 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 $300 million plus 50% of
consolidated net earnings earned from January 1, 1999 plus 75% of the net
proceeds of any equity offerings after January 1, 1999, and a debt to
capitalization ratio of not more than 60% through December 31, 2000 and of not
more than 55% thereafter. A senior debt to capitalization ratio will be
implemented, if and when, the Company issues subordinated debt. This amendment
also requires an EBITDA to interest ratio of not less than 1.75 to 1.0 beginning
March 31, 1999 increasing to a ratio of not less than 3.75 to 1.0 by March 31,
2002. Documentation reflecting this amendment is expected to be completed on or
about the end of the first quarter of 1999. In addition, under the existing
agreement, the Company is prohibited from declaring or paying dividends that in
the aggregate exceed the sum of $50 million plus 50% of consolidated net income
earned after June 30, 1995 (or minus 100% of a net loss), plus the aggregate net
cash proceeds received after June 30, 1995 from the sale of any stock. At
December 31, 1998, $51.5 million was available under this limitation. This
amount is expected to be reduced by approximately $14.9 million as a result of
the after-tax losses recognized on the sales of the Giddings and Katy
facilities. The Company presently intends to finance the $8.3 million payment
due on October 27, 1999 with amounts available under the Revolving Credit
Facility. The Master Shelf agreement is guaranteed and will be secured via a
pledge of the stock of the Company's significant subsidiaries.
1995 Senior Notes. In 1995, the Company sold $42 million of Senior Notes
(the "1995 Senior Notes") to a group of insurance companies with an interest
rate of 8.16% per annum. In February 1999, the Company offered to prepay the
1995 Senior Notes at par. Note holders representing $15 million of the principal
amount outstanding on the 1995 Senior Notes accepted the Company's offer and
were paid in full in March 1999. These payments were financed by the Bridge Loan
and by amounts available under the Revolving Credit Facility. The remaining
principal amount outstanding of $27 million is due in a single payment in
December 2005. The 1995 Senior Notes are guaranteed and will be secured via a
pledge of the stock of the Company's significant subsidiaries. The Company has
reached an agreement with the Note holders which provides for modification of
certain financial covenants on terms that will be no more restrictive than those
contained in the Master Shelf. Documentation reflecting this agreement is
expected to be completed on or about the end of the first quarter of 1999.
Effective January 1, 1999, the Company will pay an annual fee of no more than
.65% on the amounts outstanding on the Master Shelf and the 1995 Senior Notes.
This fee will continue until the Company has received an implied investment
grade rating on its senior secured debt.
1993 Senior Notes. In 1993, the Company sold $50 million of 7.65% Senior
Notes (the "1993 Senior Notes") to a group of insurance companies. Scheduled
annual principal payments of $7.1 million on the 1993 Senior Notes were made on
April 30 of 1997 and 1998. In February 1999, the Company offered to prepay the
1993 Senior Notes at par. Note holders representing approximately $33.5 million
of the total principal amount outstanding of $35.6 million accepted the
Company's offer and were paid in full in February 1999. These payments were
financed by a $37 million Bridge Loan. The Company intends to pay the remaining
outstanding principal of $2.1 million in the second quarter of 1999 with amounts
available under the Revolving Credit Facility.
Bridge Loan. In February 1999, in order to finance prepayments at par of
amounts outstanding on the 1993 and 1995 Senior Notes, the Company entered into
a Bridge Loan agreement in the amount of $37 million with its agent bank (the
"Bridge Loan"). The Bridge Loan bears interest at certain spreads over the
Eurodollar rate ranging from 1.75% at date of issuance to 2.75% at maturity. The
Bridge Loan may
22
<PAGE>
be prepaid in whole or in part at any time and matures on October 31, 1999. The
Company presently intends to finance the payment of the Bridge Loan with amounts
available under the Revolving Credit Facility, proceeds from the sale of assets
or proceeds from the issuance of public debt.
Covenant Compliance. At December 31, 1998, the Company was in compliance
with all covenants in its loan agreements. Taking into account all the covenants
contained in these agreements, the Company had approximately $64.5 million of
available borrowing capacity at December 31, 1998. In March 1999, the Company
successfully completed negotiations with its lenders for amendments to its
various financing facilities providing for financial flexibility and covenant
modifications. These amendments were needed given the depressed commodity
pricing experienced in the industry in general and the disappointing results the
Company has experienced at its Bethel Treating Facility. There can be no
assurance that further amendments or waivers can be obtained in the future, if
necessary, or that the terms would be favorable to the Company. To strengthen
credit ratings and to reduce its overall debt outstanding, the Company will
continue to dispose of non-strategic assets (such as the Giddings and Katy
facilities) and investigate alternative financing sources (including the
issuance of public debt, project - financing, joint ventures and operating
leases).
Risk Management Activities
The Company's commodity price risk management program has two primary
objectives. The first goal is to preserve and enhance the value of the Company's
equity volumes of gas and NGLs with regard to the impact of commodity price
movements on cash flow, net income and earnings per share in relation to those
anticipated by the Company's operating budget. The second goal is to manage
price risk related to the Company's physical gas, crude oil and NGL marketing
activities to protect profit margins. This risk relates to hedging fixed price
purchase and sale commitments, preserving the value of storage inventories,
reducing exposure to physical market price volatility and providing risk
management services to a variety of customers.
The Company utilizes a combination of fixed price forward contracts, exchange-
traded futures and options, as well as fixed index swaps, basis swaps and
options traded in the over-the-counter ("OTC") market to accomplish these
objectives. These instruments allow the Company to preserve value and protect
margins because gains or losses in the physical market are offset by
corresponding losses or gains in the value of the financial instruments.
The Company uses futures, swaps and options to reduce price risk and basis risk.
Basis is the difference in price between the physical commodity being hedged and
the price of the futures contract used for hedging. Basis risk is the risk that
an adverse change in the futures market will not be completely offset by an
equal and opposite change in the cash price of the commodity being hedged.
Basis risk exists in natural gas primarily due to the geographic price
differentials between cash market locations and futures contract delivery
locations.
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 various counterparties, consisting primarily of financial institutions and
other natural gas companies. The Company conducts its standard credit review of
OTC counterparties and has agreements with such parties that contain collateral
requirements. The Company generally uses standardized swap agreements that
allow for offset of positive and negative exposures. OTC exposure is marked to
market daily for the credit review process. The Company's OTC credit risk
exposure is partially limited by its ability to require a margin deposit from
its major counterparties based upon the mark-to-market value of their net
exposure. The Company is subject to margin deposit requirements under these
same agreements. In addition, the Company is subject to similar margin deposit
requirements for its NYMEX counterparties related to its net exposures.
The use of financial instruments may expose the Company to the risk of financial
loss in certain circumstances, including instances when (i) equity volumes are
less than expected, (ii) the Company's customers fail to purchase or deliver the
contracted quantities of natural gas or NGLs, or (iii) the Company's OTC
counterparties fail to perform. To the extent that the Company engages in
hedging activities, it may be prevented from realizing the benefits of favorable
price changes in the physical market. However, it is similarly insulated against
decreases in such prices.
The Company has hedged a portion of its equity volumes of gas and NGLs in 1999,
particularly in the first quarter, at pricing levels approximating its 1999
operating budget. The Company's equity hedging strategy establishes a minimum
and maximum price to the Company while allowing market participation between
these levels. As of February 19, 1999, the Company had hedged approximately 75%
of its anticipated equity gas for 1999 at a weighted average NYMEX-equivalent
minimum price of $2.00 per Mcf, including approximately 80% of first quarter
anticipated equity volumes at a weighted average NYMEX-equivalent minimum price
of $2.00 per Mcf. Additionally, the Company has hedged approximately 75% of its
anticipated equity NGLs for 1999 at a weighted average composite Mont Belvieu
and West Texas Intermediate Crude-equivalent minimum price of $.23 per gallon.
23
<PAGE>
At December 31, 1998, the Company had $1.1 million of losses deferred in
inventory that will be recognized primarily during the first quarter of 1999 and
are expected to be offset by margins from the Company's related forward fixed
price hedges and physical sales. At December 31, 1998, the Company had
unrecognized net gains of $3.8 million related to financial instruments that are
expected to be offset by corresponding unrecognized net losses from the
Company's obligations to sell physical quantities of gas and NGLs.
The Company enters into speculative futures, swap and option trades on a very
limited basis for purposes that include testing of hedging techniques. The
Company's policies contain strict guidelines for such trading including
predetermined stop-loss requirements and net open positions limits. Speculative
futures, swap and option positions are marked to market at the end of each
accounting period and any gain or loss is recognized in income for that period.
Net gains or losses from such speculative activities for the years ended
December 31, 1998 and 1997 were not material.
Natural Gas Derivative Market Risk
As of December 31, 1998, the Company held a notional quantity of approximately
370 Bcf of natural gas futures, swaps and options extending from January 1999 to
December 2000 with a weighted average duration of approximately four months.
This was comprised of approximately 178 Bcf of long positions and 192 Bcf of
short positions in such instruments. As of December 31, 1997, the Company held a
notional quantity of approximately 480 Bcf of natural gas futures, swaps and
options extending from January 1998 to December 1999 with a weighted average
duration of approximately four months. This was comprised of approximately 230
Bcf of long positions and 250 Bcf of short positions in such instruments.
The Company uses a Value-at-Risk (VaR) model designed by J.P. Morgan as one
measure of market risk for the Company's natural gas portfolio. The VaR
calculated by this model represents the maximum change in market value over the
holding period at the specified statistical confidence interval. The VaR model
is generally based upon J.P. Morgan's RiskMetrics (TM) methodology using
historical price data to derive estimates of volatility and correlation for
estimating the contribution of tenor and location risk. The VaR model assumes a
one day holding period and uses a 95% confidence level.
As of December 31, 1998, the calculated VaR of the Company's entire natural gas
portfolio of futures, swaps and options was approximately $1.5 million. This
figure includes the risk related to the Company's entire portfolio of natural
gas financial instruments and does not include the related underlying hedged
physical transactions.
All financial instruments for which there are no offsetting physical
transactions are treated as either the hedge of an anticipated transaction or a
speculative trade. As of December 31, 1998, the VaR of these type of
transactions for natural gas was approximately $500,000.
Crude Oil and NGL Derivative Market Risk
As of December 31, 1998, the Company held a notional quantity of approximately
177,000 MGal of NGL futures, swaps and options extending from January 1999 to
December 1999 with a weighted average duration of approximately six months. This
was comprised of approximately 129,000 MGal of long positions and 48,000 MGal of
short positions in such instruments. As of December 31, 1997, the Company held a
notional quantity of approximately 148,000 MGal of NGL futures, swaps and
options extending from January 1998 to December 1998 with a weighted average
duration of approximately five months. This was comprised of approximately
93,000 MGal of long positions and 55,000 MGal of short positions in such
instruments.
As of December 31, 1998, the Company had sold 90,000 barrels per month of NYMEX
crude swaps for 1999 at an average price of $13.10 per barrel. In addition, the
Company had purchased 90,000 barrels per month of $15.00 per barrel NYMEX calls
for July 1999 through December 1999 settlement. The Company held no crude oil
futures, swaps or options for settlement beyond 1999.
As of December 31, 1998, the Company had purchased 200,000 barrels per month of
OPIS Mt. Belvieu monthly average settlement $0.210 per gallon puts to hedge a
portion of the Company's equity production of propane and butanes for 1999.
As of December 31, 1998, the Company had purchased 50,000 barrels per month of
OPIS Mt. Belvieu monthly average settlement $0.155 per gallon of purity ethane
puts to hedge a portion of the Company's equity production of ethane for 1999.
As of December 31, 1998, the Company held no NGL futures, swaps or options for
settlement beyond 1999.
24
<PAGE>
As of December 31, 1998, the estimated fair value of the aforementioned crude
oil and NGL options held by the Company was approximately $315,000.
Foreign Currency Derivative Market Risk
The Company enters into physical gas transactions payable in Canadian dollars.
The Company enters into forward purchases and sales of Canadian dollars from
time to time to fix the cost of its future Canadian dollar denominated natural
gas purchase, sale, storage and transportation obligations. This is done to
protect marketing margins from adverse changes in the U.S. and Canadian dollar
exchange rate between the time the commitment for the payment obligation is made
and the actual payment date of such obligation. As of December 31, 1998, the
notional value of such contracts was approximately $11.0 million in Canadian
dollars. As of December 31, 1997, the notional value of such contracts was
approximately $5.5 million in Canadian dollars, which approximates its fair
market value.
Year 2000
The Company has made a comprehensive review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue and is in the
process of identifying and making the appropriate modifications to these
computer systems. The Company has: (i) created a Year 2000 awareness program to
educate employees; (ii) compiled an inventory of all systems; (iii) developed
system test plans as appropriate; and (iv) began the testing and remediation as
required for both information and non-information technology systems.
Additionally, the Company has initiated a program under which it surveys its
business counterparties periodically regarding their Year 2000 conversion and
contingency plans. Currently, the Company anticipates spending approximately
$2.0 million, of which 30% is currently committed, for remediation purposes,
which is primarily for hardware and operating system upgrades. The Company also
expects to incur internal staff costs as well as some consulting and other
expenses which are expected to be immaterial. The Company anticipates its Year
2000 conversion project to be substantially completed by October 1999.
Currently, the Company believes its most significant risk for the Year 2000
issue is that the systems of other companies on which the Company relies will
not be Year 2000 compliant and that any such failure to convert by another
company would have an adverse effect on the Company. In order to mitigate this
risk, contingency plans are being developed and the Company is surveying its
vendors and customers to ascertain the status of their conversion and
contingency plans.
ENVIRONMENTAL
The construction and operation of the Company's gathering lines, plants and
other facilities used for the gathering, transporting, processing, treating or
storing of gas and NGLs are subject to federal, state and local environmental
laws and regulations, including those that can impose obligations to clean up
hazardous substances at the Company's facilities or at facilities to which the
Company sends wastes for disposal. In most instances, the applicable regulatory
requirements relate to water and air pollution control or waste management. The
Company employs six environmental engineers and seven regulatory compliance
specialists to monitor environmental and safety compliance at its facilities.
Prior to consummating any major acquisition, the Company's environmental
engineers perform audits on the facilities to be acquired. In addition, on an
ongoing basis, the environmental engineers perform environmental assessments of
the Company's existing facilities. The Company believes that it is in
substantial compliance with applicable material environmental laws and
regulations. Environmental regulation can increase the cost of planning,
designing, constructing and operating the Company's facilities. The Company
believes that the costs for compliance with current environmental laws and
regulations have not had and will not have a material effect on the Company's
financial position or results of operations.
The Texas Natural Resource Conservation Commission (the "TNRCC"), which has
authority to regulate, among other things, stationary air emissions sources,
created a committee to make recommendations to the TNRCC regarding a voluntary
emissions reduction plan for the permitting of existing "grandfathered" air
emissions sources within the State of Texas. A "grandfathered" air emissions
source is one that does not need a state operating permit because it was
constructed prior to 1971. The Company operates a number of such sources within
the State of Texas, including portions of its Midkiff plant and many of its
compressors. The recommendations proposed by the committee would create a
voluntary permitting program for grandfathered sources, including certain
incentives to participate, such as the ability to operate in such a source in a
flexible manner. It is not clear which of the committee's recommendations, if
any, that the TNRCC will implement and it is not possible to assess the
potential effect on the Company until final regulations are promulgated.
The Company anticipates that it is reasonably likely that the trend in
environmental legislation and regulation will continue to be towards stricter
standards. The Company is unaware of future environmental standards that are
reasonably likely to be adopted that will have a material effect on the
Company's financial position or results of operations, but it cannot rule out
that possibility.
25
<PAGE>
The Company is in the process of voluntarily cleaning up substances at certain
facilities that it operates. The Company's expenditures for environmental
evaluation and remediation at existing facilities have not been significant in
relation to the results of operations of the Company and totaled approximately
$1.4 million for the year ended December 31, 1998 including approximately
$732,000 in air emissions fees to the states in which it operates ($132,000 of
which was attributable to the Edgewood facility which was sold in October 1998).
Although the Company anticipates that such environmental expenses per facility
will increase over time, the Company does not believe that such increases will
have a material effect on the Company's financial position or results of
operations.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Western Gas Resources, Inc.'s Consolidated Financial Statements as of December
31, 1998 and 1997 and for each of the three years in the period ended December
31, 1998:
Page
----
Report of Management....................................... 28
Report of Independent Accountants.......................... 29
Consolidated Balance Sheet................................. 30
Consolidated Statement of Cash Flows....................... 31
Consolidated Statement of Operations....................... 32
Consolidated Statement of Changes in Stockholders' Equity.. 33
Notes to Consolidated Financial Statements................. 34
27
<PAGE>
REPORT OF MANAGEMENT
--------------------
The financial statements and other financial information included in this Annual
Report on Form 10-K are the responsibility of Management. The financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate in the circumstances and include amounts that are based
on Management's informed judgments and estimates.
Management relies on the Company's system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that transactions
are properly recorded and executed in accordance with Management's
authorization. The concept of reasonable assurance is based on the recognition
that there are inherent limitations in all systems of internal accounting
control and that the cost of such systems should not exceed the benefits to be
derived. The internal accounting controls, including internal audit, in place
during the periods presented are considered adequate to provide such assurance.
The Company's financial statements are audited by PricewaterhouseCoopers LLP,
independent accountants. Their report states that they have conducted their
audit in accordance with generally accepted auditing standards. These standards
include an evaluation of the system of internal accounting controls for the
purpose of establishing the scope of audit testing necessary to allow them to
render an independent professional opinion on the fairness of the Company's
financial statements.
Oversight of Management's financial reporting and internal accounting control
responsibilities is exercised by the Board of Directors, through an Audit
Committee that consists solely of outside directors. The Audit Committee meets
periodically with financial management, internal auditors and the independent
accountants to review how each is carrying out its responsibilities and to
discuss matters concerning auditing, internal accounting control and financial
reporting. The independent accountants and the Company's internal audit
department have free access to meet with the Audit Committee without Management
present.
Signature Title
- --------- -----
/S/ L. F. Outlaw
- ----------------------------
L. F. Outlaw President and Chief Operating Officer
/S/ William J. Krysiak
- ----------------------------
William J. Krysiak Vice President - Finance (Principal Financial
and Accounting Officer)
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and
Stockholders of Western Gas Resources, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of cash flows, of operations, and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Western Gas Resources, Inc. and its subsidiaries at December 31,
1998 and 1997, and the results of their cash flows and their operations for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
March 22, 1999
29
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(000s, except share data)
<TABLE>
<CAPTION>
December 31
------------------------------------------
<S> <C> <C>
1998 1997
------------ ------------
ASSETS
------
Current assets:
Cash and cash equivalents.......................................... $ 4,400 $ 19,777
Trade accounts receivable, net..................................... 233,574 258,791
Product inventory.................................................. 46,207 17,261
Parts inventory.................................................... 10,153 9,405
Other.............................................................. 2,951 2,364
------------ ------------
Total current assets.......................................... 297,285 307,598
------------ ------------
Property and equipment:
Gas gathering, processing, storage and transmission................ 952,531 1,050,676
Oil and gas properties and equipment............................... 111,602 136,129
Construction in progress........................................... 87,943 64,268
------------ ------------
1,152,076 1,251,073
Less: Accumulated depreciation, depletion and amortization.............. (305,589) (294,350)
------------ ------------
Total property and equipment, net............................. 846,487 956,723
------------ ------------
Other assets:
Gas purchase contracts (net of accumulated amortization
of $29,978 and $27,554, respectively).............................. 41,263 43,687
Other.............................................................. 34,342 40,268
------------ ------------
Total other assets............................................ 75,605 83,955
------------ ------------
Total assets............................................................ $1,219,377 $1,348,276
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current liabilities:
Accounts payable................................................... 245,315 326,696
Accrued expenses................................................... 31,727 27,151
Dividends payable.................................................. 4,217 4,217
------------ ------------
Total current liabilities..................................... 281,259 358,064
Long-term debt.......................................................... 504,881 441,357
Deferred income taxes payable, net...................................... 48,021 80,743
------------ ------------
Total liabilities............................................. 834,161 880,164
------------ ------------
Commitments and contingent liabilities.................................. - -
Stockholders' equity:
Preferred Stock; 10,000,000 shares authorized:
$2.28 cumulative preferred stock, par value $.10;
1,400,000 shares issued ($35,000,000 aggregate
liquidation preference)....................................... 140 140
$2.625 cumulative convertible preferred stock, par value $.10;
2,760,000 shares issued (138,000,000 aggregate liquidation
preference)................................................... 276 276
Common stock, par value $.10; 100,000,000 shares authorized;
32,173,009 and 32,171,453 shares issued, respectively......... 3,217 3,217
Treasury stock, at cost; 25,016 shares in treasury................. (788) (788)
Additional paid-in capital......................................... 397,344 397,321
Retained (deficit) earnings........................................ (17,075) 66,999
Accumulated other comprehensive income............................. 3,053 2,233
Notes receivable from key employees secured by common stock........ (951) (1,286)
------------ ------------
Total stockholders' equity.................................... 385,216 468,112
------------ ------------
Total liabilities and stockholders' equity.............................. $1,219,377 $1,348,276
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(000s)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income (loss) to net cash provided by (used in) operating activities:
Net income (loss).......................................................................... $ (67,205) $ 1,487 $ 27,941
Add income items that do not affect cash:
Depreciation, depletion and amortization.................................................. 59,346 59,248 63,207
Deferred income taxes.................................................................... (32,722) 465 12,538
Distributions in excess of equity income, net............................................ 963 1,764 4,339
Gain on the sale of property and equipment............................................... (16,478) (4,681) (2,747)
Loss on the impairment of property and equipment......................................... 108,447 34,615 -
Other non-cash items, net................................................................ 2,595 3,250 336
---------- ---------- ----------
54,946 96,148 105,614
---------- ---------- ----------
Adjustments to working capital to arrive at net cash provided by (used in)
operating activities:
Decrease (increase) in trade accounts receivable......................................... 25,317 79,963 (134,538)
Decrease (increase) in product inventory................................................. (29,810) 7,480 2,115
Increase in parts inventory.............................................................. (748) (6,806) (172)
Increase in other current assets......................................................... (587) (1,027) (42)
Decrease (increase) in other assets and liabilities, net................................. 257 257 (733)
(Decrease) increase in accounts payable.................................................. (81,381) (59,572) 186,758
(Decrease) increase in accrued expenses.................................................. (3,564) (1,688) 9,264
---------- ---------- ----------
Total adjustments...................................................................... (90,516) 18,607 62,652
---------- ---------- ----------
Net cash provided by (used in) operating activities....................................... (35,570) 114,755 168,266
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment, including acquisitions.............................. (104,171) (196,293) (74,203)
Proceeds from the disposition of property and equipment.................................. 75,286 20,034 7,656
Contributions to unconsolidated affiliates............................................... (1,045) (2,608) (352)
Distribution from unconsolidated affiliates.............................................. 3,489 - 1,500
---------- ---------- ----------
Net cash used in investing activities..................................................... (26,441) (178,867) (65,399)
---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock............................................... - - 96,376
Net proceeds from exercise of common stock options....................................... 23 239 62
Payments on long-term debt............................................................... (15,476) (94,643) (12,500)
Borrowings under revolving credit facility............................................... 3,230,400 1,894,950 1,035,377
Payments on revolving credit facility.................................................... (3,151,400) (1,738,450) (1,172,877)
Debt issue costs paid.................................................................... (44) (847) -
Dividends paid........................................................................... (16,869) (16,864) (15,596)
---------- ---------- ----------
Net cash provided by (used in) financing activities....................................... 46,634 44,385 (69,158)
---------- ---------- ----------
Net (decrease) increase in cash........................................................... (15,377) (19,727) 33,709
Cash and cash equivalents at beginning of year............................................ 19,777 39,504 5,795
---------- ---------- ----------
Cash and cash equivalents at end of year.................................................. $ 4,400 $ 19,777 $ 39,504
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(000s, except share and per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Sale of gas............................................................. $ 1,611,521 $ 1,657,479 $ 1,440,882
Sale of natural gas liquids............................................. 449,696 611,969 561,581
Processing, transportation and storage revenue.......................... 44,743 40,906 44,943
Sale of electric power.................................................. 20 59,477 30,667
Other, net.............................................................. 27,586 15,429 12,936
----------- ----------- -----------
Total revenues........................................................ 2,133,566 2,385,260 2,091,009
----------- ----------- -----------
Costs and expenses:
Product purchases....................................................... 1,914,303 2,146,430 1,844,151
Plant operating expense................................................. 85,353 78,113 73,116
Oil and gas exploration and production costs............................ 7,996 7,714 5,056
Depreciation, depletion and amortization................................ 59,346 59,248 63,207
Selling and administrative expense...................................... 30,128 29,446 29,411
Interest expense........................................................ 33,616 27,474 34,437
Loss on the impairment of property and equipment........................ 108,447 34,615 -
----------- ----------- -----------
Total costs and expenses.............................................. 2,239,189 2,383,040 2,049,378
----------- ----------- -----------
Income (loss) before income taxes........................................ (105,623) 2,220 41,631
Provision (benefit) for income taxes:
Current................................................................. (5,696) 268 1,152
Deferred................................................................ (32,722) 465 12,538
----------- ----------- -----------
Total provision (benefit) for income taxes............................. (38,418) 733 13,690
----------- ----------- -----------
Net income (loss)........................................................ (67,205) 1,487 27,941
Preferred stock requirements............................................. (10,439) (10,439) (10,439)
----------- ----------- -----------
Income (loss) attributable to common stock............................... $ (77,644) $ (8,952) $ 17,502
=========== =========== ===========
Earnings (loss) per share of common stock................................ $ (2.42) $ (.28) $ .66
=========== =========== ===========
Weighted average shares of common stock outstanding...................... 32,147,354 32,134,011 26,519,635
=========== =========== ===========
Earnings (loss) per share of common stock - assuming dilution............ $ (2.42) $ (.28) $ .66
=========== =========== ===========
Weighted average shares of common stock outstanding - assuming dilution.. 32,147,354 32,137,803 26,541,565
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(000s, except share amounts)
<TABLE>
<CAPTION>
Shares of
Shares of $2.625
$ 2.28 Cumulative Shares
Cumulative Convertible Shares of Common
Preferred Preferred of Common Stock
Stock Stock Stock in Treasury
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995............... 1,400,000 2 ,760,000 25,769,712 25,016
Net income, 1996........................... - - - -
Stock options exercised.................... - - 14,423 -
Loans forgiven............................. - - - -
Common stock offering...................... - - 6,325,000 -
Dividends declared on common stock......... - - - -
Dividends declared on $2.28 cumulative
preferred stock........................... - - - -
Dividends declared on $2.625 cumulative
convertible preferred stock............... - - - -
----------- ------------- ----------- -------------
Balance at December 31, 1996............... 1,400,000 2,760,000 32,109,135 25,016
Net income, 1997........................... - - - -
Stock options exercised.................... - - 37,302 -
Tax benefit related to stock options....... - - - -
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 December 31, 1997............... 1,400,000 2,760,000 32,146,437 25,016
Net income 1998............................ - - - -
Stock options exercised.................... - - 1,556 -
Loans forgiven............................. - - - -
Dividends declared on common stock......... - - - -
Dividends declared on $2.28 cumulative
preferred stock......................... - - - -
Dividends declared on $2.625 cumulative
convertible preferred stock.............. - - - -
Translation adjustments.................... - - - -
----------- ------------- ----------- -------------
Balance at December 31, 1998.............. 1,400,000 2,760,000 32,147,993 25,016
=========== ============= =========== =============
<CAPTION>
$2.625
$2.28 Cumulative
Cumulative Convertible
Preferred Preferred Common Treasury
Stock Stock Stock Stock
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995............... $ 140 $ 276 $2,580 $(788)
Net income, 1996........................... - - - -
Stock options exercised.................... - - 1 -
Loans forgiven............................. - - - -
Common stock offering...................... - - 632 -
Dividends declared on common stock......... - - - -
Dividends declared on $2.28 cumulative
preferred stock........................... - - - -
Dividends declared on $2.625 cumulative
convertible preferred stock............... - - - -
----------- ------------- ----------- -------------
Balance at December 31, 1996............... 140 276 3,213 (788)
Net income, 1997........................... - - - -
Stock options exercised.................... - - 4 -
Tax benefit related to stock options....... - - - -
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 December 31, 1997............... 140 276 3,217 (788)
Net income 1998............................ - - - -
Stock options exercised.................... - - - -
Loans forgiven............................. - - - -
Dividends declared on common stock......... - - - -
Dividends declared on $2.28 cumulative
preferred stock......................... - - - -
Dividends declared on $2.625 cumulative
convertible preferred stock............. - - - -
Translation adjustments.................... - - - -
----------- ------------- ----------- -------------
Balance at December 31, 1998.............. $ 140 $ 276 $3,217 $(788)
=========== ============= =========== =============
<CAPTION>
Accumulated Notes Total
Additional Retained Other Receivable Stock-
Paid-In (Deficit) Comprehensive from Key holders'
Capital Earnings Income Employees Equity
----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995............... $301,234 $ 70,348 $ - $(1,881) $371,909
Net income, 1996........................... - 27,941 - - 27,941
Stock options exercised.................... 83 - - (24) 60
Loans forgiven............................. - - - 92 92
Common stock offering...................... 95,744 - - - 96,376
Dividends declared on common stock......... - (5,472) - - (5,472)
Dividends declared on $2.28 cumulative
preferred stock........................... - (3,194) - - (3,194)
Dividends declared on $2.625 cumulative
convertible preferred stock............... - (7,245) - - (7,245)
----------- ------------- ----------- ------------- -------------
Balance at December 31, 1996............... 397,061 82,378 - (1,813) 480,467
Net income, 1997........................... - 1,487 - - 1,487
Stock options exercised.................... 260 - - (25) 239
Tax benefit related to stock options....... - - 2,233 - 2,233
Loans forgiven............................. - - - 552 552
Dividends declared on common stock......... - (6,427) - - (6,427)
Dividends declared on $2.28 cumulative
preferred stock........................... - (3,194) - - (3,194)
Dividends declared on $2.625 cumulative
convertible preferred stock............... - (7,245) - - (7,245)
----------- ------------- ----------- ------------- -------------
Balance at December 31, 1997............... 397,321 66,999 2,233 (1,286) 468,112
Net income 1998............................ - (67,205) - - (67,205)
Stock options exercised.................... 23 - - - 23
Loans forgiven............................. - - - 335 335
Dividends declared on common stock......... - (6,430) - - (6,430)
Dividends declared on $2.28 cumulative
preferred stock......................... - (3,194) - - (3,194)
Dividends declared on $2.625 cumulative
convertible preferred stock.............. - (7,245) - - (7,245)
Translation adjustments.................... - - 820 - 820
----------- ------------- ----------- ------------- -------------
Balance at December 31, 1998.............. $397,344 $(17,075) $3,053 $ (951) $385,216
============ ============= ============ ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF ORGANIZATION
- -------------------------------
Western Gas Resources, Inc. (the "Company") is an independent gas gatherer and
processor and energy marketer providing a full range of services to its
customers from the wellhead to the delivery point. The Company designs,
constructs, owns and operates natural gas gathering, processing, treating and
storage facilities in major gas-producing basins in the Rocky Mountain, Mid-
Continent, Gulf Coast and Southwestern regions of the United States. The Company
connects producers' wells to its gathering systems for delivery to its
processing or treating plants, processes the natural gas to extract natural gas
liquids ("NGLs") and treats the natural gas in order to meet pipeline
specifications. The Company markets gas and NGLs nationwide and in Canada,
providing risk management, storage, transportation, scheduling, peaking and
other services to a variety of customers. The Company owns and operates certain
producing properties, primarily in Wyoming and Louisiana. The Company also
explores and develops gas reserves, primarily in Wyoming, in support of its
existing facilities.
Western Gas Resources, Inc. was formed in October 1989 to acquire a majority
interest in Western Gas Processors, Ltd. (the "Partnership") and to assume the
duties of WGP Company, the general partner of the Partnership. The Partnership
was a Colorado limited partnership formed in 1977 to engage in the gathering and
processing of natural gas. The reorganization was accomplished in December 1989
through an exchange for common stock of partnership units held by the former
general partners of WGP Company and an initial public offering of Western Gas
Resources, Inc. Common Stock. On May 1, 1991, a further restructuring
("Restructuring") of the Partnership and Western Gas Resources, Inc. (together
with its predecessor, WGP Company, collectively, the "Company") was approved by
a vote of the security holders. The combinations were reorganizations of
entities under common control and were accounted for at historical cost in a
manner similar to poolings of interests.
The Company has completed three public offerings of Common Stock. In December
1989, the Company issued 3,527,500 shares of Common Stock at a public offering
price of $11.50. In November 1991, the Company issued 4,115,000 shares of
Common Stock at a public offering price of $18.375 per share. In November 1996,
the Company issued 6,325,000 shares of Common Stock at a public offering price
of $16.25 per share. The net proceeds to the Company from the November 1996
public offering of Common Stock of $96.4 million were primarily used to reduce
indebtedness under the Revolving Credit Facility.
The Company has also issued preferred stock in a private transaction and has
completed two public offerings of preferred stock. In October 1991, the Company
issued 400,000 shares of 7.25% Cumulative Senior Perpetual Convertible Preferred
Stock ("7.25% Preferred Stock") with a liquidation preference of $100 per share
to an institutional investor. In May 1995, the Company redeemed all of the
issued and outstanding shares of its 7.25% Preferred Stock pursuant to the
provisions of its Certificate of Designation relating to such preferred stock,
at an aggregate redemption price of approximately $42.0 million, including a
redemption premium of $2.0 million. In November 1992, the Company issued
1,400,000 shares of $2.28 Cumulative Preferred Stock with a liquidation
preference of $25 per share, at a public offering price of $25 per share,
redeemable at the Company's option on or after November 15, 1997. In February
1994, the Company issued 2,760,000 shares of $2.625 Cumulative Convertible
Preferred Stock with a liquidation preference of $50 per share, at a public
offering price of $50 per share, redeemable at the Company's option on or after
February 16, 1997 and convertible at the option of the holder into Common Stock
at a conversion price of $39.75.
SIGNIFICANT BUSINESS ACQUISITIONS, DISPOSITIONS AND PROJECTS
Coal Bed Methane
The Company is expanding its Powder River Basin coal bed methane natural gas
gathering system and developing its own coal seam gas reserves in Wyoming. The
Company has acquired drilling rights in the vicinity of known coal bed methane
production. During the years ended December 31, 1998, 1997 and 1996, the
Company has expended approximately $46.7 million, $32.2 million and $6.9
million, respectively, on this project. On October 30, 1997, the Company sold a
50% undivided interest in its Powder River Basin coal bed methane gas
operations. The final adjusted purchase price was $17.9 million, resulting in a
pre-tax gain of $4.7 million, which was recognized in the fourth quarter of
1997.
In December 1998, the Company joined with other industry participants to form
the Fort Union Gas Gathering, L.L.C., which plans to build a 106-mile, 24-inch
gathering header to gather coal bed methane in the Powder River Basin in
northeast Wyoming. The Company will have an approximate 13% interest and be the
construction contractor and field operator of the header and a related gas
treating facility. Construction is scheduled to begin in April 1999 with
operations to commence on or about the end of the third quarter
34
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of 1999. It is anticipated that the new gathering header and treating system
will be project-financed, requiring a cash investment by the Company of
approximately $2 million.
Southwest Wyoming
The Company's facilities in Southwest Wyoming are comprised of the Granger
facility and a 72% ownership interest in the Lincoln Road facility (collectively
the "Granger Complex"). The Company began to expand its gas gathering and
exploration and production activities in Southwest Wyoming during 1997. The
expansion in this area is primarily intended to develop acreage to replace
declines in reserves and generate additional volumes for gathering and
processing at its facilities. During the years ended December 31, 1998 and
1997, the Company has expended approximately $16.0 million and $6.2 million,
respectively, on this project. In February 1998, the Company sold a 50%
undivided interest in a small portion of the Granger gathering system for
approximately $4.0 million. This amount approximated the Company's cost in such
facilities.
In 1997, the Company granted an option to an affiliate of a producer behind the
Granger Complex to purchase up to 50% of the Granger Complex. In conjunction
with this agreement, in February 1998, the Company received a $1 million non-
refundable option payment. The option to acquire an interest in these
facilities expired in the fourth quarter of 1998.
Bethel Treating Facility
In 1996 and 1997 the Pinnacle Reef trend was rapidly developing into a very
active lease acquisition and exploratory play using 3-D seismic technology. The
initial discoveries in the play indicated a very large potential gas
development. Based on the Company's receipt of large acreage dedications in this
area, the Company constructed the Bethel Treating facility for a total cost of
approximately $102.8 million with a throughput capacity of 350 MMcf per day.
In 1998, the production rates from the wells drilled in this field and the
recoverable reserves from these properties, were far less than originally
expected by the producers. As a result, in 1998, the Bethel Treating facility
averaged gas throughput of approximately 61 Mmcf per day. Due to the unexpected
poor drilling results and reductions in the producers' drilling budgets, the
number of rigs active in this area has decreased from 18 in July 1998 to one
active rig in March 1999.
In 1998, the Company completed the construction of the Bethel Treating facility
in East Texas that gathers gas from the Cotton Valley Pinnacle Reef trend, for
a total cost of approximately $102.8 million. Because of uncertainties related
to the pace and success of third-party drilling programs, declines in volumes
produced at certain wells and other conditions outside of the Company's control,
the Company determined that a pre-tax, non-cash impairment charge of $77.8
million in the fourth quarter of 1998 was required.
Edgewood
In two transactions which closed in October 1998 the Company sold its Edgewood
gathering system, including its undivided interest in the producing properties
associated with this facility, and its 50% interest in the Redman Smackover
Joint Venture ("Redman Smackover"). The combined sales price was $55.8 million.
The proceeds from these sales were used to repay a portion of the balances
outstanding under the Revolving Credit Facility. After the accrual of certain
related expenses, the Company recognized a pre-tax gain of approximately $1.6
million, during the fourth quarter of 1998.
Perkins
In November 1997, the Company entered into an agreement to sell its Perkins
facility. In March 1998, the Company completed the sale of this facility with
an effective date of January 1, 1998. The sales price was $22.0 million and
resulted in a pre-tax gain of approximately $14.9 million. The proceeds from
this sale were used to repay a portion of the balances outstanding under the
Revolving Credit Facility.
35
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUBSEQUENT EVENTS
Giddings
In March 1999, the Company entered into an agreement to sell its Giddings
Facility for $36.0 million, which will result in an approximate pre-tax loss
of $4.8 million. This agreement is subject to various approvals and is
anticipated to close in the second quarter of 1999.
Katy
In March 1999, the Company entered into an agreement to sell all of the
outstanding common stock of its wholly-owned subsidiary, Western Gas Resources
Storage, Inc., for $100.0 million, which will result in an approximate pre-tax
loss of $18.5 million. The only asset of this subsidiary is the Katy Facility.
This agreement is subject to various regulatory approvals and the satisfaction
of certain contractual conditions and is anticipated to close in the second
quarter of 1999. The Company has the option to sell approximately 5.4 Bcf of
stored gas in the Katy Facility to the same purchaser for total sales proceeds
of approximately $10.0 million (which would approximate its cost of the
inventory). To meet the needs of its marketing operations, the Company will
continue to contract for storage capacity. Accordingly, the Company will enter
into a long-term agreement with the purchaser for 3 Bcf of storage capacity at
market rates.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
The significant accounting policies followed by the Company and its wholly-owned
subsidiaries are presented here to assist the reader in evaluating the financial
information contained herein. The Company's accounting policies are in
accordance with generally accepted accounting principles.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
the Company's wholly-owned subsidiaries. All material intercompany transactions
have been eliminated in consolidation. The Company's interest in certain
investments is accounted for by the equity method.
Inventories
For the years ended December 31, 1998 and 1997, the cost of gas and NGL
inventories is determined by the weighted average cost on a location-by-location
basis. Prior to 1997, the cost of NGL inventories was determined by the last-
in, first-out (LIFO) method, on a location-by-location basis. The change in
accounting method from LIFO to weighted average cost was not material. As a
result, prior year financial statements were not restated. Residue and NGL
inventory covered by hedging contracts is accounted for on a specific
identification basis. Product inventory includes $42.8 million and $11.9
million of gas and $3.4 million and $5.4 million of NGLs at December 31, 1998
and 1997, respectively. During the years ended December 31, 1998 and 1997, the
Company recorded lower of cost or market write-downs of NGL inventories of
$826,000 and $1.1 million, respectively.
Property and Equipment
Property and equipment is recorded at the lower of cost, including interest on
funds borrowed to finance the construction of new projects, or estimated
realizable value. Interest incurred during the construction period of new
projects is capitalized and amortized over the life of the associated assets.
Depreciation is provided using the straight-line method based on the estimated
useful life of each facility which ranges from three to 35 years. Useful lives
are determined based on the shorter of the life of the equipment or the reserves
serviced by the equipment. The cost of acquired gas purchase contracts is
amortized using the straight-line method.
36
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Oil and Gas Properties and Equipment
The Company follows the successful efforts method of accounting for oil and gas
exploration and production activities. Acquisition costs, development costs and
successful exploration costs are capitalized. Exploratory dry hole costs, lease
rentals and geological and geophysical costs are charged to expense as incurred.
Upon surrender of undeveloped properties, the original cost is charged against
income. Producing properties and related equipment are depleted and depreciated
by the units-of-production method based on estimated proved reserves for
producing properties and proved developed reserves for lease and well equipment.
Income Taxes
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. These temporary differences are determined and
accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes."
Foreign Currency Adjustments
During the second quarter of 1997, the Company began operating a subsidiary in
Canada. The assets and liabilities associated with this subsidiary are
translated into U.S. dollars at the exchange rate as of the balance sheet date
and revenues and expenses at the weighted-average of exchange rates in effect
during each reporting period. SFAS No. 52, "Foreign Currency Translation,"
requires that cumulative translation adjustments be reported as a separate
component of stockholders' equity. The translation adjustment for the year
ended December 31, 1998 was $820,000. The adjustment for the year ended
December 31, 1997 was not material.
Revenue Recognition
Revenue for sales or services is recognized at the time the gas, NGLs or
electric power is delivered or at the time the service is performed.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," ("SFAS No. 130") effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that changes in items
of comprehensive income be reported as a separate component of stockholders'
equity. The Company's cumulative translation adjustments of $820,000 for the
year ended December 31, 1998 and tax benefits related to stock options of $2.2
million for the year ended December 31, 1997 are separately reported on the
Consolidated Statement of Changes in Stockholders' Equity.
Gas and NGL Hedges
Gains and losses on hedges of product inventory are included in the carrying
amount of the inventory and are ultimately recognized in gas and NGL sales when
the related inventory is sold. Gains and losses related to qualifying hedges,
as defined by SFAS No. 80, "Accounting for Futures Contracts," of firm
commitments or anticipated transactions (including hedges of equity production)
are recognized in gas and NGL sales, as reported on the Consolidated Statement
of Operations, when the hedged physical transaction occurs. For purposes of
the Consolidated Statement of Cash Flows, all hedging gains and losses are
classified in net cash provided by operating activities. To the extent the
Company engages in speculative transactions, they are marked to market at the
end of each accounting period and any gain or loss is recognized in income for
that period.
Impairment of Long-Lived Assets
The Company complies with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"). The
Company reviews its assets at the plant facility and oil and gas producing
property levels. SFAS No. 121 also requires long-lived assets be reviewed
whenever events or changes in circumstances indicate that the carrying value of
such assets may not be recoverable. In order to determine whether an impairment
exists, the Company
37
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
compares its net book value of the asset to the estimated fair market value or
the undiscounted expected future cash flows, determined by applying future
prices estimated by management over the shorter of the lives of the facilities
or the reserves supporting the facilities. If an impairment exists, write-downs
of assets are based upon expected cash flows discounted using an interest rate
commensurate with the risk associated with the underlying asset. The Company has
written-down property and equipment of $108.5 million and $34.6 million in
accordance with SFAS No. 121 during the years ended December 31, 1998 and 1997,
respectively.
Earnings (Loss) Per Share of Common Stock
The Company follows SFAS No. 128, "Earnings per Share" ("SFAS No. 128") which
requires that earnings per share and earnings per share - assuming dilution be
calculated and presented on the face of the statement of operations. In
accordance with SFAS No. 128, earnings (loss) per share of common stock is
computed by dividing income (loss) attributable to common stock by the weighted
average shares of common stock outstanding. In addition, earnings (loss) per
share of common stock -assuming dilution is computed by dividing income (loss)
attributable to common stock by the weighted average shares of common stock
outstanding as adjusted for potential common shares. Income (loss) attributable
to common stock is income (loss) less preferred stock dividends. The Company
declared preferred stock dividends of $10.4 million for each of the years ended
December 31, 1998, 1997 and 1996, respectively. Common stock options, which
are potential common shares, had a dilutive effect on earnings per share and
increased the weighted average shares of common stock outstanding by 3,792 and
21,930 shares for the years ended December 31, 1997 and 1996, respectively.
The Common Stock options were anti-dilutive in 1998, therefore the numerator and
denominator for the year ended December 31, 1998 were not adjusted. SFAS No.
128 dictates that the computation of earnings per share shall not assume
conversion, exercise or contingent issuance of securities that would have an
antidilutive effect on earnings (loss) per share. As a result, the numerators
and the denominators for each of the three years ended December 31, 1998 are not
adjusted to reflect the Company's $2.625 Cumulative Convertible Preferred Stock
outstanding. The shares are antidilutive as the incremental shares result in an
increase in earnings per share, or a reduction of loss per share, after giving
affect to the dividend requirements.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable and over-the-
counter ("OTC") swaps and options. The risk is limited due to the large number
of entities comprising the Company's customer base and their dispersion across
industries and geographic locations. At December 31, 1998, the Company believes
it had no significant concentrations of credit risk.
Cash and Cash Equivalents
Cash and cash equivalents includes all cash balances and highly liquid
investments with an original maturity of three months or less.
Supplementary Cash Flow Information
Interest paid was $36.1 million, $33.1 million and $36.7 million, respectively,
for the years ended December 31, 1998, 1997 and 1996. Capitalized interest
associated with construction of new projects was $2.5 million, $5.1 million and
$1.7 million, respectively, for the years ended December 31, 1998, 1997 and
1996.
Income taxes paid were $0, $2.6 million and $4.2 million, respectively, for the
years ended December 31, 1998, 1997 and 1996.
Stock Compensation
As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), the Company has elected to continue to measure compensation
costs for stock-based employee compensation plans as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"). The Company has complied with the pro forma disclosure
requirements of SFAS No. 123 as required under the pronouncement.
38
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. APB No. 25 requires that this difference be
credited to additional paid-in capital. In September 1997, the Company recorded
a credit of $2.2 million to Additional Paid-In Capital to reflect such
difference associated with the Company's $5.40 Stock Option Plan.
Use of Estimates and Significant Risks
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in these financial statements
and accompanying notes. The more significant areas requiring the use of
estimates relate to oil and gas reserves, fair value of financial instruments,
future cash flows associated with assets and useful lives for depreciation,
depletion and amortization. Actual results could differ from those estimates.
The Company is subject to a number of risks inherent in the industry in which it
operates, primarily fluctuating prices and gas supply. The Company's financial
condition and results of operations will depend significantly upon the prices
received for gas and NGLs. These prices are subject to fluctuations in response
to changes in supply, market uncertainty and a variety of additional factors
that are beyond the control of the Company. In addition, the Company must
continually connect new wells to its gathering systems in order to maintain or
increase throughput levels to offset natural declines in dedicated volumes. The
number of new wells drilled will depend upon, among other factors, prices for
gas and oil, the drilling budgets of third-party producers, the energy policy of
the federal government and the availability of foreign oil and gas, none of
which are within the Company's control.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
effective for fiscal years beginning after June 15, 1999. Under SFAS No. 133,
the Company will be required to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income depending upon the nature of
the underlying transaction. The Company has not yet determined the impact that
the adoption of SFAS No. 133 will have on its earnings or financial position.
Reclassifications
Certain prior years' amounts in the consolidated financial statements and
related notes have been reclassified to conform to the presentation used in
1998.
NOTE 3 - RELATED PARTIES
- ------------------------
The Company enters into joint ventures and partnerships in order to reduce risk,
create strategic alliances and to establish itself in oil and gas producing
basins in the United States. For the years ended December 31, 1998, 1997 and
1996, the Company had a 50% ownership interest in Williston Gas Company
("Williston") and Westana Gathering Company ("Westana"). In addition, for the
years ended December 31, 1997 and 1996 the Company also had a 50% ownership
interest in Redman Smackover. This interest was sold effective July 1, 1998.
The Company acts as operator for Williston and Westana. The Company also has a
49% interest in the Sandia Energy Resources Joint Venture ("Sandia"), which was
formed in March 1996. The Company's share of equity income or loss in these
ventures is reflected in Other net revenue. All transactions entered into by
the Company with its related parties are consummated in the ordinary course of
business.
Historically, the Company had purchased a significant portion of the production
of Williston. The Company also performed various operational and administrative
functions for Williston and charged a monthly overhead fee to cover such
services. In August 1996, substantially all of the assets associated with
Williston were sold to a third party. The Company expects that Williston will
be dissolved during 1999. At December 31, 1998, the Company's investment in
Williston was immaterial.
39
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company performs various operational and administrative functions for
Westana and charges a monthly overhead fee to cover such services. The Company
records receivable and payable balances at the end of each accounting period
related to transactions with Westana. At December 31, 1998, the Company's
investment in Westana was $26.9 million.
The Company provides substantially all of the natural gas that Sandia markets
and also provides various administrative services to Sandia. In addition, the
Company purchases gas from Sandia. The Company records receivable and payable
balances at the end of each accounting period related to the above referenced
transactions. At December 31, 1998, the Company's investment in Sandia was
$546,000. Sandia will be dissolved in the first quarter of 1999.
The following table summarizes account balances reflected in the financial
statements (000s):
<TABLE>
<CAPTION>
As of or for the Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Trade accounts receivable.. $ 3,794 $ 4,295 $ 5,552
======= ======= =======
Accounts payable........... 9,474 7,246 11,041
======= ======= =======
Sales of gas and NGLs...... 31,319 19,504 10,592
======= ======= =======
Processing revenue......... 192 336 256
======= ======= =======
Product purchases.......... 58,899 59,082 57,675
======= ======= =======
Administrative expense..... $ 483 $ 421 $ 419
======= ======= =======
</TABLE>
The Company has entered into agreements committing the Company to loan to
certain key employees an amount sufficient to exercise their options as each
portion of their options vests under the Key Employees' Incentive Stock Option
Plan and the $5.40 Stock Option Plan (see Note 10). The Company will forgive
the loan and accrued interest if the employee has been continuously employed by
the Company for periods specified under the agreements and Board of Directors'
resolutions. As of December 31, 1998 and 1997, loans totaling $951,000 and $1.3
million, respectively, were outstanding to certain employees under these
programs. The loans are secured by a portion of the Common Stock issued upon
exercise of the options and are accounted for as a reduction of stockholders'
equity. During 1998 and 1997, the Board of Directors approved the forgiveness
of loans to certain employees totaling approximately $335,000 and $552,000,
respectively, in connection with these plans.
NOTE 4 - COMMODITY RISK MANAGEMENT
- ----------------------------------
Gas and NGL Hedges
The Company's commodity price risk management program has two primary
objectives. The first goal is to preserve and enhance the value of the
Company's equity volumes of gas and NGLs with regard to the impact of commodity
price movements on cash flow, net income and earnings per share in relation to
those anticipated by the Company's operating budget. The second goal is to
manage price risk related to the Company's physical gas, crude oil and NGL
marketing activities to protect profit margins. This risk relates to hedging
fixed price purchase and sale commitments, preserving the value of storage
inventories, reducing exposure to physical market price volatility and providing
risk management services to a variety of customers.
The Company utilizes a combination of fixed price forward contracts, exchange-
traded futures and options, as well as fixed index swaps, basis swaps and
options traded in the over-the-counter ("OTC") market to accomplish these
objectives. These instruments allow the Company to preserve value and protect
margins because gains or losses in the physical market are offset by
corresponding losses or gains in the value of the financial instruments.
The Company uses futures, swaps and options to reduce price risk and basis risk.
Basis is the difference in price between the physical commodity being hedged and
the price of the futures contract used for hedging. Basis risk is the risk that
an adverse change in the futures market will not be completely offset by an
equal and opposite change in the cash price of the commodity being hedged.
Basis
40
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
risk exists in natural gas primarily due to the geographic price differentials
between cash market locations and futures contract delivery locations.
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 various counterparties, consisting primarily of financial institutions and
other natural gas companies. The Company conducts its standard credit review of
OTC counterparties and has agreements with such parties that contain collateral
requirements. The Company generally uses standardized swap agreements that
allow for offset of positive and negative exposures. OTC exposure is marked to
market daily for the credit review process. The Company's OTC credit risk
exposure is partially limited by its ability to require a margin deposit from
its major counterparties based upon the mark-to-market value of their net
exposure. The Company is subject to margin deposit requirements under these
same agreements. In addition, the Company is subject to similar margin deposit
requirements for its NYMEX counterparties related to its net exposures.
The use of financial instruments may expose the Company to the risk of financial
loss in certain circumstances, including instances when (i) equity volumes are
less than expected, (ii) the Company's customers fail to purchase or deliver the
contracted quantities of natural gas or NGLs, or (iii) the Company's OTC
counterparties fail to perform. To the extent that the Company engages in
hedging activities, it may be prevented from realizing the benefits of favorable
price changes in the physical market. However, it is similarly insulated
against decreases in such prices.
The Company has hedged a portion of its equity volumes of gas and NGLs in 1999,
particularly in the first quarter, at pricing levels approximating its 1999
operating budget. The Company's equity hedging strategy establishes a minimum
and maximum price to the Company while allowing market participation between
these levels. As of February 19, 1999, the Company had hedged approximately 75%
of its anticipated equity gas for 1999 at a weighted average NYMEX-equivalent
minimum price of $2.00 per Mcf, including approximately 80% of first quarter
anticipated equity volumes at a weighted average NYMEX-equivalent minimum price
of $2.00 per Mcf. Additionally, the Company has hedged approximately 75% of its
anticipated equity NGLs for 1999 at a weighted average composite Mont Belvieu
and West Texas Intermediate Crude-equivalent minimum price of $.23 per gallon.
At December 31, 1998, the Company had $1.1 million of losses deferred in
inventory that will be recognized primarily during the first quarter of 1999 and
are expected to be offset by margins from the Company's related forward fixed
price hedges and physical sales. At December 31, 1998, the Company had
unrecognized net gains of $3.8 million related to financial instruments that are
expected to be offset by corresponding unrecognized net losses from the
Company's obligations to sell physical quantities of gas and NGLs.
The Company enters into speculative futures, swap and option trades on a very
limited basis for purposes that include testing of hedging techniques. The
Company's policies contain strict guidelines for such trading including
predetermined stop-loss requirements and net open positions limits. Speculative
futures, swap and option positions are marked to market at the end of each
accounting period and any gain or loss is recognized in income for that period.
Net gains or losses from such speculative activities for the years ended
December 31, 1998 and 1997 were not material.
Natural Gas Derivative Market Risk
As of December 31, 1998, the Company held a notional quantity of approximately
370 Bcf of natural gas futures, swaps and options extending from January 1999 to
December 2000 with a weighted average duration of approximately four months.
This was comprised of approximately 178 Bcf of long positions and 192 Bcf of
short positions in such instruments. As of December 31, 1997, the Company held
a notional quantity of approximately 480 Bcf of natural gas futures, swaps and
options extending from January 1998 to December 1999 with a weighted average
duration of approximately four months. This was comprised of approximately 230
Bcf of long positions and 250 Bcf of short positions in such instruments.
Crude Oil and NGL Derivative Market Risk
As of December 31, 1998, the Company held a notional quantity of approximately
177 million gallons of NGL futures, swaps and options extending from January
1999 to December 1999 with a weighted average duration of approximately six
months. This was comprised of approximately 129 million gallons of long
positions and 48 million gallons of short positions in such instruments. As
41
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of December 31, 1997, the Company held a notional quantity of approximately 148
million gallons of NGL futures, swaps and options extending from January 1998 to
December 1998 with a weighted average duration of approximately five months.
This was comprised of approximately 93 million gallons of long positions and 55
million gallons of short positions in such instruments.
As of December 31, 1998, the Company had sold 90,000 barrels per month of NYMEX
crude swaps for 1999 at an average price of $13.10 per barrel. In addition, the
Company had purchased 90,000 barrels per month of $15.00 per barrel NYMEX calls
for July 1999 through December 1999 settlement. The Company held no crude oil
futures, swaps or options for settlement beyond 1999.
As of December 31, 1998, the Company had purchased 200,000 barrels per month of
OPIS Mt. Belvieu monthly average settlement $0.210 per gallon puts to hedge a
portion of the Company's equity production of propane and butanes for 1999.
As of December 31, 1998, the Company had purchased 50,000 barrels per month of
OPIS Mt. Belvieu monthly average settlement $0.155 per gallon of purity ethane
puts to hedge a portion of the Company's equity production of ethane for 1999.
As of December 31, 1998, the Company held no NGL futures, swaps or options for
settlement beyond 1999.
As of December 31, 1998, the estimated fair value of the aforementioned crude
oil and NGL options held by the Company was approximately $315,000.
NOTE 5 - DEBT
- -------------
The following summarizes the Company's consolidated debt at the dates indicated
(000s):
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Master shelf and senior notes............ $269,381 $284,857
Variable rate revolving credit facility.. 235,500 156,500
-------- --------
Total long-term debt.................... $504,881 $441,357
======== ========
</TABLE>
Revolving Credit Facility. The Company's variable rate Revolving Credit
Facility was restated and amended in May 1997. The Revolving Credit Facility is
with a syndicate of banks and provides for a maximum borrowing commitment of
$300 million, $235.5 million of which was outstanding at December 31, 1998. The
interest rate payable on the facility at December 31, 1998 was 6.2%. The Company
has reached an agreement with the agent bank on a term sheet for a restated
facility which will reflect the following changes. The restated Revolving Credit
Facility is with a syndicate of banks and will provide for an aggregate
borrowing commitment of $300 million consisting of a $100 million 364-day
Revolving Credit Facility ("Tranche A") and a five year $200 million Revolving
Credit Facility ("Tranche B"). The Revolving Credit Facility will bear interest
at certain spreads over the Eurodollar rate, at the Federal Funds rate plus .50%
or at the agent bank's prime rate. The Company will have the option to determine
which rate will be used. The Company also will pay a facility fee on the
commitment. The interest rate spreads and facility fee will be adjusted based on
the Company's debt to capitalization ratio and will range from .75% to 2.00%.
Pursuant to the Revolving Credit Facility, the Company will be required to
maintain a debt to capitalization ratio of not more than 60% through December
31, 2000 and of not more than 55% thereafter, and a senior debt to
capitalization ratio of not more than 40% beginning September 30, 1999 through
December 31, 2001 and of not more than 35% thereafter. The agreement also
requires a ratio of EBITDA to interest and dividends on preferred stock as of
the end of any fiscal quarter of not less than 1.35 to 1.0 beginning June 30,
1999 increasing to 3.25 to 1.0 by December 31, 2002. Tranche A and Tranche B
will be reduced on a pro rata basis to a total of $250 million by September 30,
1999. The Revolving Credit Facility is guaranteed and will be secured via a
pledge of the stock of the Company's significant subsidiaries. Documentation
reflecting this agreement is expected to be completed on or about the end of the
first quarter of 1999. 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.
42
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Master Shelf Agreement. In December 1991, the Company entered into a Master
Shelf agreement (as amended and restated, the "Master Shelf") with The
Prudential Insurance Company of America ("Prudential"). Amounts outstanding
under the Master Shelf agreement at December 31, 1998 are 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 $ 16,667 7.51% October 27, 2000 $8,333 on each of October 27, 1999 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
--------
$191,667
========
</TABLE>
In March 1999, the Company reached an agreement on an amendment with Prudential
which will be effective as of January 1999 with the following provisions. The
Company will be 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 $300 million
plus 50% of consolidated net earnings earned from January 1, 1999 plus 75% of
the net proceeds of any equity offerings after January 1, 1999, and a debt to
capitalization ratio of not more than 60% through December 31, 2000 and of not
more than 55% thereafter. A senior debt to capitalization ratio will be
implemented, if and when, the Company issues subordinated debt. This amendment
also requires an EBITDA to interest ratio of not less than 1.75 to 1.0 beginning
March 31, 1999 increasing to a ratio of not less than 3.75 to 1.0 by March 31,
2002. Documentation reflecting this amendment is expected to be completed on or
about the end of the first quarter of 1999. In addition, under the existing
agreement, the Company is prohibited from declaring or paying dividends that in
the aggregate exceed the sum of $50 million plus 50% of consolidated net income
earned after June 30, 1995 (or minus 100% of a net loss), plus the aggregate net
cash proceeds received after June 30, 1995 from the sale of any stock. At
December 31, 1998, $51.5 million was available under this limitation. This
amount is expected to be reduced by approximately $ 14.9 million as a result of
the after-tax losses recognized on the sales of the Giddings and Katy
facilities. The Company presently intends to finance the $8.3 million payment
due on October 27, 1999 with amounts available under the Revolving Credit
Facility. The Master Shelf Agreement is guaranteed and will be secured via a
pledge of the stock of the Company's significant subsidiaries.
1995 Senior Notes. In 1995, the Company sold $42 million of Senior Notes
(the "1995 Senior Notes") to a group of insurance companies with an interest
rate of 8.16% per annum. In February 1999, the Company offered to prepay the
1995 Senior Notes at par. Note holders representing $15 million of the principal
amount outstanding on the 1995 Senior Notes accepted the Company's offer and
were paid in full in March 1999. These payments were financed by the Bridge Loan
and by amounts available under the Revolving Credit Facility. The remaining
principal amount outstanding of $27 million is due in a single payment in
December 2005. The 1995 Senior Notes are guaranteed and will be secured via a
pledge of the stock of the Company's significant subsidaries. The Company has
reached an agreement with the Note holders which provides for modification of
certain financial covenants on terms that will be no more restrictive than those
contained in the Master Shelf. Documentation reflecting this agreement is
expected to be completed on or about the end of the first quarter of 1999.
Effective January 1, 1999, the Company will pay an annual fee of no more than
.65% on the amounts outstanding on the Master Shelf and the 1995 Senior Notes.
This fee will continue until the Company has received an implied investment
grade rating on its senior secured debt.
1993 Senior Notes. In 1993, the Company sold $50 million of 7.65% Senior
Notes (the "1993 Senior Notes") to a group of insurance companies. Scheduled
annual principal payments of $7.1 million on the 1993 Senior Notes were made on
April 30 of 1997 and 1998. In February 1999, the Company offered to prepay the
1993 Senior Notes at par. Note holders representing approximately $33.5 million
of the total principal amount outstanding of $35.6 million accepted the
Company's offer and were paid in full in February 1999. These payments were
43
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
financed by a $37 million Bridge Loan. The Company intends to pay the remaining
outstanding principal of $2.1 million in the second quarter of 1999 with amounts
available under the Revolving Credit Facility.
Bridge Loan. In February 1999, in order to finance prepayments at par of
amounts outstanding on the 1993 and 1995 Senior Notes, the Company entered into
a Bridge Loan agreement in the amount of $37 million with its agent bank (the
"Bridge Loan"). The Bridge Loan bears interest at certain spreads over the
Eurodollar rate ranging from 1.75% at date of issuance to 2.75% at maturity. The
Bridge Loan may be prepaid in whole or in part at any time and matures on
October 31, 1999. The Company presently intends to finance the payment of the
Bridge Loan with amounts available under the Revolving Credit Facility, proceeds
from the sale of assets or proceeds from the issuance of public debt.
Covenant Compliance. At December 31, 1998, the Company was in compliance
with all covenants in its loan agreements. Taking into account all the covenants
contained in these agreements, the Company had approximately $64.5 million of
available borrowing capacity at December 31, 1998. In March 1999, the Company
successfully completed negotiations with its lenders for amendments to its
various financing facilities providing for financial flexibility and covenant
modifications. These amendments were needed given the depressed commodity
pricing experienced by the industry in general and the disappointing results the
Company has experienced at its Bethel Treating facility. There can be no
assurance that further amendments or waivers can be obtained in the future, if
necessary, or that the terms would be favorable to the Company. To strengthen
credit ratings and to reduce its overall debt outstanding, the Company will
continue to dispose of non-strategic assets (such as the Giddings and Katy
facilities) and investigate alternative financing sources (including the
issuance of public debt, project- financing, joint ventures and operating
leases).
Approximate future maturities of long-term debt at the date indicated, which do
not reflect the payments made in the first quarter of 1999, are as follows at
December 31, 1998 (000s):
<TABLE>
<S> <C>
1999.................................... $ 15,476
2000.................................... 15,477
2001.................................... 40,476
2002.................................... 250,976
2003.................................... 75,476
Thereafter.............................. 107,000
--------
Total................................. $504,881
========
</TABLE>
NOTE 6 - FINANCIAL INSTRUMENTS
- ------------------------------
The estimated fair values of the Company's financial instruments have been
determined by the Company using available market information and valuation
methodologies. Considerable judgment is required to develop the estimates of
fair value; thus, the estimates provided herein are not necessarily indicative
of the amount that the Company could realize upon the sale or refinancing of
such financial instruments.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ ------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
(000s) (000s)
<S> <C> <C> <C> <C>
Cash and cash equivalents.. $ 4,400 $ 4,400 $ 19,777 $ 19,777
Trade accounts receivable.. 233,574 233,574 258,791 258,170
Accounts payable........... 245,315 245,315 326,696 326,696
Long-term debt............. 504,881 503,001 441,357 447,843
Risk management contracts.. $ - $ 2,281 $ - $ (2,189)
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
Cash and cash equivalents, trade accounts receivable and accounts payable
Due to the short-term nature of these instruments, the carrying value
approximates the fair value.
44
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Long-term debt
The Company's long-term debt was primarily comprised of fixed rate facilities;
for this portion, fair market value was estimated using discounted cash flows
based upon the Company's current borrowing rates for debt with similar
maturities. The remaining portion of the long-term debt was borrowed on a
revolving basis which accrues interest at current rates; as a result, carrying
value approximates fair value of the outstanding debt.
Risk Management Contracts
Fair value represents the amount at which the instrument could be exchanged in a
current arms-length transaction.
NOTE 7 - INCOME TAXES
- ---------------------
The provision (benefit) for income taxes for the years ended December 31, 1998,
1997 and 1996 is comprised of (000s):
<TABLE>
<CAPTION>
1998 1997 1996
--------- ----- -------
<S> <C> <C> <C>
Current:
Federal............................. $ (5,696) $ 268 $ 1,152
State............................... - - -
-------- ----- -------
Total Current....................... (5,696) 268 1,152
-------- ----- -------
Deferred:
Federal............................. (31,272) 448 12,071
State............................... (1,450) 17 467
-------- ----- -------
Total Deferred...................... (32,722) 465 12,538
-------- ----- -------
Total tax provision (benefit).. $(38,418) $ 733 $13,690
======== ===== =======
</TABLE>
Temporary differences and carryforwards which give rise to the deferred tax
liabilities (assets) at December 31, 1998 and 1997 are as follows (000s):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Property and equipment......................................... $133,054 $158,258
Differences between the book and tax basis of acquired assets.. 14,386 15,334
-------- --------
Total deferred income tax liabilities......................... 147,440 173,592
-------- --------
Alternative Minimum Tax ("AMT") credit carryforwards........... (21,128) (26,849)
Net Operating Loss ("NOL") carryforwards....................... (78,291) (66,000)
-------- --------
Total deferred income tax assets.............................. (99,419) (92,849)
-------- --------
Net deferred income taxes..................................... $ 48,021 $ 80,743
======== ========
</TABLE>
45
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The differences between the provision (benefit) for income taxes at the
statutory rate and the actual provision (benefit) for income taxes for the years
ended December 31, 1998, 1997 and 1996 are summarized as follows (000s):
<TABLE>
<CAPTION>
1998 % 1997 % 1996 %
-------- ---- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Income tax (benefit) at statutory rate......... $(36,968) 35.0 $ 777 35.0 $14,570 35.0
State income taxes, net of federal benefit..... (1,450) 1.4 31 1.4 562 1.4
Permanent differences on asset write-downs..... - - - - - -
Reduction of deferred income taxes to reflect
adjustment in acquired NOL carryforward....... - - - - (900) (2.2)
Adjustment to prior year income taxes.......... - - - - (383) (.9)
Other.......................................... - - (75) (3.4) (159) (.4)
-------- ---- ----- ---- ------- ----
Total......................................... $(38,418) 36.4 $ 733 33.0 $13,690 32.9
======== ==== ===== ==== ======= ====
</TABLE>
At December 31, 1998 the Company had NOL carryforwards for Federal and State
income tax purposes and AMT credit carryforwards for Federal income tax purposes
of approximately $215.4 million and $21.1 million, respectively. These
carryforwards expire as follows (000s):
<TABLE>
<CAPTION>
Expiration Dates NOL AMT
--------------------------- -------- -------
<S> <C> <C>
2003....................... $ 170 $ -
2004....................... 413 -
2005....................... 943 -
2006....................... 478 -
2007....................... - -
2008....................... 12,179 -
2009....................... 56,308 -
2010....................... 59,857 -
2011....................... 16,221 -
2012....................... 39,033 -
2018....................... 29,807 -
No expiration.............. - 21,128
-------- -------
Total................. $215,409 $21,128
======== =======
</TABLE>
The Company believes that the NOL carryforwards and AMT credit carryforwards
will be utilized prior to their expiration because they are substantially offset
by existing taxable temporary differences reversing within the carryforward
period or are expected to be realized by achieving future profitable operations
based on the Company's dedicated and owned reserves, past earnings history,
projections of future earnings and current assets.
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES
- ------------------------------------------------
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 appealed the decision to the Eighth Circuit Court of
Appeals. On September 1, 1998 the Court of Appeals reversed the summary
judgment entered for JN on an unjust enrichment theory and remanded the case to
the trial court for a determination on JN's contract claims. This case
46
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
has now been settled for an immaterial amount and will be dismissed with
prejudice. The Company believes that it has meritorious defenses to the remanded
claim and will vigorously defend 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.
Berco Resources, Inc. v. Amerada Hess Corporation and Western Gas
Resources, Inc., United States District Court,
District of Colorado, Civil Action No. 97-WM-1332
Berco Resources, Inc. ("Berco") is an independent producer and marketer of
natural gas and alleges it owns or has the right to produce and sell natural gas
in the Temple/Tioga Area in North Dakota. Berco alleges that Amerada Hess
engaged in unlawful monopolization under Section 2 of the Sherman Act and
Section 7 of the Clayton Act by acquiring natural gas gathering and producing
facilities owned by Western Gas. Berco alleges that the Company and Amerada
Hess have conspired, through the purchase and sale of the Company's facilities
in the Temple/Tioga Area, to create a monopoly affecting an appreciable amount
of interstate commerce in violation of Sections 1 and 2 of the Sherman Act.
Berco seeks an award against Amerada Hess and the Company of threefold the
amount of damages actually sustained by Berco, in an amount to be determined at
trial, and/or divestiture of the Company assets acquired by Amerada Hess, for an
order against the Company and Amerada Hess restraining and enjoining them from
violating the antitrust laws, and for costs, attorney fees and interest. The
Company believes that it has meritorious defenses to the claims and will
vigorously defend such claims. At the present time it is not possible to
predict the outcome of this litigation to estimate the amount of potential
damages.
Internal Revenue Service
The Internal Revenue Service ("IRS") has completed its examination of the
Company's tax returns for the years 1990 and 1991 and has proposed adjustments
to taxable income reflected in such tax 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 adjustments. The Company currently is protesting certain of these
proposed adjustments. In the opinion of management, any proposed adjustments for
the additional income taxes and interest that may result would not be material.
However, it is reasonably possible that the ultimate resolution could result in
an amount which differs materially from management's estimates.
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.
NOTE 9 - BUSINESS SEGMENTS AND RELATED INFORMATION
- --------------------------------------------------
The Company operates in four principal business segments, as follows: Gas
Gathering and Processing, Producing Properties, Marketing and Transmission, and
these segments are separately monitored by management for performance against
its internal forecast and are consistent with the Company's internal financial
reporting package. These segments have been identified based upon the differing
products and services, regulatory environment and the expertise required for
these operations.
The Gas Gathering and Processing segment connects producers' wells to its
gathering systems for delivery to its processing or treating plants, processes
the natural gas to extract NGLs and treats the natural gas in order to meet
pipeline specifications. The residue gas and NGLs extracted at the processing
facilities are sold by the Marketing segment.
The activities of the Producing Properties segment includes the exploration and
development of certain oil and gas producing properties in basins where the
Company's facilities are located. The majority of the gas and oil produced from
these properties is sold by the Marketing segment.
47
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Marketing segment buys and sells gas and NGLs nationwide and in Canada,
providing storage, transportation, scheduling, peaking and other services to a
variety of customers. In addition, this segment also markets gas and NGLs
produced by the Company's facilities. The operations associated with the
Company's Katy Facility are included in the Marketing segment as are the
Company's Canadian marketing operations (which is immaterial for separate
presentation).
The Transmission segment reflects the operations of the Company's MIGC and MGTC
pipelines. The majority of the revenue presented in this segment is derived
from transportation of residue gas.
The following table sets forth the Company's segment information as of and for
the years ended December 31, 1998, 1997 and 1996 (in 000s). Due to the
Company's integrated operations, the use of allocations in the determination of
business segment information is necessary. Intersegment revenues are valued at
prices comparable to those of unaffiliated customers.
<TABLE>
<CAPTION>
Gas
Gathering
and Producing Trans- Eliminating
Processing Properties Marketing mission Corporate Entries Total
---------- ----------- ---------- -------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Revenues from unaffiliated customers.... $ 38,613 $ 1,979 $2,067,561 $ 4,956 $ 1,091 $ 709 $2,114,909
Interest income......................... 1 - 45 - 29,531 (28,486) 1,091
Other, net.............................. 16,759 703 120 (16) - - 17,566
Intersegment sales...................... 425,895 24,878 81,384 12,365 - (544,522) -
-------- --------- ---------- ------- ------- --------- ----------
Total revenues.......................... 481,268 27,560 2,149,110 17,305 30,622 (572,299) 2,133,566
Product purchases....................... 330,369 1,368 2,126,621 - (3,386) (540,669) 1,914,303
Plant operating expense................. 65,318 2,437 6,999 11,167 2,694 (3,262) 85,353
Oil and gas exploration
and production expense................. - 7,466 155 - 233 142 7,996
-------- --------- ---------- ------- ------- --------- ----------
Operating profit........................ $ 85,581 $ 16,289 $ 15,335 $ 6,138 $31,081 $ (28,510) 125,914
======== ========= ========== ======= ======= ========= ==========
Depreciation, depletion and amortization 59,346
Interest expense........................ 33,616
Loss on the impairment of property and
equipment.............................. 108,447
Selling and administrative expense...... 30,128
----------
Income (loss) before income taxes....... $ (105,623)
==========
Identifiable assets..................... $577,782 $ 89,191 $ 118,661 $63,946 $17,780 $ - $ 867,360
======== ========= ========== ======= ======= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers.... $ 33,180 $ 1,189 $2,333,064 $ 5,457 $ 780 $ 3,871 $2,377,541
Interest income......................... 18 - 114 - 17,556 (16,460) 1,228
Other, net.............................. 1,094 4,727 132 - 538 - 6,491
Intersegment sales...................... 522,783 34,123 51,411 7,419 - (615,736) -
-------- -------- ----------- ------- -------- --------- ---------
Total revenues.......................... 557,075 40,039 2,384,721 12,876 18,874 (628,325) 2,385,260
Product purchases....................... 399,651 1,238 2,352,107 4,409 (2,558) (608,417) 2,146,430
Plant operating expense................. 63,749 2,912 6,597 6,394 1,814 (3,353) 78,113
Oil and gas exploration
and production expense................. 7 7,634 106 - 3 (36) 7,714
-------- -------- ----------- ------- --------- ---------- -----------
Operating profit........................ $ 93,668 $ 28,255 $ 25,911 $ 2,073 $ 19,615 $ (16,519) $ 153,003
======== ======== =========== ======= ========= ========== ===========
</TABLE>
48
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Gas
Gathering
and Producing Trans- Eliminating
Processing Properties Marketing mission Corporate Entries Total
---------- ---------- ---------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997, cont.
Depreciation, depletion and amortization $59,248
Interest expense........................ 27,474
Loss on the impairment of property and
equipment.............................. 34,615
Selling and administrative expense...... 29,446
----------
Income (loss) before income taxes....... $ 2,220
==========
Identifiable assets..................... $698,899 $104,744 $ 121,305 $48,541 $13,723 $ - $ 987,212
======== ======== ========== ======= ======= ========= ==========
Year ended December 31, 1996
Revenues from unaffiliated customers.... $ 45,828 $ 764 $2,032,696 $ 5,187 $(2,785) $ 1,106 $2,082,796
Interest income......................... - - - - 14,316 (13,663) 653
Other, net.............................. 2,748 2,807 106 (6) 1,905 - 7,560
Intersegment sales...................... 506,356 33,041 38,377 6,249 - (584,023) -
-------- -------- ---------- ------- ------- --------- ----------
Total revenues.......................... 554,932 36,612 2,071,179 11,430 13,436 (596,580) 2,091,009
Product purchases....................... 390,890 334 2,033,190 4,551 (5,948) (578,866) 1,844,151
Plant operating expense................. 63,980 2,774 7,238 4,266 1,539 (6,681) 73,116
Oil and gas exploration
and production expense................. - 4,440 133 - - 483 5,056
-------- -------- ---------- ------- ------- --------- ----------
Operating profit........................ $100,062 $ 29,064 $ 30,618 $ 2,613 $17,845 $ (11,516) 168,686
======== ======== ========== ======= ======= ========= ==========
Depreciation, depletion and amortization 63,207
Interest expense 34,437
Loss on the impairment of property and
equipment.............................. -
Selling and administrative expense...... 29,411
----------
Income (loss) before income taxes....... $ 41,631
==========
Identifiable assets..................... $598,453 $119,132 $ 121,978 $36,110 $14,019 $ - $ 889,692
======== ======== ========== ======= ======= ========= ==========
</TABLE>
NOTE 10 - EMPLOYEE BENEFIT PLANS
- --------------------------------
Profit Sharing Plan
A discretionary profit sharing plan (a defined contribution plan) exists for all
Company employees meeting certain service requirements. The Company may make
annual discretionary contributions to the plan as determined by the Board of
Directors and
49
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
provides for a match of 50% of employee contributions on the first 4% of
employee compensation contributed. Contributions are made to common/collective
trusts for which Fidelity Management Trust Company acts as trustee. The
discretionary contributions made by the Company were $1.9 million, $1.9 million
and $1.7 million, for the years ended December 31, 1998, 1997 and 1996,
respectively. The matching contributions were $668,000, $310,000 and $256,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
Key Employees' Incentive Stock Option Plan and Non-Employee Director Stock
Option Plan
Effective April 1987, the Board of Directors of the Company adopted a Key
Employees' Incentive Stock Option Plan ("Key Employee Plan") and a Non-Employee
Director Stock Option Plan ("Directors' Plan") that authorize the granting of
options to purchase 250,000 and 20,000 shares of the Company's Common Stock,
respectively. Under the plans, each of these options became exercisable as to
25% of the shares covered by it on the later of January 1, 1992 or one year from
the date of grant, subject to the continuation of the optionee's relationship
with the Company, and became exercisable as to an additional 25% of the covered
shares on the later of each subsequent January 1 through 1995 or on each
subsequent date of grant anniversary, subject to the same condition. Each of
these plans will terminate on the earlier of February 6, 2000 or the date on
which all options granted under each of the plans have been exercised in full.
The Company has entered into agreements committing the Company to loan certain
employees an amount sufficient to exercise their options as each portion of
their options vests. The Company will forgive such loans and associated accrued
interest if the employee has been continuously employed by the Company for four
years after the date of each loan increment. In January 1999, the Board of
Directors voted to extend the maturity for all such loans for officers still
employed in January 1999, until January 2001. During 1996, under the terms of a
severance agreement, the Company extended the maturity date of one former
officer's loans to December 31, 2000. In addition, under the terms of a
severance agreement, the loans of a former officer are being forgiven over the
life of the original loan forgiveness schedule. As of December 31, 1998 and
1997, loans related to 81,250 and 112,500 shares of Common Stock, respectively,
totaling $870,000 and $1.2 million, respectively, were outstanding under these
terms.
1993 and 1997 Stock Option Plans
The 1993 Stock Option Plan ("1993 Plan") became effective on May 24, 1993 and
the 1997 Stock Option Plan ("1997 Plan") became effective on May 21, 1997 after
approvals by the Company's stockholders. Each plan is intended to be an
incentive stock option plan in accordance with the provisions of Section 422 of
the Internal Revenue Code of 1986, as amended. The Company has reserved
1,000,000 shares of Common Stock for issuance upon exercise of options under
each of the 1993 Plan and the 1997 Plan. The 1993 Plan and the 1997 Plan will
terminate on the earlier of March 21, 2003 and May 21, 2007, respectively, or
the date on which all options granted under each of the plans have been
exercised in full.
Under both of the plans, the Board of Directors of the Company determines and
designates from time to time those employees of the Company to whom options are
to be granted. If any option terminates or expires prior to being exercised,
the shares relating to such option are released and may be subject to reissuance
pursuant to a new option. The Board of Directors has the right to, among other
things, fix the price, terms and conditions for the grant or exercise of any
option. The purchase price of the stock under each option shall be the fair
market value of the stock at the time such option is granted. Under the 1993
Plan, options granted vest 20% each year on the anniversary of the date of grant
commencing with the first anniversary. Under the 1997 Plan, the Board of
Directors has the authority to set the vesting schedule from 20% per year to 33
1/3% per year. Under both plans, the employee must exercise the option within
five years of the date each portion vests.
$5.40 Stock Option Plan
In April 1987 and amended in February 1994, the Partnership adopted an employee
option plan ("$5.40 Plan") that authorized granting options to employees to
purchase 483,000 common units in the Partnership. Pursuant to the
Restructuring, the Company assumed the Partnership's obligation under the
employee option plan. The plan was amended upon the Restructuring to allow each
holder of existing options to exercise such options and acquire one share of
Common Stock for each common unit they were originally entitled to purchase.
The exercise price and all other terms and conditions for the exercise of such
options issued under the amended plan were the same as under the plan, except
that the Restructuring accelerated the time upon which certain options may be
exercised. All options under the plan were either exercised or forfeited on or
before May 31, 1997. The Company has entered into agreements committing the
Company to loan to certain employees an amount sufficient to exercise their
50
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
options, provided that the Company will not loan in excess of 25% of the total
amount available to the employee in any one year. In accordance with the
agreements, the Company forgave the majority of such loans and associated
accrued interest on July 2, 1997. Under the terms of a severance agreement, the
Company extended the maturity date of one former officer's loans to December 31,
2000. As of December 31, 1998 and 1997, loans related to 15,000 shares of Common
Stock in each year, respectively, totaling $81,000, were outstanding under these
terms.
The following table summarizes the number of stock options exercisable and
available for grant under the Company's benefit plans:
<TABLE>
<CAPTION>
Key Employee Directors'
$5.40 Plan Plan Plan 1993 Plan 1997 Plan
---------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EXERCISABLE:
December 31, 1996....... 33,148 56,250 11,000 288,438 -
December 31, 1997....... - 75,000 12,250 448,171 -
December 31, 1998....... - 75,000 13,500 562,138 26,250
AVAILABLE FOR GRANT:
December 31, 1996....... - 31,250 1,250 4,734 -
December 31, 1997....... - 31,250 1,250 9,382 828,900
December 31, 1998....... - 31,250 1,250 96,609 763,400
</TABLE>
51
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the stock option activity under the Company's
benefit plans:
<TABLE>
<CAPTION>
Per Share Number of Shares
-------------------------------------------------------------
Price Key Employee Directors'
Range $5.40 Plan Plan Plan 1993 Plan 1997 Plan
--------------- ---------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance 12/31/95........ 47,571 75,000 13,500 688,061 -
Granted................ $13.88 - $18.63 - - - 351,733 -
Exercised.............. 5.40 (14,423) - - - -
Forfeited or canceled.. 13.25 - 35.00 - - - (46,591) -
-------- ------------ --------- -------- ---------
Balance 12/31/96........ 33,148 75,000 13,500 993,203 -
Granted................ 17.75 - 24.00 - - - 64,654 171,100
Exercised.............. 5.40 - 23.50 (32,077) - - (5,225) -
Forfeited or canceled.. 5.40 - 34.13 (1,071) - - (69,302) -
-------- ------------ --------- -------- ---------
Balance 12/31/97........ - 75,000 13,500 983,330 171,100
Granted................ 19.28 - - - 40,511 106,500
Exercised.............. 15.83 - - - (1,556) -
Forfeited or canceled.. $19.19 - $21.78 - - - (129,809) (41,000)
-------- ------------ --------- -------- ---------
Balance 12/31/98........ - 75,000 13,500 892,476 236,600
======== ============ ========= ======== =========
</TABLE>
The following table summarizes the weighted average option exercise price
information under the Company's benefit plans:
<TABLE>
<CAPTION>
Key Employee Directors'
$5.40 Plan Plan Plan 1993 Plan 1997 Plan
---------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance 12/31/95......... $ 5.40 $ 30.23 $14.13 $25.11 -
Granted................ - - - 14.63 -
Exercised.............. 5.40 - - - -
Forfeited or canceled.. - - - 27.05 -
---------- ------------ ---------- --------- ---------
Balance 12/31/96......... 5.40 30.23 14.13 21.31 -
Granted................ - - - 19.71 19.63
Exercised.............. 5.40 - - 16.91 -
Forfeited or canceled.. 5.40 - - 25.54 -
---------- ------------ ---------- --------- ---------
Balance 12/31/97......... - 30.23 14.13 20.93 19.63
Granted................ - - - 19.28 11.69
Exercised.............. - - - 14.78 -
Forfeited or canceled.. - - - 21.97 19.16
---------- ------------ ---------- --------- ---------
Balance 12/31/98......... $ - $ 30.23 $14.13 $20.71 $16.15
</TABLE>
52
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SFAS No. 123 encourages companies to record compensation expense for stock-based
compensation plans at fair value. As permitted under SFAS No. 123, the Company
has elected to continue to measure compensation costs for such plans as
prescribed by APB No. 25. SFAS No. 123 requires pro forma disclosures for each
year a statement of operations is presented. Such information was only
calculated for the options granted under the 1993 Plan and the 1997 Plan as
there were no grants under any other plans. The weighted average fair value of
options granted under the 1993 Plan of $0.37, $10.54 and $10.18 for the years
ended December 31, 1998, 1997 and 1996, respectively, and the weighted average
fair value of options granted under the 1997 Plan of $1.00 and $12.66 for the
years ended December 31, 1998 and 1997, respectively, was estimated using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1993 Plan 1997 Plan
-------------------------- -----------------
1998 1997 1996 1998 1997
------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Risk-free interest rate......... 5.3% 6.1% 6.35% 5.3% 6.1%
Expected life (in years)........ 5 6 7 6 10
Expected volatility............. 45% 42% 37% 45% 42%
Expected dividends (quarterly).. $ .05 $ .05 $ .05 $ .05 $ .05
</TABLE>
Had compensation expense for the Company's 1998, 1997 and 1996 grants for stock-
based compensation plans been determined consistent with the fair value method
under SFAS No. 123, the Company's net income (loss), income (loss) attributable
to common stock, earnings (loss) per share of common stock and earnings (loss)
per share of common stock - assuming dilution would approximate the pro forma
amounts below (000s, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ------------------------ ----------------------
As Reported Pro forma As Reported Pro forma As Reported Pro forma
------------ --------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss).................... $(67,205) $(67,997) $ 1,487 $ 941 $27,941 $27,891
Net income (loss) attributable to
common stock........................ (77,644) (78,436) (8,952) (9,498) 17,502 17,452
Earnings (loss) per share of common
stock............................... (2.42) (2.44) (.28) (.30) .66 .66
Earnings (loss) per share of common
stock - assuming dilution.......... $ (2.42) $ (2.44) $ (.28) $ (.30) $ .66 $ .66
</TABLE>
The 1993 Plan dictates that the options granted vest 20% each year on the
anniversary of the date of grant commencing with the first anniversary. The
Board of Directors has the authority to set the vesting schedule from 20% per
year to 33 1/3% per year for the 1997 Plan. All options granted in 1997 will
vest at the rate of 20% per year. As a result, no compensation expense, as
defined under SFAS No. 123, is recognized in the year options are granted. In
addition, the fair market value of the options at grant date is amortized over
this vesting period for purposes of calculating compensation expense.
53
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
- ----------------------------------------------------------------------
(UNAUDITED):
- ------------
Costs
The following tables set forth capitalized costs at December 31, 1998, 1997 and
1996 and costs incurred for oil and gas producing activities for the years ended
December 31, 1998, 1997 and 1996 (000s):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Capitalized costs:
Proved properties............................................... $110,090 $134,102 $140,871
Unproved properties............................................. 33,255 18,464 8,064
-------- -------- --------
Total............................................................ 143,345 152,566 148,935
Less accumulated depletion...................................... (58,994) (61,766) (58,548)
-------- -------- --------
Net capitalized costs............................................ $ 84,351 $ 90,800 $ 90,387
======== ======== ========
The Company's share of Redman Smackover's net capitalized costs.. $ - $ 3,845 $ 4,385
======== ======== ========
Costs incurred:
Acquisition of properties
Proved.......................................................... $ 2,174 $ 7,499 $ 242
Unproved........................................................ 22,633 10,457 909
Development costs................................................ 23,208 13,134 3,893
Exploration costs................................................ 4,177 1,322 2,581
-------- -------- --------
Total costs incurred............................................. $ 52,192 $ 32,412 $ 7,625
======== ======== ========
The Company's share of Redman Smackover's costs incurred......... $ 72 $ 236 $ 8
======== ======== ========
</TABLE>
Results of Operations
The results of operations for oil and gas producing activities, excluding
corporate overhead and interest costs, for the years ended December 31, 1998,
1997 and 1996 are as follows (000s):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues from sale of oil and gas:
Sales................................................ $ 2,592 $ 5,970 $ 1,821
Transfers............................................ 23,188 25,571 31,733
-------- -------- --------
Total.............................................. 25,780 31,541 33,554
Production costs...................................... (6,611) (6,384) (4,256)
Exploration costs..................................... (1,599) (1,439) (898)
Depreciation, depletion and amortization.............. (11,749) (11,549) (11,756)
Impairment of oil and gas properties.................. (16,528) (19,615) -
Income tax benefit (expense).......................... 3,690 2,792 (6,261)
-------- -------- --------
Results of operations................................. $ 7,017 $ (4,654) $ 10,383
======== ======== ========
The Company's share of Redman Smackover's operations.. $ 421 $ 1,265 $ 1,745
======== ======== ========
</TABLE>
Reserve Quantity Information
Reserve estimates are subject to numerous uncertainties inherent in the
estimation of quantities of proved reserves and in the projection of future
rates of production and the timing of development expenditures. The accuracy of
such estimates is a function of the quality of available data and of engineering
and geological interpretation and judgment. Estimates of economically
recoverable reserves and of
54
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
future net cash flows expected therefrom prepared by different engineers or by
the same engineers at different times may vary substantially. Results of
subsequent drilling, testing and production may cause either upward or downward
revisions of previous estimates. Further, the volumes considered to be
commercially recoverable fluctuate with changes in commodity prices and
operating costs. Any significant revision of reserve estimates could materially
adversely affect the Company's financial condition and results of operations.
The following table sets forth information for the years ended December 31,
1998, 1997 and 1996 with respect to changes in the Company's proved reserves,
all of which are in the United States. The Company has no significant
undeveloped reserves.
<TABLE>
<CAPTION>
Natural Crude
Gas Oil
(MMcf) (MBbls)
------- ------
<S> <C> <C>
Proved reserves:
December 31, 1995.......................................... 108,820 715
Revisions of previous estimates............................ (2,147) 286
Purchases of reserves in place............................. 2,372 -
Production................................................. (13,014) (158)
------- ------
December 31, 1996.......................................... 96,031 843
Revisions of previous estimates............................ (18,132) (74)
Extensions and discoveries................................. 113,251 191
Purchases of reserves in place............................. 34,588 -
Production................................................. (13,142) (154)
------- ------
December 31, 1997.......................................... 212,596 806
Revisions of previous estimates............................ 28,617 (200)
Extensions and discoveries................................. 43,248 66
Sales/Purchases of reserves in place, net.................. (31,020) -
Production................................................. (14,511) (117)
------- ------
December 31, 1998...................................... 238,930 555
======= ======
The Company's share of Redman Smackover's proved reserves:
December 31, 1996.......................................... 10,811 -
======= ======
December 31, 1997.......................................... 10,218 -
======= ======
December 31, 1998.......................................... - -
======= ======
</TABLE>
Standardized Measures of Discounted Future Net Cash Flows
Estimated discounted future net cash flows and changes therein were determined
in accordance with SFAS No. 69, "Disclosures about Oil and Gas Producing
Activities." Certain information concerning the assumptions used in computing
the valuation of proved reserves and their inherent limitations are discussed
below. The Company believes such information is essential for a proper
understanding and assessment of the data presented.
Future cash inflows are computed by applying year end prices of oil and gas
relating to the Company's proved reserves to the year end quantities of those
reserves. Future price changes are considered only to the extent provided by
contractual arrangements, including futures contracts, in existence at year end.
The assumptions used to compute estimated future net revenues do not necessarily
reflect the Company's expectations of actual revenues or costs, nor their
present worth. In addition, variations from the expected production rate also
could result directly or indirectly from factors outside of the Company's
control, such as unintentional delays in development, changes in prices or
regulatory controls. The reserve valuation further assumes that all reserves
will be disposed of by production. However, if reserves are sold in place,
additional economic considerations could also affect the amount of cash
eventually realized.
Future development and production costs are computed by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of the year, based on year end costs and assuming
continuation of existing economic conditions.
55
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future income tax expenses are computed by applying the appropriate year end
statutory tax rates, with consideration of future tax rates already legislated,
to the future pre-tax net cash flows relating to the Company's proved oil and
gas reserves. Permanent differences in oil and gas-related tax credits and
allowances are recognized.
An annual discount rate of 10% was used to reflect the timing of the future net
cash flows relating to proved oil and gas reserves.
Information with respect to the Company's estimated discounted future cash flows
from its oil and gas properties for the years ended December 31, 1998, 1997 and
1996 is as follows (000s):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Future cash inflows......................................................... $ 345,217 $ 352,491 $ 305,095
Future production costs..................................................... (108,457) (118,056) (54,306)
Future development costs.................................................... (46,066) (28,803) (1,728)
Future income tax expense................................................... (33,749) (32,614) (37,870)
--------- --------- ---------
Future net cash flows....................................................... 156,945 173,018 211,191
10% annual discount for estimated timing of cash flows...................... (59,068) (73,445) (100,474)
--------- --------- ---------
Standardized measure of discounted future net cash flows relating to
proved oil and gas reserves............................................... $ 97,877 $ 99,573 $ 110,717
========= ========= =========
The Company's share of Redman Smackover's standardized measure of
discounted future net cash flows relating to proved oil and gas reserves.. $ - $ 6,326 $ 5,684
========= ========= =========
</TABLE>
Principal changes in the Company's estimated discounted future net cash flows
for the years ended December 31, 1998, 1997 and 1996 are as follows (000s):
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
January 1....................................... $ 99,573 $ 110,717 $ 81,762
Sales and transfers of oil and gas produced,
net of production costs....................... (19,170) (25,157) (29,298)
Net changes in prices and production costs
related to future production.................. 367 (146,968) 61,888
Development costs incurred during the period... 23,208 13,134 3,893
Changes in estimated future development costs.. (33,723) (26,875) (2,057)
Changes in extensions and discoveries.......... 23,336 158,314 -
Revisions of previous quantity estimates....... 35,438 (47,859) 2,554
Sales/Purchases of reserves in place, net...... (38,251) 47,867 5,266
Accretion of discount.......................... 9,957 11,072 8,176
Net change in income taxes..................... (1,134) 5,256 (19,484)
Other, net..................................... (1,724) 72 (1,983)
---------- --------- --------
December 31..................................... $ 97,877 $ 99,573 $110,717
========== ========= ========
</TABLE>
56
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
- ------------------------------------------------------
The following summarizes certain quarterly results of operations (000s, except
per share amounts):
<TABLE>
<CAPTION>
Earnings (Loss)
Per Share of
Net Earnings (Loss) Common Stock -
Operating Gross Income Per Share of Assuming
Revenues Profit (a) (Loss) Common Stock Dilution
---------- ---------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
1998 quarter ended:
March 31....................................... $ 580,455 $ 37,019 $ 13,185 $ .33 $ .33
June 30........................................ 500,771 10,755 (2,645) (.16) (.16)
September 30................................... 516,259 8,307 (4,647) (.23) (.23)
December 31.................................... 536,081 10,487 (73,098)(c) (2.36) (2.36)
---------- --------- -------- ------ -------
$2,133,566 $ 66,568 $(67,205) $(2.42) $ (2.42)
========== ========= ======== ====== =======
1997 quarter ended:
March 31....................................... $ 635,538 $ 30,847 $ 10,608 $ .25 $ .25
June 30........................................ 463,575 15,508 878 (.05) (.05)
September 30................................... 555,888 20,757 4,997 .07 .07
December 31.................................... 730,259 26,643 (14,996)(b) (.55) (.55)
---------- --------- -------- ------ -------
$2,358,260 $ 93,755 $ 1,487 $ (.28) $ (.28)
========== ========= ======== ====== =======
</TABLE>
(a) Excludes selling and administrative, interest and income tax expenses and
loss on the impairment of property and equipment.
(b) Includes a pre-tax, non-cash expense resulting from the evaluation of
property and equipment in accordance with SFAS No. 121 of $34.6 million.
(c) Includes a pre-tax, non-cash expense resulting from the evaluation of
property and equipment in accordance with SFAS No. 121 of $108.5 million.
57
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to instruction G(3) to Form 10-K, Items 10, 11, 12 and 13 are omitted
because the Company will file a definitive proxy statement (the "Proxy
Statement") pursuant to Regulation 14A under the Securities Exchange Act of 1934
not later than 120 days after the close of the fiscal year. The information
required by such Items will be included in the definitive proxy statement to be
so filed for the Company's annual meeting of stockholders scheduled for May 21,
1999 and is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Reference is made to page 27 for a list of all financial statements
filed as a part of this report.
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
3.1 Certificate of Incorporation of Western Gas Resources, Inc. (Filed as
exhibit 3.1 to Western Gas Resources, Inc.'s Registration Statement on
Form S-1, Registration No. 33-31604 and incorporated herein by
reference).
3.2 Certificate of Amendment to the Certificate of Incorporation of
Western Gas Resources, Inc. (Filed as exhibit 3.2 to Western Gas
Resources, Inc.'s Registration Statement on Form S-1, Registration No.
33-31604 and incorporated herein by reference).
3.3 Certificate of Designation of 7.25% Cumulative Senior Perpetual
Convertible Preferred Stock of the Company (Filed as exhibit 3.5 to
Western Gas Resources, Inc.'s Registration Statement on Form S-1,
Registration No. 33-43077 dated November 14, 1991 and incorporated
herein by reference).
3.4 Certificate of Designation of $2.28 Cumulative Preferred Stock of the
Company (Filed as exhibit 3.6 to Western Gas Resources, Inc.'s
Registration Statement of Form S-1, Registration No. 33-53786 dated
November 12, 1992 and incorporated herein by reference).
3.5 Certificate of Designation of the $2.625 Cumulative Convertible
Preferred Stock of the Company (Filed under cover of Form 8-K dated
February 24, 1994 and incorporated herein by reference).
58
<PAGE>
10.1 Restated Profit-Sharing Plan and Trust Agreement of Western Gas
Resources, Inc. (Filed as exhibit 10.8 to Western Gas Resources,
Inc.'s Registration Statement on Form S-4, Registration No. 33-39588
dated March 27, 1991 and incorporated herein by reference).
10.2 Western Gas Resources, Inc. Key Employees' Incentive Stock Option Plan
(Filed as exhibit 10.13 to Western Gas Resources, Inc.'s Registration
Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991
and incorporated herein by reference).
10.3 Registration Rights Agreement among Western Gas Resources, Inc., WGP,
Inc., Heetco, Inc., NV, Dean Phillips, Inc., Sauvage Gas Company and
Sauvage Gas Service, Inc. (Filed as exhibit 10.14 to Western Gas
Resources, Inc.'s Registration Statement on Form S-4, Registration No.
33-39588 dated March 27, 1991 and incorporated herein by reference).
10.4 Amendment No. 1 to Registration Rights Agreement as of May 1, 1991
between Western Gas Resources, Inc., Bill Sanderson, WGP, Inc., Dean
Phillips, Inc., Heetco, Inc., NV, Sauvage Gas Company and Sauvage Gas
Service, Inc. (Filed as exhibit 4.2 to Western Gas Resources, Inc.'s
Form 10-Q for the quarter ended June 30, 1991 and incorporated herein
by reference).
10.5 Second Amendment and First Restatement of Western Gas Processors, Ltd.
Employees' Common Units Option Plan (Filed as exhibit 10.6 to Western
Gas Resources, Inc.'s Registration Statement on Form S-1, Registration
No. 33-43077 dated November 14, 1991 and incorporated herein by
reference).
10.6 Agreement to provide loans to exercise key employees' common stock
options (Filed as exhibit 10.26 to Western Gas Resources, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 1991
and incorporated herein by reference).
10.7 Agreement to provide loans to exercise employees' common stock options
(Filed as exhibit 10.27 to Western Gas Resources, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference).
10.8 Note Purchase Agreement (without exhibits) dated as of April 1, 1993
by and between the Company and the Purchasers for $50,000,000, 7.65%
Senior Notes Due April 30, 2003 (Filed as exhibit 10.48 to Western Gas
Resources, Inc.'s Form 10-Q for the six months ended June 30, 1993 and
incorporated herein by reference).
10.9 General Partnership Agreement (without exhibits), dated August 10,
1993 for Westana Gathering Company by and between Western Gas
Resources -Oklahoma, Inc. (a subsidiary of the Company) and Panhandle
Gathering Company (Filed as exhibit 10.50 to Western Gas Resources,
Inc.'s Form 10-Q for the six months ended June 30, 1993 and
incorporated herein by reference).
10.10 Amendment to General Partnership Agreement dated August 10, 1993 by
and between Western Gas Resources -Oklahoma, Inc. (a subsidiary of the
Company) and Panhandle Gathering Company (Filed as exhibit 10.51 to
Western Gas Resources, Inc.'s Form 10-Q for the six months ended June
30, 1993 and incorporated herein by reference).
10.11 Amendment No. 1 to Note Purchase Agreement dated as of August 31, 1993
by and among the Company and the Purchasers (Filed as exhibit 10.61 to
Western Gas Resources, Inc.'s Form 10-Q for the nine months ended
September 30, 1993 and incorporated herein by reference).
10.12 Amendment No. 2 to Note Purchase Agreement dated as of August 31, 1994
by and among Western Gas Resources, Inc. and the Purchasers (Filed as
exhibit 10.68 to Western Gas Resources, Inc.'s Form 10-Q for the nine
months ended September 30, 1994 and incorporated herein by reference).
10.13 Amendment No. 3 to Note Purchase Agreement as of March 22, 1995 by and
among Western Gas Resources, Inc. and the Purchasers (Filed as exhibit
10.38 to Western Gas Resources, Inc.'s Form 10-Q for the three months
ended March 31, 1995 and incorporated herein by reference).
10.14 Form of Employment Agreement by and between Western Gas Resources,
Inc. and certain Executive Officers (Filed as exhibit 10.40 to
Western Gas Resources, Inc.'s Form 10-Q for the three months ended
March 31, 1995 and incorporated herein by reference).
59
<PAGE>
10.15 Amendment No. 4 to Note Purchase Agreements as of July 14, 1995 by and
among Western Gas Resources, Inc. and the Purchasers (Filed as
exhibit 10.43 to Western Gas Resources, Inc.'s Form 10-Q for the six
months ended June 30, 1995 and incorporated herein by reference).
10.16 Second Amended and Restated Master Shelf Agreement effective January
31, 1996 by and between Western Gas Resources, Inc. and Prudential
Company of America (Filed as exhibit 10.49 to Western Gas Resources,
Inc.'s Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference).
10.17 Fourth Amendment to First Restated Loan Agreement (Revolver) dated
November 29, 1995 by and among Western Gas Resources, Inc. and
NationsBank, as agent, and the Lenders (Filed as exhibit 10.51 to
Western Gas Resources, Inc.'s Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
10.18 Senior Note Purchase Agreement dated November 29, 1995 by and among
Western Gas Resources, Inc. and the Purchasers identified therein
(Filed as exhibit 10.52 to Western Gas Resources, Inc.'s Form 10-K for
the year ended December 31, 1995 and incorporated herein by
reference).
10.19 Loan Agreement dated May 30, 1997 among Western Gas Resources, Inc.
and NationsBank of Texas, N.A. as agent, Bank of America National
Trust and Savings Association as Co-agent and Certain Banks as Lenders
(Revolver) (Filed as exhibit 10.40 to Western Gas Resources, Inc.'s
Form 10-Q for the six months ended June 30, 1996 and incorporated
herein by reference).
11.1 Statement regarding computation of per share earnings.
12.1 Amended and Restated Bylaws of Western Gas Resources, Inc. adopted by
the Board of Directors on February 12, 1999.
12.2 Second Amendment dated February 17, 1999 to Credit Agreement by and
among Western Gas Resources, Inc. and NationsBank N.A., successor to
NationsBank of Texas, N.A., by merger, and the Lenders identified in
the Original Agreement dated May 30, 1997.
12.3 Offer to Acquire Notes dated February 12, 1999 by and between Western
Gas Resources, Inc. and CIGNA Investments, Inc., Royal Maccabees Life
Insurance Company, The Canada Life Assurance Company, and Canada Life
Insurance Company of America, original Purchasers under the Note
Purchase Agreement dated as of April 1, 1993 by and between Company
and Purchasers for $50,000,000, 7.65% Senior Notes due April 30, 2003.
12.4 Offer to Acquire Notes dated February 12, 1999 by and between Western
Gas Resources, Inc. and MONY Life Insurance Company, one of the
original Purchasers under the Note Purchase Agreement dated as of
November 29, 1995 by and between Company and Purchasers for
$42,000,000, 8.02% Senior Notes due December 1, 2005.
12.5 Loan Agreement dated February 17, 1999 by and among Western Gas
Resources, Inc. and NationsBank, N.A., for $37,000,000 Bridge Loan.
21.1 List of Subsidiaries of Western Gas Resources, Inc.
23.1 Consent of PricewaterhouseCoopers LLP
(b) Reports on Form 8-K:
A report on Form 8-K was filed on December 11, 1998 to announce that all
extensions of time for RIS Resources (USA) Inc.,a U.S. subsidiary of R.I.S.
Resource International Corp., have expired and that the companies are no
longer negotiating the sale of an interest in the Granger and Lincoln Road
Complex.
(c) Exhibits required by Item 601 of Regulation S-K. See (a) (3) above.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado on March 26, 1998.
WESTERN GAS RESOURCES, INC.
---------------------------
(Registrant)
By: /s/ BRION G. WISE
_________________________
Brion G. Wise
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ BRION G. WISE Chairman of the Board, Chief Executive Officer March 26, 1999
_____________________________
Brion G. Wise and Director
/s/ WALTER L. STONEHOCKER Vice Chairman of the Board and Director March 26, 1999
_____________________________
Walter L. Stonehocker
/s/ BILL M. SANDERSON Director March 26, 1999
_____________________________
Bill M. Sanderson
Director March 26, 1999
_____________________________
Richard B. Robinson
/s/ DEAN PHILLIPS Director March 26, 1999
_____________________________
Dean Phillips
/s/ WARD SAUVAGE Director March 26, 1999
_____________________________
Ward Sauvage
/s/ JAMES A. SENTY Director March 26, 1999
_____________________________
James A. Senty
/s/ JOSEPH E. REID Director March 26, 1999
_____________________________
Joseph E. Reid
/s/ WILLIAM J. KRYSIAK Vice President - Finance (Principal Financial and March 26, 1999
_____________________________
William J. Krysiak Accounting Officer)
</TABLE>
61
<PAGE>
EXHIBIT 11.1
WESTERN GAS RESOURCES, INC.
COMPUTATION OF PER SHARE EARNINGS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Weighted
Average
Shares Of Earnings
Common Per Share
Stock Net Of Common
Outstanding Income Stock
------------ ------------ ---------
<S> <C> <C> <C>
Net income........................................................ $(67,205,000)
Weighted average shares of common stock outstanding............... 32,147,354
Less preferred stock dividends:
$2.28 cumulative preferred stock................................. (3,194,000)
$2.625 cumulative convertible preferred stock.................... (7,245,000)
----------- ------------
Income attributable to common shareholders........................ 32,147,354 $(77,644,000)
=========== ============
Basic earnings per share of common stock.......................... $ (2.42)
=========
(Assume no conversion of anti-dilutive convertible
preferred stock)
Assume exercise of common stock equivalents:
Weighted average shares of common stock outstanding..............
(Anti-dilutive common stock equivalents are not used
in this calculation)
$5.40 employee stock options......................................
---------- ------------
32,147,354 $(77,644,000)
========== ============
Earnings per share of common stock - assuming dilution............ $ (2.42)
=========
</TABLE>
<PAGE>
EXHIBIT 12.1
AMENDED AND RESTATED BYLAWS
OF
WESTERN GAS RESOURCES, INC.
-----------------------
ARTICLE I.
OFFICES
-------
Section 1. The registered office of the corporation shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places,
both within and without the State of Delaware, as the Board of Directors may
from time to time determine or the business of the corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. (a) Annual meetings of stockholders, commencing with the
year 1990, shall be held on the second Wednesday in May, if not a legal holiday,
and if a legal holiday, then on the next secular day following, at ten o'clock
a.m., or at such other date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which they
shall elect a class of Directors and transact such other business as may
properly be brought before the meeting.
(b) At each meeting of stockholders, the Chairman of the Board, or, in
the absence of the Chairman of the Board, the President, shall act as chairman.
The order of business at each such meeting shall be as determined by the
chairman of the meeting. The chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts and things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations on the time allotted to questions
or comments on the affairs of the corporation, restrictions on entry to such
meeting after the time prescribed for the commencement thereof, and the opening
and closing of the voting polls. The chairman of the meeting shall announce at
each such meeting the date and time of the opening and closing of the voting
polls for each matter upon which the stockholders will vote at such meeting.
1
<PAGE>
(c) In order for business to be properly brought before the meeting by
a stockholder, the business must be legally proper and written notice thereof
must have been filed with the Secretary of the corporation not less than 60 nor
more than 120 days prior to the meeting. Each such notice shall set forth: (i)
the name and address of the stockholder who intends to make the proposal as the
same appear in the corporation's records; (ii) the class and number of shares of
stock of the corporation that are beneficially owned, directly or indirectly, by
such stockholder, and if such stockholder is not the record holder of such
shares, the name, based upon the best knowledge of such stockholder, of the
record holder thereof, and (iii) a clear and concise statement of the proposal
and the stockholder's reasons for supporting it. The filing of a stockholder
notice as required above shall not, in and of itself, constitute the making of
the proposal described therein. If the chairman of the meeting determines that
any proposed business has not been properly brought before the meeting, he shall
declare such business out of order; and such business shall not be conducted at
the meeting.
(d) Either the Board of Directors or, in the absence of an appointment
of inspectors by the Board, the Chairman of the Board or the President shall, in
advance of each meeting of the stockholders, appoint one or more inspectors to
act at such meeting and make a written report thereof. In connection with any
such appointment, one or more persons may, in the discretion of the body or
person making such appointment, be designated as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
any meeting of stockholders, the chairman of such meeting shall appoint one or
more inspectors to act at such meeting. Each such inspector shall perform such
duties as are required by law and as shall be specified by the Board, the
chairman of the board, the president or the chairman of the meeting. Each such
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability. Inspectors need not be stockholders.
No director or nominee for the office or director shall be appointed such an
inspector.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before each annual meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the Chairman of the Board or by the President of
the corporation or by the Board of Directors or by written order of a majority
of the directors and shall be called by the President or the Secretary at the
request in writing of stockholders owning twenty-five percent in amount of the
entire capital
2
<PAGE>
stock of the corporation issued and outstanding and entitled to vote. Such
request shall state the purposes of the proposed meeting. The Chairman of the
Board or the President of the corporation or directors so calling, or the
stockholders so requesting, any such meeting shall fix the time and any place,
either within or without the State of Delaware, as the place for holding such
meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting, at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question (other than the election of
directors) brought before such meeting, unless the question is one upon which by
express provision of the statutes or of the certificate of incorporation a
different vote is required, in which case such express provision shall govern
and control the decision of such question. Directors shall be elected by
plurality vote.
Section 10. Each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be voted
on after three years from its date, unless the proxy provides for a longer
period.
ARTICLE III.
DIRECTORS
---------
Section 1. The business and affairs of the corporation shall be managed
by or under the direction of the Board of Directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
law or by the certificate of incorporation or these bylaws directed or required
to be exercised or done by the stockholders.
Section 2. Except as otherwise provided in any resolution or
resolutions adopted by the
3
<PAGE>
Board of Directors pursuant to the provisions of Article IV of the certificate
of incorporation relating to the rights of holders of any class or series of
stock having a preference over the common stock as to dividends or upon
liquidation, the number of directors of the corporation shall be eight (8); that
the additional member of the Board of Directors resulting from such amendment
shall be a Class Two director; and that the vacancy thus created shall be filled
by vote of the stockholders at the annual meeting of stockholders to be held on
May 1, 1991, but the number thereof may be increased without limit or decreased
to not less than three (two of whom shall not be officers or employees of the
corporation) by amendment to this Section 2.
Section 3. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by the directors
then in office, or by a sole remaining director, and the directors so chosen
shall hold office until the expiration of the terms of the directorships whose
vacancy is being filled and until their successors are duly elected and
qualified, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute.
Section 4. Subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation, nominations for the election of directors may be made by the Board
of Directors or by any stockholder entitled to vote for the election of
directors. Any stockholder entitled to vote for the election of directors at a
meeting may nominate persons for election as directors only if written notice of
such stockholder's intent to make such nomination is given, either by personal
delivery or by postage prepaid, certified United States mail, return receipt
requested, to the secretary of the corporation not later than (i) with respect
to an election to be held at an annual meeting of stockholders, ninety days in
advance of such meeting and (ii) with respect to an election to be held at a
special meeting of stockholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to stockholders. Each such notice shall set forth: (a) the name
and address of the stockholder who intends to make the nomination of the person
or persons to be nominated; (b) a representation that the stockholder is a
holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all arrangements
or understandings between the stockholder and each nominee and any other person
or entity (naming such person or entity) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the
Securities and Exchange commission thereunder, had each nominee been nominated,
or intended to be nominated, for election as a director by the Board of
Directors; and (e) the consent of each nominee to serve as a director of the
corporation if so elected. The chairman of the meeting may refuse to acknowledge
and place upon the ballot the nomination of any person not made in strict
compliance with the foregoing procedure.
Section 5. The Board of Directors may adopt and from time to time amend
and repeal such rules and regulations not inconsistent with the applicable
provisions of law, the certificate of incorporation or these bylaws for the
conduct of its meetings and the management of the affairs of the corporation as
the Board may deem proper.
4
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
Section 6. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 7. An annual meeting of the Board of Directors shall be held
immediately following and at the same place as the annual meeting of
stockholders and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event such meeting is not held at such time and place,
the meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the Board of Directors, or
as shall be specified in a written waiver signed by all of the directors.
Section 8. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 9. A special meeting of the Board of Directors may be called by
the Chairman of the Board of Directors or by the President of the corporation
and shall be called by the Secretary on the written request of any two
directors. The Chairman or President so calling, or the directors so requesting,
any such meeting shall fix the time and any place, either within or without the
State of Delaware, as the place for holding such meeting. In the event that the
Board of Directors elects a Chief Operating Officer different from the President
in accordance with these Bylaws, the Chief Operating Officer shall have the same
powers, as aforesaid, to call a meeting as the President of the corporation.
Section 10. A majority of the Board of Directors shall constitute a
quorum for the transaction of business of any meeting of the Board of Directors,
and the act of a majority of the full sitting Board of Directors shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, by the Certificate of Incorporation or by these bylaws. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
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.
Section 12. The members of the Board of Directors or any committee
thereof may participate in a meeting of the Board or committee utilizing
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting.
COMMITTEES OF DIRECTORS
-----------------------
Section 13. There shall be an Executive Committee of the Board of
Directors of the Corporation consisting of at least two (2) but not more than
three (3) members of the Board of
5
<PAGE>
Directors, elected to such committee by the Board on an annual basis. The
Executive Committee shall have and may exercise, between meetings of the Board
of Directors, all the power and authority of the board in the management of the
business affairs of the corporation; provided, however, that the Executive
Committee shall not have the power or authority to do any of the following:
(a) amend the certificate of incorporation of the corporation;
(b) adopt an agreement of merger or consolidation involving the
corporation;
(C) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the property and assets of the
corporation;
(d) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution;
(e) adopt, amend or repeal any bylaw;
(f) fill vacancies on the Board of Directors or on any committee
of the Board, including the Executive Committee;
(g) amend or repeal any resolution of the Board of Directors;
(h) declare a dividend; or
(i) authorize the issuance of stock of the corporation.
Section 14. The Executive Committee shall, subject to the provisions of
law and any other provision of these bylaws, have the authority and power to
cause the corporation to do the following:
(a) To deal in real and personal property of the corporation; to
create and/or contribute property of the corporation to any
entity or business organization formed by the corporation,
either alone or with third parties; to pay rom the
corporation's funds any and all expenses and fees; to obtain
and maintain insurance coverage concerning the property of
the corporation.
(b) To execute and deliver on behalf of the corporation all
leases, bills of sales, assignments, deeds, unitization
agreements, contracts, farm-outs and other instruments of
transfer; all checks, drafts and other orders for the payment
of corporation funds; all contracts or instruments concerning
the acquisition, construction, management, operation or
disposition of corporate assets; all bonds, promissory notes,
mortgages, deeds of trust, security agreements and other
similar documents; and all other instruments, documents,
contracts or agreements of any kind or character relating to
the affairs of the corporation; and to delegate in writing to
the officers of the corporation the authority to sign such
instruments, notes, deeds, contracts, agreements and
documents.
6
<PAGE>
(c) To exercise all rights, powers and authority as is necessary
or prudent in the operation and maintenance of the business
of the corporation.
(d) To directly, or by delegation of authority to the officers of
the corporation, appoint, employ, remove, suspend and
discharge any of the following:
(1) Managers, assistants, independent contractors,
geologists, geophysicists, land men, employees and agents
as from time to time may be deemed advisable and to
determine the duties and fix and change the salaries and
other terms of employment of such persons.
(2) Qualified technical personnel temporarily employed or to
be employed on specific problems incident to the
operation of the corporation and its businesses.
(3) Attorneys, architects, engineers, accountants,
contractors, consultants, advertising agencies, sales
representatives and all such other agents or independent
contractors as such officers shall deem necessary or
advisable for the furtherance of the corporation's
purposes and operations.
Notwithstanding the above, in no event shall the Executive Committee
have the authority to approve: (i) with respect to gas purchase and sale
agreements, any agreement that provides for the sale or purchase in any single
year of gas in excess of Thirty-Five Million Dollars ($35,000,000); (ii) with
respect to the purchase of operating supplies, capital expenditures or general
and administrative expenditures, any single expenditure or group of related
expenditures in excess of Ten Million Dollars ($10,000,000); or (iii) any
business transaction with an affiliate of the corporation, without the approval
of the Board of Directors. The term "affiliate" as used herein shall mean a
person or entity, of any kind or nature, controlling, controlled by or under
common control with the corporation and shall include, without limitation, any
subsidiaries of the corporation and any person or entity owning, directly or
indirectly, five percent or more of the capital stock of the corporation.
Section 15. There shall be an Audit Committee of the Board of Directors
of the corporation consisting of at least two members of the Board of Directors
elected to such committee by the board on an annual basis. The initial members
of the Audit Committee shall be the two directors named in the certificate of
incorporation who are not officers or employees of the corporation or of any
party to a subscription agreement with the corporation. The members of the audit
committee elected hereafter shall be eligible to serve thereon under the rules
of the New York Stock Exchange as in effect from time to time.
Section 16. The Board of Directors may designate one or more additional
committees, each committee to consist of two or more directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it.
Such committee or committees shall
7
<PAGE>
have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors.
Section 17. Regular meetings of the Executive Committee or any other
committee of the Board of Directors, of which no notice shall be necessary, may
be held at such times and places as shall be fixed by resolution adopted by a
majority of the members thereof. Special meetings of the Executive Committee or
any other committee of the Board shall be called at the request of any member
thereof. Any special meeting of the Executive Committee or any other committee
of the Board shall be a legal meeting, without any notice thereof having been
given, if all of the members thereof shall be present or if notice thereof shall
have been given to each member on the day prior to the day on which the meeting
is to be held. The Executive Committee or any other committee may adopt such
rules and regulations not inconsistent with the provisions of law, the
certificate of incorporation or these bylaws for the conduct of its meetings as
such committee may deem proper. The majority of the Executive Committee or any
other committee of the Board shall constitute a quorum for the transaction of
business at any meeting, and the vote of the majority of the members thereof
present at any meeting at which a quorum is present shall be the act of such
committee. The Executive Committee or any other committee of the Board of
Directors shall keep written minutes of its proceedings and shall report on such
proceedings to the Board.
COMPENSATION OF DIRECTORS
-------------------------
Section 18. The Board of Directors shall have the authority to adopt
resolutions fixing the compensation to be paid to directors for service as a
director of the corporation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as a director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV.
NOTICES
-------
Section 1. Whenever, under statutory provisions or pursuant to the
certificate of incorporation or these bylaws, notice is required to be given to
any director or stockholder, it shall not be construed to require personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by prepaid telegram.
Section 2. Whenever any notice is required to be given under statutory
provisions or pursuant to the certificate of incorporation or these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
8
<PAGE>
ARTICLE V.
OFFICERS
--------
Section 1. The officers of the corporation shall be a Chairman of the
Board, a President, one or more Vice Presidents, any one or more of which may be
designated Executive Vice President or Senior Vice President, a Secretary and a
Treasurer. The Board of Directors may appoint such other officers and agents,
including a Vice Chairman of the Board of Directors, a Chief Operating Officer,
a Chief Executive Officer different from the President, Assistant Vice
Presidents, Assistant Secretaries, and Assistant Treasurers, in each case as the
Board of Directors shall deem necessary, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined by the Board. The Chairman of the Board and the Vice Chairman of the
Board (if provision is made therefor by the Board of Directors) shall be elected
from among the directors. With the foregoing exceptions, none of the other
officers need to be a director, and none of the officers need be a stockholder
of the corporation.
Section 2. The officers of the corporation shall be elected annually
by the Board of Directors at its first regular meeting held after the annual
meeting of stockholders or as soon thereafter as conveniently possible. Each
officer shall hold office until his successor shall have been chosen and shall
have qualified or until his death or the effective date of his resignation or
removal, or until he shall cease to be a director in the case of the Chairman or
the Vice Chairman.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary, who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors or pursuant to its direction; and no
officer shall be prevented from receiving such salary by reason of his also
being a director.
Section 5. Except as may be otherwise provided by the Board of
Directors or in these bylaws, each officer of the corporation shall hold office
until the first meeting of directors after the next annual meeting of
stockholders following his election or appointment and until his successor is
chosen and qualified. Any officer elected or appointed by the Board of Directors
may be removed at any time by the Board of Directors. If the office of any
officer becomes vacant for any reason, the vacancy shall be filled by the Board
of Directors.
THE CHAIRMAN OF THE BOARD
-------------------------
Section 6. (a) The Chairman of the Board shall preside at all meetings
of the Board of Directors or of the stockholders of the corporation. The
Chairman shall formulate and submit to the Board of Directors or the Executive
Committee matters of general policy for the corporation and shall perform such
other duties and powers as usually appertain to the office or as may be
prescribed by the Board of Directors or the Executive Committee. The Chairman of
the Board shall report as to the operations of the corporation to the Board of
Directors and, with the chief executive officer of the corporation designated as
such by the Board of Directors, to the stockholders at or prior to each annual
meeting of the stockholders, and he shall from time to time report to the Board
of Directors matters within his knowledge which the interest of the corporation
may require to be so reported.
9
<PAGE>
(b) The Board of Directors may, in its discretion, elect a Vice
Chairman of the Board of Directors of the corporation, and the Vice Chairman
shall perform such other duties and have such other powers as may be prescribed
herein or by the Board of Directors. In the absence of the Chairman of the Board
of Directors or in the event of his inability or refusal to act, the Vice
Chairman shall perform the duties of the Chairman, and when so acting, the Vice
Chairman of the Board of Directors shall have all the powers of and be subject
to all of the restrictions upon the Chairman of the Board of Directors.
THE PRESIDENT
-------------
Section 7. (a) The President shall, in the absence of the election by
the Board of Directors of a Chief Executive Officer, be the chief executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control the business and affairs of
the corporation. In the absence of the Chairman of the Board, the Vice Chairman
of the Board (if one is elected by the Board of Directors) or the Chief
Executive Officer (if one is so elected), the President shall preside at all
meetings of the Board of Directors of the stockholders. He may also preside at
any such meeting attended by the Chairman if he is so designated by the
Chairman. He shall have the power to appoint and remove subordinate officers,
agents and employees, except those elected or appointed by the Board of
Directors. The President shall keep the Board of Directors and the Executive
Committee fully informed and shall consult them concerning the business of the
corporation. He may sign with the Secretary or any other officer of the
corporation thereunto authorized by the Board of Directors, certificates for
shares of the corporation and any deeds, bonds, mortgages, contracts, checks,
notes, drafts, or other instruments that the Board of Directors has authorized
to be executed, except in cases where the signing and execution thereof has been
expressly delegated by these bylaws or by the Board of Directors to some other
officer or agent of the corporation, or shall be required by law to be otherwise
executed. He shall vote, or give a proxy to any other officer of the corporation
to vote, all shares of stock of any other corporation standing in the name of
the corporation and in general he shall perform all other duties normally
incident to the office of President and such other duties as may be prescribed
by the Board of Directors or the Executive Committee from time to time.
(b) The Board of Directors may, in its discretion, elect a Chief
Executive Officer of the corporation, and the Chief Executive Officer, rather
than the President, shall be the chief executive officer of the corporation and,
subject to the control of the Board of Directors, shall in general perform such
other duties and have such other powers as may be prescribed herein or by the
Board of Directors. The Board of Directors, in connection with the election of a
Chief Executive Officer, may assign none, some or all of the President's duties
to the Chief Executive Officer, all of the foregoing as the Board of Directors
may prescribe from time to time.
(c) The Board of Directors may, in its discretion, elect a Chief
Operating Officer of the corporation, and the Chief Operating Officer, subject
to the control of the Board of Directors, shall in general perform such duties
and have such other powers as may be prescribed herein or by the Board of
Directors.
(d) The Board of Directors may, in its discretion, provide for
the relative authority of each of the Chairman of the Board of Directors, the
Chief Executive Officer, the
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President and the Chief Operating Officer, all as the Board of Directors may
prescribe from time to time.
THE SENIOR VICE PRESIDENT.
--------------------------
VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS
---------------------------------------------
Section 8. In the absence of the president or in the event of his
inability or refusal to act, the senior vice president (or in the event there be
more than one senior vice president, the senior vice presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The senior vice presidents shall perform such other duties and have
such other powers as the Board of Directors may from time to time prescribe.
Section 9. The vice president or any assistant vice president, or if
there be more than one, the vice presidents and assistant vice presidents in the
order determined by the Board of Directors (or if there be no such
determination, then in the order of their election), shall in the absence of any
senior vice president or in the event of the inability or refusal to act of any
senior vice president, perform the duties and exercise the powers of such senior
vice president and shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
---------------------------------------
Section 10. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the stockholders and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors, the
president or the chairman of the board, under whose supervision he shall be. He
shall have custody of the corporate seal of the corporation and he, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed it may be attested by his signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his signature.
Section 11. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election), shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
--------------------------------------
Section 12. The treasurer shall have custody of the corporate funds and
securities of the corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
11
<PAGE>
Section 13. The treasurer shall disburse the funds of the corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 14. If required by the Board of Directors, the treasurer shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 15. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI.
CERTIFICATES OF STOCK
---------------------
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed in the name of the corporation, by the chairman of
the board, the president or a vice president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary, certifying the number of
shares owned by him in the corporation.
Section 2. Where a certificate is countersigned (1) by a transfer
agent other than the corporation or its employee, or (2) by a registrar other
than the corporation or its employee, any signature on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
-----------------
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost,
12
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stolen or destroyed.
TRANSFERS OF STOCK
------------------
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
------------------
Section 5. In order that the corporation may determine the stockholders
entitled to notice of and to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of and to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDER
----------------------
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII.
GENERAL PROVISIONS
------------------
INDEMNIFICATION OF OFFICERS AND DIRECTORS
-----------------------------------------
Section 1. (a) The corporation shall indemnify any officer or director
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of
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<PAGE>
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contenders or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any officer or director who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) or (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys, fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under subsection (a) or (b) (unless ordered by
a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees incurred in defending any
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this section.
(f) The indemnification and advancement of expenses provided by or
granted pursuant to this section shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the certificate of incorporation or any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office,
14
<PAGE>
and shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(g) The corporation shall have power to purchase and maintain insurance
on behalf of any officer or director who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions or this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any officer or director who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
INTERESTED DIRECTORS AND OFFICERS; QUORUM
-----------------------------------------
Section 2. No contract or transaction between the corporation and one
or more of its directors or officers, or between the corporation and any other
corporation, partnership, association or other organization in which one or more
of its directors or officers are directors or officers or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if (i) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the corporation as of the time it is authorized, approved or ratified
by the Board, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board or of a committee which authorizes the contract or transaction.
DIVIDEND
--------
Section 3. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the certificate of incorporation.
Section 4. Before payment of any dividend, there may be set aside out
of any funds of
15
<PAGE>
the corporation available for dividends such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interest of the corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
CHECKS
------
Section 5. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
authorized by these bylaws or the Board of Directors may from time to time
designate.
FISCAL YEAR
-----------
Section 6. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
----
Section 7. The corporate seal shall have inscribed thereon the name of
the corporation and shall be in such form as may be approved from time to time
by the Board of Directors. The seal may be used by causing it or a facsimile
thereof to be impressed, affixed, imprinted or in any manner reproduced.
ARTICLE VIII.
AMENDMENTS
----------
These bylaws may be altered, amended or repealed or new bylaws may be
adopted by the stockholders or by the Board of Directors at any regular meeting
of the stockholders or of the Board of Directors or at any special meeting of
the stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting.
16
<PAGE>
EXHIBIT 12.2
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (herein called this "Amendment")
is made as of the l7th day of February, 1999 by and among Western Gas Resources,
Inc. ("Borrower") and NationsBank, N.A., successor by merger to NationsBank of
Texas, N.A., as Agent ("Agent"), and the Lenders referred to in the Original
Agreement (as defined below).
WITNESSETH:
WHEREAS, Borrower, Agent and Lenders have entered into that certain Credit
Agreement dated as of May 30, 1997 (as amended, restated, or supplemented to the
date hereof, the "Original Agreement"), for the purposes and consideration
therein expressed, pursuant to which Lenders made and became obligated to make
loans to Borrower as therein provided; and
WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement
to for the purposes set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement, in consideration
of the loans which may hereafter be made by Lenders to Borrower, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
--------------------------
Section 1.1 Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment. The following term shall have the following meaning when used
herein:
"Credit Agreement" means the Original Agreement as amended hereby.
----------------
<PAGE>
ARTICLE II.
Amendments, Consent, and Waiver
-------------------------------
Section 2.1 Defined Terms.
-------------
(a) The following defined terms in Section 1.1 of the Original Agreement
are hereby amended in their entirety to read as follows:
"Base Rate" means the per annum rate of interest equal to the sum of
---------
(i) the greater of (A) the Prime Rate from time to time in effect or (B) the
Federal Funds Rate from time to time in effect plus one-half of one percent
(.50%), and (ii) the Base Rate Spread. If the Prime Rate or the Federal
Funds Rate, as the case may be, changes after the date hereof the Base Rate
shall be automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as of the effective time of each such
change. The Base Rate shall in no event, however, exceed the Highest Lawful
Rate."
"Eurodollar Spread" means, with respect to each Committed Eurodollar
-----------------
Loan:
(a) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is less than or equal to .35 to 1.0, .60%;
(b) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is greater than .3 5 to 1.0 but less than
or equal to .45 to 1.0, .80%;
(c) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is greater than .45 to 1.0 but less than or
equal to .50 to 1.0, 1.00%;
(d) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is greater than .50 to 1.0 but less than or
equal to .55 to 1.0, 1.20%; and
(e) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is greater than .55 to 1.0, 1.25%."
(b) The following terms are hereby added to Section 1. 1 of the Original
Agreement:
"Base Rate Spread" means:
----------------
(a) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is less than or equal to .50 to 1.0, 0.00%;
(b) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is greater than .50 to 1.0 but less than or
equal to .55 to 1.0, .25%; and
-2-
<PAGE>
(c) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is greater than .55 to 1.0, .50%."
"Bridge Facility" means that certain Loan Agreement among Borrower, as
---------------
borrower, and NationsBank, N.A., as lender, dated as of February 17th,
1999."
Section 2.2. Facility Fees. Section 2.9 of the Original Agreement is
-------------
hereby amended in its entirety to read as follows:
"Facility Fees. In consideration of Lenders' commitment to enter into
-------------
this Agreement and to advance funds to Borrower hereunder, Borrower will
pay to Agent, for pro rata distribution to each Lender in accordance with
its Percentage Share, a facility fee determined on a daily basis by
multiplying the amount of $300,000,000 by a rate of
(a) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is less than or equal to .35 to 1.0, .15%
per annum;
(b) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is greater than .35 to 1.0 but less than or
equal to .45 to 1.0, .20% per annum;
(c) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is greater than .45 to 1.0 but less than or
equal to .50 to 1.0, .25% per annum;
(d) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is greater than.50 to 1.0 but less than or
equal to .55 to 1.0, .30% per annum; and
(e) for each period in which the Debt to Capitalization Ratio in
effect pursuant to Section 2.17 is greater than .55 to 1.0, .50% per annum.
Promptly at the end of each Fiscal Quarter Agent shall calculate the
facility fee then due and shall notify Borrower thereof. Borrower shall pay
such facility fee to Agent within five Business Days after receiving such
notice."
Section 2.3. Debt. Section 6.2(a) of the Original Agreement is hereby
----
amended by adding the following subsection as a new subsection (ix) and
renumbering subsection (ix) in the Original Agreement as subsection (x) to read
as follows:
"(ix) Debt under the Bridge Facility the principal amount of which
shall not exceed $37,000,000 at any one time outstanding.
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<PAGE>
(x) miscellaneous items of Debt not described in subsections (i)
through (ix) of this subsection (a) which do not in the aggregate (taking
into account all Debt of all Related Persons) exceed $5,000,000 at any one
time outstanding."
Section 2.4. Waiver and Consent. Subject to the terms and conditions
------------------
contained herein, each Lender hereby (i) waives any Event of Default arising
solely as a result of the violation by Borrower of Section 6.2(m) of the
Original Agreement for the Fiscal Quarter ending December 31, 1998 and (ii)
consents to one or more prepayments by Borrower of the outstanding principal
balance of the indebtedness owing under the Debt Securities not to exceed the
aggregate amount of $50,000,000.
ARTICLE III.
Conditions of Effectiveness
---------------------------
Section 3.1. Effective Date. This Amendment shall become effective as
--------------
of the date first above written when, and only when, Agent shall have received:
(a) all of the following documents, duly authorized, executed and
delivered by Borrower and Majority Lenders, and in form and substance
satisfactory to Agent:
(i) This Amendment.
(ii) A certificate of a duly authorized officer of Borrower
dated the date of this Amendment (A) to the effect that all of the
representations and warranties set forth in Article IV hereof are true
and correct at and as of the time of such effectiveness and (B)
certifying that attached thereto is a true and complete copy of
resolutions adopted by the Board of Directors of Borrower authorizing
the execution, delivery and performance of this Amendment and
certifying the names and true signatures of the officers of Borrower
authorized to sign this Amendment.
(iii) Such supporting documents as Agent may reasonably
request.
(b) A waiver and amendment fee in the amount of $280,000 in
immediately available funds for pro rata distribution to each Lender (other
than Bank of Montreal) in accordance with such Lenders' Percentage Share.
-4-
<PAGE>
ARTICLE IV.
Representations and Warranties
------------------------------
Section 4.1. Representations and Warranties of Borrower. In order to
------------------------------------------
induce each Lender to enter into this Amendment, Borrower represents and
warrants to each Lender that:
(a) The representations and warranties contained in Section 5.1 of
the Original Agreement are true and correct at and as of the time of the
effectiveness hereof (except as such representations and warranties have
been modified by the transactions contemplated herein).
(b) Borrower is duly authorized to execute and deliver this
Amendment and Borrower is and will continue to be duly authorized to borrow
monies and to perform its obligations under the Credit Agreement. Borrower
has duly taken all corporate and action necessary to authorize the
execution and delivery of this Amendment.
(c) The execution and delivery by Borrower of this Amendment, the
performance of its obligations thereunder and the consummation of the
transactions contemplated hereby do not and will not conflict with any
provision of law, statute, rule or regulation or of the certificate of
incorporation and bylaws of Borrower or of any material agreement,
judgment, license, order or permit applicable to or binding upon Borrower
or result in the creation of any lien, charge or encumbrance upon any
assets or properties of Borrower. Except for those which have been
obtained, no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by Borrower and of this Amendment.
(d) When duly executed and delivered, this Amendment and the Credit
Agreement will each be a legal and binding obligation of Borrower
enforceable in accordance with its terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and by equitable principles of general
application.
(e) The Consolidated financial statements of Borrower dated as of
September 30, 1998 fairly present the Consolidated financial position at
such date and the Consolidated statement of operations and the changes in
Consolidated financial position for the periods ending on such date for
Borrower. Copies of such financial statements have heretofore been
delivered to Agent. Since September 30, 1998, no material adverse change
has occurred in the financial condition or business or in the Consolidated
financial condition or business of Borrower.
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<PAGE>
ARTICLE V.
Miscellaneous
-------------
Section 5.1. Ratification of Agreements. The Original Agreement as
--------------------------
hereby amended is hereby ratified and confirmed in all respects. Any reference
to the Credit Agreement in any Loan Document shall be deemed to be a reference
to the Original Agreement as hereby amended. The Loan Documents, as they may be
amended or affected hereby, are hereby ratified and confirmed in all respects.
The execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein or therein, operate as a waiver of any right, power or
remedy of Lenders under the Credit Agreement, the Notes, or any other Loan
Document nor constitute a waiver of any provision of the Credit Agreement, the
Notes or any other Loan Document.
Section 5.2. Survival of Agreements. All representations, warranties,
----------------------
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans, and shall further survive until
all of the Obligations are paid in full. All statements and agreements contained
in any certificate or instrument delivered by Borrower hereunder or under the
Credit Agreement to any Lender shall be deemed to constitute representations and
warranties by, and/or agreements and covenants of, Borrower under this Amendment
and under the Credit Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan Document, and all
--------------
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.
Section 5.4. Governing Law. This Amendment shall be governed by and
-------------
construed in accordance the laws of the State of Texas and any applicable laws
of the United States of America in all respects, including construction,
validity and performance.
Section 5.5. Counterparts. This Amendment may be separately executed in
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
-6-
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
WESTERN GAS RESOURCES, INC.
By: /s/ John C. Walter
-----------------------------------
Name: John C. Walter
Title: Executive Vice President
-7-
<PAGE>
NATIONSBANK, N.A., as Agent and a Lender
By: /s/ David C. Rubenking
--------------------------------------
Name: David C. Rubenking
Title: Senior Vice President
-8-
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ David C. Rubenking
----------------------------------
Name: David C. Rubenking
Title: Senior Vice President
-9-
<PAGE>
BANK OF MONTREAL
By:_______________________________
Name:
Title:
-10-
<PAGE>
BANKBOSTON, N.A.
By: /s/ Terrence Ronan
-----------------------------------
Name: Terrence Ronan
Title: Director
-11-
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Xavier Ratouis
----------------------------------
Name: Xavier Ratouis
Title: Senior Credit Officer
-12-
<PAGE>
CIBC INC.
By: /s/ Roger Colden
--------------------------------
Name: Roger Colden
Title: EXECUTIVE DIRECTOR, CIBC
OPPENHEIMER CORP. AS AGENT
-13-
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Monte E. Deckerd
----------------------------------
Name: Monte E. Deckerd
Title: Vice President
-14-
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ Ronald A. Erbert
--------------------------------
Name: RONALD A. ERBERT
Title: VICE PRESIDENT
-15-
<PAGE>
ABN AMRO BANK N.V.
By: /s/ Robert J. Cunningham
----------------------------------
Name: Robert J. Cunningham
Title: Group Vice President
By: /s/ Jamie A. Conn
----------------------------------
Name: Jamie A. Conn
Title: Vice President
-16-
<PAGE>
CONSENT AND AGREEMENT
---------------------
Each of the undersigned hereby (i) consents to the provisions of the
Original Agreement as amended by this Amendment and the transactions
contemplated herein, and (ii) ratifies and confirms its respective Guaranty
dated as of May 30, 1997 made by it favor of Agent for the benefit of each
Lender, and agrees that its obligations and covenants thereunder are unimpaired
hereby and thereby and shall remain in full force and effect.
MIGC, INC.
By: /s/ John C. Walter
--------------------------------------
Name: John C. Walter
Title: Executive Vice President
MGTC, INC.
By: /s/ John C. Walter
--------------------------------------
Name: John C. Walter
Title: Executive Vice President
WESTERN GAS RESOURCES TEXAS, INC.
By: /s/ John C. Walter
--------------------------------------
Name: John C. Walter
Title: Executive Vice President
WESTERN GAS RESOURCE STORAGE, INC.
By: /s/ John C. Walter
--------------------------------------
Name: John C. Walter
Title: Executive Vice President
MOUNTAIN GAS RESOURCES, INC.
By: /s/ John C. Walter
--------------------------------------
Name: John C. Walter
Title: Executive Vice President
-17-
<PAGE>
WESTERN GAS RESOURCES - OKLAHOMA, INC.
By: /s/ John C. Walter
--------------------------------------
Name: John C. Walter
Title: Executive Vice President
WESTERN POWER SERVICES, INC.
By: /s/ John C. Walter
--------------------------------------
Name: John C. Walter
Title: Executive Vice President
PINNACLE GAS TREATING, INC.
By: /s/ John C. Walter
--------------------------------------
Name: John C. Walter
Title: Executive Vice President
WGR CANADA, INC.
By: /s/ John C. Walter
--------------------------------------
Name: John C. Walter
Title: Executive Vice President
-18-
<PAGE>
EXHIBIT 12.3
Offer to Acquire Notes
----------------------
February 12,1999
Western Gas Resources, Inc., and Guarantors (collectively "Company")
pursuant to that certain Note Purchase Agreement dated as of April 1, 1993, as
amended to date, by and among the Company and the Purchasers named therein
relating to the purchase and sale of the Company's 7.65% Senior Notes due
April 30, 2003 (the "Agreement") hereby offers to acquire Notes as
described in and pursuant to the terms of Paragraph 7.16 of the Agreement
under the following terms and conditions. Unless otherwise defined herein, the
terms defined in the Agreement shall be used herein as therein defined.
This offer is being made to Purchasers for payment of the Notes in full at
par value of the principal amount with interest on such amount being paid as
accrued to the "Payment Date" as defined below. The principal amount due to each
Purchaser under this Offer to Acquire Notes is as per Schedule I attached
hereto. This Offer to Acquire Notes is subject to the approval of the majority
lenders of the Company's Loan Agreement with NationsBank of Texas, N.A. as
agent, and will expire at 8:00 am MST on Tuesday, February 16, 1999 ("the
Expiration"). The "Payment Date" hereunder shall be a date not later than
March 5, 1999. In the event that the undersigned Purchaser has accepted this
Offer to Acquire Notes, and such Purchaser does not receive payment in full of
all its Notes in accordance with the terms hereof on or before March 5, 1999,
such Purchaser's acceptance of the terms of this Offer to Acquire Notes shall be
null and void and of no force and effect.
Upon timely receipt of full payment of its Notes in accordance with the
foregoing terms of this Offer to Acquire Notes by each Purchaser which has
accepted this offer, such Purchaser's Notes shall be surrendered to the Company
for cancellation and shall not be reissued, and no Notes will be issued in
substitution thereof.
From the date of acceptance of this Offer to Acquire Notes until the timely
receipt of full payment of said Notes in accordance with the foregoing terms of
this offer, but no later than the Payment Date, each Purchaser accepting this
offer agrees to waive compliance with Section 7.11 of the Agreement for the
fiscal quarter ended December 31, 1998; provided however, that for the period of
four consecutive fiscal quarters ended on December 31, 1998, Income Available
for Fixed Charges shall be at least two hundred forty percent (240%), of Fixed
Charges.
Based upon the foregoing terms and conditions contained in this offer to
acquire Notes, please indicate below your acceptance or nonacceptance of the
terms hereof and return by facsimile transmission to Company. Your failure to
respond prior to the Expiration shall be deemed to constitute your decision to
decline this Offer to Acquire Notes.
<PAGE>
Offer to Acquire Notes
February 12, 1999
Page 2
X The undersigned Purchaser ACCEPTS the offer to acquire Notes
-----
under the terms and conditions of this offer by Company;
The undersigned Purchaser DECLINES the offer to acquire Notes
-----
under the terms and conditions of this offer by Company;
Dated this day of 11th day of February, 1999
---- --------
Western, Gas Resources, Inc.
/s/ Vance S. Blalock
- ---------------------------
By:
Name: VANCE S. BLALOCK
Title: TREASURER
Fax: (303) 254-9794
<PAGE>
Offer to Acquire Notes
February 12, 1999
Page 3
ACKNOWLEDGED AND ACCEPTED:
Connecticut General Life Insurance Company*
Connecticut General Life Insurance Company,
on behalf of one or more separate accounts
Life Insurance Company of North America*
Insurance Company of North America*
BY: CIGNA Investments, Inc.,
By: /s/ [ILLEGIBLE]
--------------------------------
* This entity is either the registered owner of one or more of the
securities pertaining hereto or is a beneficial owner of one or more of
such securities owned by and registered in the name of a nominee for that
entity.
BY: THE CANADA LIFE ASSURANCE COMPANY
By: /s/ [ILLEGIBLE]
--------------------------------
CUMMINGS & CO.
PARTNER
BY: CANADA LIFE INSURANCE COMPANY OF AMERICA
By: /s/ [ILLEGIBLE]
--------------------------------
CUMMINGS & CO.
PARTNER
BY: CANADA LIFE INSURANCE COMPANY OF NEW YORK
By:
--------------------------------
BY: THE FRANKLIN LIFE INSURANCE COMPANY
By:
--------------------------------
BY: ROYAL MACCABEES LIFE INSURANCE COMPANY
By: /s/ Leonard D. [ILLEGIBLE]
--------------------------------
VICE PRESIDENT
<PAGE>
Offer to Acquire Notes
February 12, 1999
Page 4
SCHEDULE I
$27,857,142.86 Connecticut General Life Insurance Company*
Connecticut General Life Insurance Company,
on behalf of one or more separate accounts
Life Insurance Company of North America*
Insurance Company of North America
*This entity is either the registered owner of one or more of
the securities pertaining hereto or is a beneficial owner of
one or more of such securities owned by and registered in the
name of a nominee for that entity.
$ 3,571,428.58 The Canada Life Assurance Company
Canada Life Insurance Company of America
Canada Life Insurance Company of New York
$ 2,142,857.16 The Franklin Life Insurance Company
$ 2,142,857.16 Royal Maccabees Life Insurance Company
<PAGE>
EXHIBIT 12.4
Offer to Acquire Notes
----------------------
February 12, 1999
Western Gas Resources, Inc., and Guarantors (collectively "Company")
pursuant to that certain Note Purchase Agreement dated as of November 29, 1995,
(the "Agreement") as amended to date, by and among the Company and the
Purchasers named therein relating to the purchase and sale of the Company's
8.02% Senior Notes due December 1, 2005 (the "Notes") hereby offers (the
"Offer") to acquire the Notes pursuant to Paragraph 4D., of the Agreement under
the following terms and conditions. Unless otherwise defined herein, the terms
defined in the Agreement shall be used herein as therein defined.
This Offer is being made to Purchasers for payment of the Notes in full at
par value of the principal amount with accrued interest on such amount being
paid on the "Payment Date" as defined below. The principal amount and accrued
interest due to each Purchaser under this Offer is as per Schedule I attached
hereto. This Offer will expire at 8:00 am MST on Tuesday, February 16, 1999
("the Expiration"). The "Payment Date" hereunder is March 1, 1999.
Upon receipt of full payment in accordance with the foregoing terms, each
accepting Purchaser shall surrender its Notes to the Company.
From the date of this Offer until the timely receipt of full payment by
accepting Purchasers in accordance with the foregoing terms of this Offer, each
Purchaser by accepting this Offer agrees to waive the Company's compliance with
(i) Section 6A(l) of the Agreement for the fiscal quarter ended December 31,
1998 so long as Tangible Net Worth is not less than $300,000,000 for the fiscal
quarter ended December 31, 1998, (ii) Section 6A(3) of the Agreement for the
fiscal quarter ended December 31, 1998 so long as Adjusted Consolidated Debt
does not exceed 60% of Consolidated Net Tangible Assets for the fiscal quarter
ended December 31, 1998, and (iii) Section 6A(4) of the Agreement for the fiscal
quarter ended December 31, 1998 so long as the Fixed Charge Coverage Ratio is
greater than 2.80 to 1.00 during such period.
Should the Company, its successors or assigns offer to acquire or prepay
the Notes, in whole or in part, in either case, with Yield-Maintenance, at any
time, through and including August 12, 2000, the Company shall promptly notify
accepting Purchasers of such offer or prepayment pursuant to the terms of the
Agreement. The Company will also pay such Yield-Maintenance to the Purchasers
who accept this Offer and will make such payment in the same proportion to the
principal amount of the Notes of such Purchaser as presented on Schedule I, and
under the same terms as offered to Purchasers.
<PAGE>
Offer to Acquire Note
February 12, 1999
Page 2
Based upon the foregoing terms and conditions contained in this offer to
acquire Notes, please indicate below your acceptance or nonacceptance of the
terms hereof and return by facsimile transmission to the Company. Your failure
to respond prior to the Expiration shall be deemed to constitute your decision
to decline this Offer.
X The undersigned Purchaser ACCEPTS the Offer
-----
under the terms and conditions of this Offer by Company;
The undersigned Purchaser DECLINES the Offer
-----
under the terms and conditions of the Offer by Company;
Dated this day of day of , 1999
---- --------
Western, Gas Resources, Inc.
/s/ Vance S. Blalock
- ---------------------------
By:
Name: VANCE S. BLALOCK
Title: TREASURER
Fax: (303) 254-9794
<PAGE>
Offer to Acquire Notes
February 12, 1999
Page 3
ACKNOWLEDGED AND ACCEPTED:
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY
By:
-----------------------------
AMERICAN GENERAL LIFE
INSURANCE COMPANY
By:
-----------------------------
GULF LIFE INSURANCE COMPANY
By:
-----------------------------
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
By:
-----------------------------
ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY COMPANY
By:
-----------------------------
J. ROMEO & CO., as nominee for
MONY LIFE INSURANCE COMPANY
By: /s/ [ILLEGIBLE]
-----------------------------
Partner
<PAGE>
Offer to Acquire Notes
February 12, 1999
Page 4
<TABLE>
<CAPTION>
SCHEDULE I
Accrued
Principal Interest
- ----------- -----------
<C> <C> <S>
$13,000,000 $263,546.11 The Variable Annuity Life Insurance Company
$ 5,000,000 $101,363.89 American General Life Insurance Company
$ 2,000,000 $ 40,545.56 American General Life and Accident Insurance Company
(successor in interest to Gulf Life Insurance Company)
$15,000,000 $304,091.67 J. Romeo & Co., as nominee for MONY Insurance Company
$4,000,000 $ 81,091.11 First Allmerica, Financial Life Insurance Company
$3,000,000 $ 60,818.33 Allmerica Financial Life Insurance and Annuity Company
</TABLE>
<PAGE>
EXHIBIT 12.5
================================================================================
LOAN AGREEMENT
--------------------------------------------
WESTERN GAS RESOURCES, INC.
Borrower
and
NATIONSBANK, N.A.
as Bank
and
NationsBanc Montgomery Securities LLC
as Lead Arranger
--------------------------------------------
$37,000,000
February 17, 1999
================================================================================
<PAGE>
NATIONSBANK, N.A.
901 Main Street
Dallas, Texas 75202
February 17, 1999
Western Gas Resources, Inc.
1200 N. Pecos Street, Suite 230
Denver, Colorado 80234
Ladies and Gentlemen:
This Agreement (this "Agreement") will serve to set forth the terms of
---------
certain financing transactions by and between Western Gas Resources, Inc., a
Delaware corporation ("Borrower"), and NationsBank, N.A. ("Bank"). Capitalized
-------- ----
terms used but not defined herein (i) shall have the meanings given them on
Annex I hereto or (ii) if not defined on Annex I hereto, shall have the meanings
given them in the Revolving Credit Agreement.
1. BRIDGE LOAN.
-----------
(a) Subject to the terms and conditions hereof, Bank agrees to make a
single advance to Borrower in an amount not to exceed $37,000,000 (the "Bridge
------
Loan") on or before February 23, 1999. Borrower must give to Bank written notice
- ----
of the date it requests that the Bridge Loan be made, no later than 10:00 am,
Dallas time, on such day.
(b) The obligation of Borrower to repay to Bank the Bridge Loan, together
with interest accruing in connection therewith, shall be evidenced by a single
promissory note made by Borrower payable to the order of Bank (the "Bridge
Note") in the form of Exhibit A with appropriate insertions. The amount of
principal owing on the Bridge Note at any given time shall be the amount of the
Bridge Loan minus all payments of principal theretofore received by Bank on the
Bridge Note. Interest on the Bridge Note shall accrue and be payable as provided
therein.
(c) Borrower shall use all funds from the Bridge Loan to repay in part
existing outstanding indebtedness owing under the Debt Securities. In no event
shall the proceeds of the Bridge Loan be used directly or indirectly for the
purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or
carrying any "margin stock" or any "margin securities" (as such terms are
defined respectively in Regulation U and Regulation G promulgated by the Board
of Governors of the Federal Reserve System) or to extend credit to others
directly or indirectly
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 2
for the purpose of purchasing or carrying any such margin stock or margin
securities. Borrower represents and warrants to Bank that it is not engaged
principally, or as one of its important activities, in the business- of
extending credit to others for the purpose of purchasing or carrying such margin
stock or margin securities.
(d) Borrower will make each payment which it owes hereunder or under the
Bridge No e not later than noon, Dallas time, in lawful money of the United
States of America and in immediately available funds. Any payment received by
Bank after such time will be deemed to have been made oil the next following
Business Day. Should any such payment become due and payable on a day other than
a Business Day, the maturity of such payment shall be extended to the next
succeeding Business Day, and, in the case of a payment of principal or past due
interest, interest shall accrue and be payable thereon for the period of such
extension as provided in the Agreement Document under which such payment is due.
Each payment under a Bridge Loan Document shall be payable at the place provided
therein and, if no specific place of payment is provided, shall be payable at
the place of payment of the Bridge Note. When Bank collects or receives money on
account of the Bridge Loan Obligations, Bank shall apply all such money so
distributed, as follows:
(i) for the prepayment of amounts owing under the Bridge Loan
Documents;
(ii) then for the prepayment of principal on the Bridge Note,
together with accrued and unpaid interest on the principal so prepaid; and
(iii) last, for the payment or prepayment of any other Bridge Loan
Obligations.
All payments applied to principal or interest on the Bridge Note shall be
applied first to any interest then due and payable, then to principal then due
and payable, and last to any prepayment of principal and interest in compliance
with this Agreement.
2. RATE ELECTIONS. Borrower may from time to time designate all or any
--------------
portion of the Bridge Loan as a "Eurodollar Portion". Borrower may make no such
election during the continuance of a Default, and Borrower may make such an
election with respect to already existing Eurodollar Portions only if such
election will take effect at or after the termination of the Interest Period
applicable to such already existing Fixed Rate Portions. Each election by
Borrower of a Eurodollar Portion shall:
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 3
(a) Be made by written notice to Bank or by telephonic notice to Bank
promptly confirmed in writing, in the form and substance of the "Rate Election"
attached hereto as Exhibit B, duly completed and signed by an authorized officer
of Borrower.
(b) Specify the aggregate amount of the Bridge Loan which Borrower desires
to designate as such Eurodollar Portion, the first day of the Interest Period
which is to apply thereto, and the length of such Interest Period; and
(c) Be received by Bank not later than 10:00 a.m., Dallas time, on the
second Business Day preceding the first day of the specified Interest Period.
Each such election (herein called a "Rate Election") shall be irrevocable.
-------------
Borrower may make no Rate Election which does not specify an Interest Period
complying with the definition of "Interest Period" in Annex L and the amount of
each Eurodollar Portion elected in any Rate Election must be $ 10,000,000 or a
higher integral multiple of $1,000,000. Upon the termination of each Interest
Period the portion of the Bridge Loan theretofore constituting the related
Eurodollar Portion shall, unless the subject of a new Rate Election then taking
effect, automatically become a part of the Base Rate Portion of the Bridge Loan
and become subject to all provisions of the Bridge Loan Documents governing such
Base Rate Portion. Borrower shall have no more than three Eurodollar Portions in
effect at any time.
3. OPTIONAL PREPAYMENTS. Borrower may, upon concurrent notice to Bank,
--------------------
from time to time and without premium or penalty prepay the Bridge Loan, in
whole or in part, so long as each partial prepayment of principal is in an
amount greater than or equal to $1,000,000, provided that any prepayment of a
Eurodollar Portion shall be accompanied by all amounts due under Section 7. Each
prepayment of principal under this section shall be accompanied by all interest
then accrued and unpaid on the principal so prepaid. Any principal or interest
prepaid pursuant to this section shall be in addition to, and not in lieu of,
all payments otherwise required to be paid under the Bridge Loan Documents at
the time of such prepayment.
4. MANDATORY PREPAYMENTS. If (i) Borrower shall sell, exchange, lease,
---------------------
transfer, or otherwise dispose of any material part of, or material interest in
any of its assets having a sales price in excess of $1,000,000 or (ii) Borrower
shall issue any public debt or equity instrument, Borrower shall prepay the
principal of the Bridge Loan within two (2) Business Days of such transaction in
an amount at least equal to (a) ninety percent (90%) of the Fair Market Value of
the portion or interest in such assets sold, exchanged, leased, transferred or
otherwise disposed of as of the date of such transaction or (b) one hundred
percent (100%) of the proceeds of such issuance of such debt or equity
instrument (net of Borrower's reasonable costs of sale or
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 4
issuance). Each prepayment of principal under this section shall be accompanied
by all interest then accrued and unpaid on the principal so prepaid. Any
principal prepaid pursuant to this section shall be in addition to, and not in
lieu of, all payments otherwise required to be paid under the Bridge Loan
Documents at the time of such prepayment.
5. INCREASED COST OF EURODOLLAR PORTIONS. If any applicable domestic or
-------------------------------------
foreign law, treaty, rule or regulation (whether now in effect or hereinafter
enacted or promulgated, including Regulation D) or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law):
(a) shall change the basis of taxation of payments to Bank of any
principal, interest, or other amounts attributable to any Eurodollar Portion or
otherwise due under this Agreement in respect of any Eurodollar Portion (other
than taxes imposed on the overall net income of Bank or any lending office of
Bank by any jurisdiction in which Bank or any such lending office is located);
or
(b) shall change, impose, modify, apply or deem applicable any insurance
fees or premiums or any reserve, special deposit or similar requirements in
respect of any Eurodollar Portion (excluding those for which there is full
compensation pursuant to adjustments made in the definition of Adjusted
Eurodollar Rate), or against assets of, deposits with or for the account of, or
credit extended by, Bank; or
(c) shall impose on Bank or the interbank eurocurrency deposit market any
other condition affecting any Eurodollar Portion, the result of which is to
increase the cost to Bank of funding or maintaining any Eurodollar Portion or to
reduce the amount of any sum receivable by Bank in respect of any Eurodollar
Portion by an amount deemed by Bank to be material,
then Bank shall promptly notify Borrower in writing of the happening of such
event and (1) Borrower shall upon demand pay to Bank such additional amount or
amounts as will compensate Bank for such event and (2) Borrower may elect, by
giving to Bank not less than three Business Days' notice, to convert all (but
not less than all) of any such Eurodollar Portion into a part of the Base Rate
Portion.
6. CHANGE OF LAW. If any change in applicable laws, treaties, rules or
-------------
regulations or in the interpretation or administration thereof or in any
jurisdiction whatsoever, domestic or foreign, shall make it unlawful or
impracticable for Bank to fund or maintain Eurodollar Portions, or shall
materially restrict the authority of Bank to purchase, sell or take offshore
deposits of dollars (i.e., "eurodollars"), then Borrower's right to elect
---
Eurodollar Portions shall be suspended to the
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 5
extent and for the duration of such illegality, impracticability or restriction
and all Eurodollar Portions (or portions thereof) which are then outstanding or
are then the subject of any Rate Election and which cannot lawfully or
practicably be maintained or funded shall immediately become or remain part of
the Base Rate Portion of the Bridge Loan. Borrower agrees to indemnify Bank and
hold it harmless against all costs, expenses, claims, penalties, liabilities and
damages which actually result from any such change in law, treaty, rule,
regulation, interpretation or administration.
7. FUNDING LOSSES. Upon the request of Bank, Borrower shall pay to Bank
--------------
such amount or amounts as shall be sufficient (in the reasonable opinion of
Bank) to compensate Bank for any loss or expense incurred or sustained by Bank
(including without limitation any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by Bank to fund
or maintain Eurodollar Portions hereunder), as a result of (a) any payment or
prepayment (whether authorized or required hereunder or otherwise) of all or a
portion of a Eurodollar Portion on a day other than the day on which the
applicable Interest Period ends, (b) any payment or prepayment, whether required
hereunder or otherwise, of the Bridge Loan made after the delivery, but before
the effective date, of a Rate Election, if such payment or prepayment prevents
such Rate Election from becoming fully effective, (c) the failure of" any Rate
Election to become effective, or (d) any conversion (whether authorized or
required hereunder or otherwise) of all or any portion of any Eurodollar Portion
into a Base Rate Portion or into a different Eurodollar Portion on a day other
than the day on which the applicable Interest Period ends.
8. REIMBURSABLE TAXES; CAPITAL ADEQUACY. Borrower covenants and agrees
------------------------------------
that, whether or not any Eurodollar Portion is ever elected:
(a) Borrower will reimburse Bank on demand, on an after-tax basis, for
all present and future income, stamp and other taxes, levies, costs and charges
whatsoever actually paid by Bank (or required to be withheld and paid on account
of Bank) in respect of any Eurodollar Portions, excluding, however, any thereof
imposed on or measured by the overall net income of Bank or any lending office
of Bank by any jurisdiction in which Bank or any such lending office is located
(all such non-excluded taxes, levies, costs and charges being collectively
called "Reimbursable Taxes" in this section), and Borrower will pay directly to
------------------
the appropriate authority any Reimbursable Taxes which Borrower is required to
withhold and pay. Promptly after the date on which payment of any such
Reimbursable Tax to be paid directly by Borrower is due or claimed to be due,
Borrower will, at the request of Bank, furnish to Bank evidence in form and
substance satisfactory to Bank that Borrower has met its obligation under this
section.
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 6
(b) Borrower will indemnify Bank against any loss, liability, claim or
expense, including interest, penalties and legal fees, that Bank may incur at
any time arising out of or in connection with the failure of Borrower to make
any reimbursement required under subsection (a) above or to make any payment,
when due or claimed to be due, of Reimbursable Taxes to be withheld and paid
directly by Borrower.
(c) All payments on account of the principal of, and interest on, the
Bridge Loan and the Bridge Note, and all other amounts payable by Borrower to
Bank hereunder shall be made free and clear of and without reduction by reason
of any Reimbursable Taxes, all of which will be for the account of Borrower and
reimbursed or paid by Borrower.
(d) If Borrower is ever required to reimburse or pay any Reimbursable Tax
with respect to any Eurodollar Portion, Borrower may elect, by giving to Bank
not less than three Business Days' notice, to convert all (but not less than
all) of any such Eurodollar Portion into apart of the Base Rate Portion of the
Bridge Loan, but such election shall not diminish Borrower's obligation to pay
all Reimbursable Taxes.
(e) If at any time after the date hereof, and from time to time, Bank
determines that the adoption or modification of any applicable law, rule or
regulation regarding taxation, Bank's required levels of reserves, deposits,
insurance or capital (including any allocation of capital requirements or
conditions), or similar requirements, or any interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation, administration or compliance of Bank with any of such
requirements, has or would have the effect of (a) increasing Bank's costs
relating to the Bridge Loan Obligations, or (b) reducing the yield or rate of
return of Bank on the Bridge Loan Obligations, to a level below that which Bank
could have achieved but for such adoption, modification, interpretation or
application, then Borrower shall, within 30 Business Days after any request by
Bank, pay to Bank such additional amounts as (in Bank's sole judgment, after
reasonable computation) will compensate Bank for such increase in costs or
reduction in yield or rate of return. No failure by Bank to immediately demand
payment of any additional amounts payable hereunder shall constitute a waiver of
Bank's right to demand payment of such amounts at any subsequent time. Nothing
herein contained shall be construed or so operate as to require Borrower to pay
any interest, fees, costs or charges not permitted by Section 9.
9. COMPENSATION PROCEDURE. If Bank notifies Borrower of the incurrence of
----------------------
additional costs under Sections 5 through 8, Bank shall in such notice to
Borrower set forth in reasonable detail the basis and amount of its request for
compensation. Determinations and allocations by Bank for purposes of Sections 5
through 8 of the effect of any change in
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 7
applicable laws, treaties, rules or regulations or in the interpretation or
administration thereof, any losses or expenses incurred by reason of the
liquidation or reemployment of deposits or other funds, any taxes, levies, costs
and charges imposed, or the effect of capital maintained on its costs or rate of
return of maintaining the Bridge Loan, or on amounts receivable by it in respect
of the Bridge Loan and of the amounts required to compensate Bank under Sections
5 through 8, shall be conclusive and binding for all purposes, provided that
such determinations and allocations are made on a reasonable basis and there
shall be no demand for duplicate payments of the same additional cost. Any
request for compensation under this Section 9 shall be paid by Borrower within
thirty (30) Business Days of the receipt by Borrower of the notice described in
this Section 9.
10. CONDITIONS PRECEDENT. Bank has no obligation to make the Bridge Loan
--------------------
unless all of the following conditions shall have been satisfied:
(a) Bank has received all of the following, at Bank's offices, duly
executed and delivered and in form, substance and date satisfactory to Bank:
(i) This Agreement.
(ii) The Bridge Note.
(iii) An absolute and unconditional guaranty of the Bridge Loan
Obligations executed by each Subsidiary of Borrower in a form acceptable to
Bank.
(iv) An officer's certificate of Borrower dated as of the date of
the making of the Bridge Loan, which shall contain the names and signatures
of the officers of Borrower duly authorized to execute the Bridge Loan
Documents.
(v) Such supporting documents as Bank may reasonably request.
(b) All representations and warranties made by Borrower in the Revolving
Credit Agreement shall be true on and as of the date of the Bridge Loan (except
to the extent that the facts upon which such representations are based have been
changed by the transactions therein contemplated) as if such representations and
warranties had been made as of the date of the Bridge Loan.
(c) No Default shall exist at the date of the Bridge Loan.
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 8
(d) Borrower shall have performed and complied with all agreements and
conditions required in the Bridge Loan Documents to be performed or complied
with by it on or prior to the date of the Bridge Loan.
(e) All legal matters relating to the Bridge Loan Documents and the
consummation of the transactions contemplated thereby shall be satisfactory to
Thompson & Knight, a Professional Corporation, counsel to Bank.
(f) Borrower shall have paid to Bank a commitment fee in the amount of
$185,000 in immediately available funds.
(g) Majority Lenders shall have consented in writing to the execution and
delivery by Borrower and Bank of this Agreement.
11. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
------------------------------
warrants to Bank that each of the representations and warranties contained in
Section 5.1 of the Revolving Credit Agreement are true and correct as of the
date hereof and as of the date the Bridge Loan is made (except to the extent
that the facts upon which such representations are based have been changed by
the transactions therein contemplated).
12. AFFIRMATIVE COVENANTS. Until (i) the Bridge Note is fully paid and
---------------------
satisfied, and (ii) this Agreement is terminated, Borrower agrees and covenants
that it will, unless Bark shall otherwise consent in writing, comply with each
provision of Section 6.1 and Section 6.2 of the Revolving Credit Agreement.
13. BANK ACCOUNTS; OFFSET. To secure the repayment of the Bridge Loan,
---------------------
Borrower hereby grants to Bank a security interest, a lien, and a right of
offset, each of which shall be upon and against all right, title, and interest
of Borrower in (a) any and all moneys, securities or other property (and the
proceeds therefrom) of Borrower now or hereafter held or received by or in
transit to Bank from or for the account of Borrower, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, (b) any and all deposits
(general or special, time or demand, provisional or final) of Borrower with
Bank, and (c) any other credits and claims of Borrower at any time existing
against Bank, including claims under certificates of deposit. Upon the
occurrence of any Default, Bank is hereby authorized to foreclose upon, offset,
appropriate, and apply, at any time and from time to time, without notice to
Borrower or any Guarantor, any and all items hereinabove referred to against the
Bridge Loan Obligations (whether or not such Bridge Loan Obligations are then
due and payable).
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 9
14. GUARANTIES OF SUBSIDIARIES. Each Subsidiary of Borrower which (i) is
--------------------------
now existing shall on date hereof or (ii) is created, acquired or comes into
existence after the date hereof shall promptly execute and deliver to Bank an
absolute and unconditional guaranty of the timely repayment of the Bridge Loan
Obligations, which guaranty shall be satisfactory to Bank in form and substance.
Borrower and each Guarantor will cause each such Related Person to deliver to
Bank, simultaneously with its delivery of such a guaranty, written evidence
satisfactory to Bank and its counsel that such Related Person has taken all
corporate or partnership action necessary to duly approve and authorize its
execution, delivery and performance of such guaranty and any other documents
which it is required to execute.
15. FURTHER ASSURANCES. Borrower hereby- agrees to, and to cause each
------------------
Related Person to, execute and deliver any and all documents, instruments,
guaranties, agreements, certificates, and other writings of any kind and
character which Bank determines in its sole and absolute discretion are
necessary or appropriate to effectuate the intent of the Bridge Loan Documents.
16. EVENTS OF DEFAULT. Each of the following shall constitute an "Event of
-----------------
Default" under this Agreement:
(a) Any Related Person fails to pay any Bridge Loan Obligations when due
and payable, whether at. a date for the payment of a fixed installment or
contingent or other payment to Bank or as a result of acceleration or otherwise;
(b) Any Related Person fails (other than as referred to in subsections
(a) and (b) above) to duly observe, perform or comply with any covenant,
agreement, condition or provision of any Bridge Loan Document;
(c) An "Event of Default" occurs under the Revolving Credit Agreement.
17. REMEDIES. Upon the occurrence of any one or more of the foregoing
--------
Events of Default, the entire unpaid balance of principal of the Bridge Note,
together with all accrued but unpaid interest thereon, and all other
indebtedness owing to Bank by Borrower at such time shall, at the option of
Bank, become immediately due and payable without further notice, demand,
presentation, notice of dishonor, notice of intent to accelerate, notice of
acceleration, protest or notice of protest of any kind, all of which are
expressly waived by Borrower; provided, however concurrently and automatically
-------- -------
with the occurrence of an "Event of Default" under Section 8.1 (h)(i), (ii), or
(iii) of the Revolving Credit Agreement, the Bridge Note and all other
indebtedness owing to Bank by Borrower under the Bridge Loan Documents at such
time shall, without any action by Bank, become due and payable, without further
notice, demand,
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 10
presentation, notice of dishonor, notice of acceleration, notice of intent to
accelerate, protest or notice of protest of any kind, all of which are expressly
waived by Borrower. All rights and remedies of Bank set forth in this Agreement
and in any of the other Bridge Loan Documents may also be exercised by Bank, at
its option to be exercised in its sole discretion, upon the occurrence of an
Event of Default.
18. RIGHTS; CUMULATIVE. All rights of Bank under the terms of this
------------------
Agreement shall be cumulative of, and in addition to, the rights of Bank under
any and all other agreements between Borrower and Bank (including, but not
limited to, the other Bridge Loan Documents), and not in substitution or
diminution of any rights now or hereafter held by Bank under the terms of any
other agreement.
19. WAIVER AND AGREEMENT. Neither the failure nor any delay on the part
--------------------
of Bank to exercise any right, power or privilege herein or under any of the
other Bridge Loan Documents shall operate as a waiver thereof, nor shall any
single or partial exercise of such right, power or privilege preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. No waiver of any provision in this Agreement or in any of the other
Bridge Loan Documents and no departure by Borrower therefrom shall be effective
unless the same shall be in writing and signed by Bank, and then shall be
effective only in the specific instance and for the purpose for which given and
to the extent specified in such writing. No modification or amendment to this
Agreement or to any of the other Bridge Loan Documents shall be valid or
effective unless the same is signed by the Party against whom it is sought to be
enforced.
20. BENEFITS. This Agreement shall be binding upon and inure to the
--------
benefit of Bank and Borrower, and their respective successors and assigns,
provided, however, that Borrower may not, without the prior written consent of
Bank, assign any rights, powers, duties or obligations under this Agreement or
any of the other Bridge Loan Documents.
21. NOTICES. All notices, requests, demands or other communications
-------
required or permitted to be given pursuant to this Agreement shall be in writing
and given by (i) facsimile, (ii) personal delivery, (iii) expedited delivery
service with proof of delivery, or (iv) United States mail, postage prepaid,
registered or certified mail, return receipt requested, sent to the intended
addressee at the address set forth on the signature page hereof and shall be
deemed to have been received either, in the case of facsimile or personal
delivery, as of the time of facsimile or personal delivery, in the case of
expedited delivery service, as of the date of first attempted delivery at the
address and in the manner provided herein, or in the case of mail, upon deposit
in a depository receptacle under the care and custody of the United States
Postal Service. Either party shall have the right to change its address for
notice hereunder to any other location within
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 11
the continental United States by notice to the other party of such new address
at least thirty (30) days prior to the effective date of such new address. All
notices required to be given by Bank to any Related Person other than Borrower
pursuant to any Bridge Loan Document shall be given to such Related Person at
the address of Borrower on the signature page hereof in accordance with this
Section 21.
22. LIMITATION ON INTEREST. Bank and Borrower intend to contract in
----------------------
strict compliance with applicable usury law from time to time in effect. In
furtherance thereof Bank and Borrower stipulate and agree that none of the terms
and provisions contained in the Agreement shall ever be construed to create a
contract to pay, for the use, forbearance or detention of money, interest in
excess of the maximum amount of interest permitted to be charged by applicable
Law from time to time in effect. Neither Borrower nor any present or future
guarantors, endorsers, or other Persons hereafter becoming liable for payment of
any Obligation shall ever be liable for unearned interest thereon or shall ever
be required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable Law from time to time in effect, and the
provisions of this section shall control over all other provisions of the
Agreement which may be in conflict or apparent conflict herewith. Bank expressly
disavows any intention to charge or collect excessive unearned interest or
finance charges in the event the maturity of any Obligation is accelerated. If
(a) the maturity of any Obligation is accelerated for any reason, (b) any
Obligation is prepaid and as a result any amounts held to constitute interest
are determined to be in excess of the legal maximum, or (c) Bank or any other
holder of any or all of the Bridge Loan Obligations shall otherwise collect
moneys which are determined to constitute interest which would otherwise
increase the interest on any or all of the Bridge Loan Obligations to an amount
in excess of that permitted to be charged by applicable Law then in effect, then
all sums determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal of
the related Bridge Loan Obligations or, at Bank's or such holder's option,
promptly returned to Borrower or the other payor thereof upon such
determination. In determining whether or not the interest paid or payable, under
any specific circumstance, exceeds the maximum amount permitted under applicable
Law, Bank and Borrower (and any other payors thereof) shall to the greatest
extent permitted under applicable Law, (i) characterize any non-principal
payment as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, and (iii) amortize, prorate,
allocate, and spread the total amount of interest throughout the entire
contemplated ' term of the instruments evidencing the Bridge Loan Obligations in
accordance with the amounts outstanding from time to time thereunder and the
maximum legal rate of interest from time to time in effect under applicable Law
in order to lawfully charge the maximum amount of interest permitted under
applicable Law. In the event applicable Law provides for an interest ceiling
under Chapter 303 of the Texas Finance Code (the "Texas Finance Code") as
amended, for that day, the ceiling
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 12
shall be the "weekly ceiling" as defined in the Texas Finance Code, provided
that if any applicable Law permits greater interest, the Law permitting the
greatest interest shall apply. As used in this section the term "applicable Law"
means the laws of the State of Texas or the laws of the United States of
America, whichever laws allow the greater interest, as such laws now exist or
may be changed or amended or come into effect in the future.
23. CONSTRUCTION. This Agreement and the other Bridge Loan Documents have
------------
been executed and delivered in the State of Texas, shall be governed by and
construed in accordance with the laws of the State of Texas.
24. INVALID PROVISIONS. If any provision of this Agreement or any of the
------------------
other Bridge Loan Documents is held to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable and the
remaining provisions of this Agreement or any of the other Bridge Loan Documents
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance.
25. EXPENSES. Borrower agrees to pay on demand all reasonable costs and
--------
expenses of Bank in connection with the syndication, preparation, execution,
delivery, administration, Modification, and amendment of this Agreement, the
other Bridge Loan Documents, and the other documents to be delivered hereunder,
including, without limitation, the reasonable fees and expenses of counsel for
Bank (including the cost of internal counsel) with respect thereto and with
respect to advising Bank as to its rights and responsibilities under the Bridge
Loan, Documents. Borrower further agrees to pay on demand all costs and expenses
of Bank, if any (including, without limitation, reasonable attorneys' fees and
expenses and the cost of internal counsel), in connection with the enforcement
(whether through negotiations, legal proceedings, or otherwise) of the Bridge
Loan Documents and the other documents to be delivered hereunder. The agreements
contained in this Section shall survive payment in full of the Bridge Loan and
all other amounts payable under this Agreement.
26. PARTICIPATION OF THE BRIDGE LOAN. Borrower agrees that Bank may, at
--------------------------------
its option, sell interests in the Bridge Loan and its rights under this
Agreement to a financial institution or institutions and, in connection with
each such sale, Bank may disclose any financial and other information available
to Bank concerning Borrower to each perspective purchaser.
27. ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER BRIDGE LOAN
----------------
DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 13
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
28. CONFLICTS. In the event any term or provision hereof is inconsistent
---------
with or conflicts with any provision of the other Bridge Loan Documents, the
terms and provisions contained in this Agreement shall be controlling.
29. COUNTERPARTS. This Agreement may be separately executed in any number
------------
of counterparts, each of which shall be an original, but all of which, taken
together, shall be deemed to constitute one and the same instrument. This
Agreement may be validly executed and delivered by facsimile or other electronic
transmission.
30. INDEMNITY. Borrower agrees to indemnify Bank, upon demand, from and
---------
against any and all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
(including reasonable fees of attorneys, accountants, experts and advisors) of
any kind or nature whatsoever (in this section collectively called "liabilities
and costs") which to any extent (in whole or in part) may be imposed on,
incurred by, or asserted against Bank growing out of, resulting from or in any
other way associated with any of the collateral, the Bridge Loan Documents and
the transactions and events (including without limitation the enforcement or
defense thereof) at any time associated therewith or contemplated therein
(including any violation or noncompliance with any environmental laws or any
liabilities as duties with respect to hazardous materials found in or released
into the environment). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT
SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT ARISE, IN WHOLE OR IN
PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR
IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY BANK, provided only
that Bank shall be not entitled under this section to receive indemnification
for that portion, if any, of any liabilities and costs which is proximately
caused by its own individual gross negligence or willful misconduct. As used in
this section the term "Bank" shall refer not only to NationsBank, N.A. but also
to each director, officer, Bank, attorney, employee, representative and
affiliate of such person.
31. SURVIVAL OF AGREEMENTS; CUMULATIVE NATURE. All of the Related
-----------------------------------------
Persons' various representations, warranties, covenants and agreements in the
Bridge Loan Documents shall survive the execution and delivery of this Agreement
and the other Bridge Loan Documents and the performance hereof and thereof,
including the making or granting of the Bridge Loan and the delivery of the
Bridge Note and the other Bridge Loan Documents, and shall further survive until
all of the Bridge Loan Obligations are paid in full and all of Bank's
obligations to Borrower
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 14
pursuant to this Agreement are terminated. All statements and agreements
contained in any certificate or other instrument delivered by any Related Person
to Bank under any Bridge Loan Document shall be deemed representations and
warranties by Borrower or agreements and -covenants of Borrower under this
Agreement. The representations, warranties, indemnities, and covenants made by
the Related Persons in the Bridge Loan Documents, and the rights, powers, and
privileges granted to Bank in the Bridge Loan Documents, are cumulative, and,
except for expressly specified waivers and consents, no Bridge Loan Document
shall be construed in the context of another to diminish, nullify, or otherwise
reduce the benefit to Bank of any such representation, warranty, indemnity,
covenant, right, power or privilege. In particular and without limitation, no
exception set out in this Agreement to any representation, warranty, indemnity,
or covenant herein contained shall apply to any similar representation,
warranty, indemnity, or covenant contained in any other Bridge Loan Document,
and each such similar representation, warranty, indemnity, or covenant shall be
subject only to those exceptions which are expressly made applicable to it by
the terms of the various Bridge Loan Documents.
32. LIMITED SURVIVAL UPON TERMINATION. Upon the payment in full of the
---------------------------------
Bridge Loan Obligations and the termination of this Agreement and
notwithstanding anything herein to the contrary, any waivers or admissions made
by any Related Person in any Bridge Loan Document, and any obligations which any
Person may have to indemnify or compensate Bank shall survive any termination of
this Agreement or any other Bridge Loan Document. At the request and expense of
Borrower, Bank shall prepare and execute all necessary instruments to reflect
and effect such termination of the Bridge Loan Documents.
33. WAIVERS AND AMENDMENTS; ACKNOWLEDGMENTS.
---------------------------------------
(a) No failure or delay (whether by course of conduct or otherwise) by
Bank in exercising any right, power or remedy which Bank may have under any of
the Bridge Loan Documents shall operate as a waiver thereof or of any other
right, power or remedy, nor shall any single or partial exercise by Bank of any
such right, power or remedy preclude any other or further exercise thereof or of
any other right, power or remedy. No failure or delay (whether by course of
conduct or otherwise) by Borrower in exercising any right, power or remedy which
Borrower may have under any of the Bridge Loan Documents shall operate as a
waiver thereof or of any other right, power or remedy, nor shall any single or
partial exercise by Borrower of any such right, power or remedy preclude any
other or further exercise thereof or of any other right, power or remedy. No
waiver of any provision of any Bridge Loan Document and no consent to any
departure therefrom shall ever be effective unless it is in writing and signed
as provided below in this section, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which given
and to the extent specified in such writing. No
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 15
notice to or demand on any Related Person shall in any case of itself entitle
any Related Person to any other or further notice or demand in similar or other
circumstances.
(b) No waiver or supplement to this Agreement or the other Bridge Loan
Documents shall be valid or effective against any party hereto unless the same
is in writing and signed by (i) if such party is Borrower, by Borrower, and (ii)
if such party is Bank, by Bank.
(c) Borrower hereby represents, warrants, acknowledges and admits that
(i) it has been advised by counsel in the negotiation, execution and delivery of
the Bridge Loan Documents to which it is a party, (ii) it has made an
independent decision to enter into this Agreement and the other Bridge Loan
Documents to which it is a party, without reliance on any representation,
warranty, covenant or undertaking by Bank, whether written, oral or implicit,
other than as expressly set out in this Agreement or in another Bridge Loan
Document delivered on or after the date hereof, (iii) there are no
representations, warranties, covenants, undertakings or agreements by Bank as to
the Bridge Loan Documents except as expressly set out in this Agreement or in
another Bridge Loan Document delivered on or after the date hereof, (iv) Bank
has no fiduciary obligation toward Borrower with respect to any Bridge Loan
Document or the transactions contemplated thereby, (v) the relationship pursuant
to the Bridge Loan Documents between Borrower, oil one hand, and Bank, on the
other hand, is and shall be solely that of debtor and creditor, respectively,
(vi) no partnership or joint venture exists with respect to the Bridge Loan
Documents between Borrower and Bank, (vii) should an Event of Default or Default
occur or exist Bank will determine in its sole discretion and for its own
reasons what remedies and actions it will or will not exercise or take at that
time, (viii) without limiting any of the foregoing, Borrower is not relying upon
any representation or covenant by Bank, or any representative thereof, and no
such representation or covenant has been made, that Bank will, at the time of an
Event of Default or Default, or at any other time, waive, negotiate, discuss, or
take or refrain from taking any action permitted under the Bridge Loan Documents
with respect to any such Event of Default or Default or any other provision of
the Bridge Loan Documents, and (ix) Bank has relied upon the truthfulness of the
acknowledgments in this section in deciding to execute and deliver this
Agreement and to make the Bridge Loan.
THIS WRITTEN AGREEMENT AND THE OTHER BRIDGE LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 16
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
34. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH OF BORROWER AND
-------------------------------------------
BANK HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY
TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE BRIDGE LOAN DOCUMENTS OR
ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER
MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES", AS
DEFINED BELOW, (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OF NOR
COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED
THAT ANY PARTY HERETO WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT, THE OTHER BRIDGE LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER. THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, "SPECIAL
DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES
(REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY
PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO.
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 17
If the foregoing correctly sets forth our mutual agreement, please so
acknowledge by signing and returning this Agreement to the undersigned.
Very truly yours,
NATIONSBANK, N. A.
By:
__________________________________
Name:
Title:
Bank's Address:
901 Main Street
Dallas, Texas 75202
COPIES OF ALL NOTICES MUST BE SENT TO:
NationsBank N. A.
370 17th Street
Denver, Colorado 80202
Attention: David C. Rubenking
Tel: 303/629-6969
Fax: 303/629-6303
<PAGE>
Western Gas Resources, Inc.
February 17, 1999
Page 18
ACCEPTED as of the date first written above.
WESTERN GAS RESOURCES, INC.
By: /s/ William Krysiak
-----------------------------
Name: WILLIAM KRYSIAK
Title: V.P. FINANCE
1200 N. Pecos Street, Suite 230
Denver, Colorado 80234
Tel: 303/450-8439
Fax: 303/252-3362
<PAGE>
ANNEX I
-------
DEFINITIONS
-----------
"Adjusted Base Rate" means the rate per annum equal to the Base Rate plus
------------------
the Base Rate Spread. The Adjusted Base Rate shall in no event, however, exceed
the Highest Lawful Rate.
"Adjusted Eurodollar Rate" means, with respect to each particular
------------------------
Eurodollar Portion of the Bridge Loan and the associated Eurodollar Rate and
Reserve Percentage, the rate per annum calculated by Agent (rounded upwards, if
necessary, to the next higher 0.01%) determined on a daily basis pursuant to the
following formula:
Adjusted Eurodollar Rate =
Eurodollar Rate + Eurodollar Spread
- ----------------------------
100.0% - Reserve Requirement
Such Adjusted Eurodollar Rate shall change as the Eurodollar Spread and the
associated Reserve Requirement change. The Adjusted Eurodollar Rate shall in no
event, however, exceed the Highest Lawful Rate.
"Base Rate" means the per annum rate of interest equal to the greater of
---------
(i) the Prime Rate from time to time in effect or (ii) the Federal Funds Rate
from time to time in effect, plus one-half of one percent (.50%). If the Prime
Rate or the Federal Funds Rate, as the case may be, changes after the date
hereof the Base Rate shall be automatically increased or decreased, as the case
may be, without notice to Borrower from time to time as of the effective time of
each such change.
"Base Rate Portion" means that portion of the unpaid principal balance of
-----------------
the Bridge Loan which is not made up of Eurodollar Portions.
"Base Rate Spread" means:
----------------
(a) from the date of the Agreement until and including April 31, 1999,
0.50%;
(b) from and including May 1, 1999 until and including, July 31, 1999,
1.00%; and
(c) from and including August 1, 1999 until and including the Maturity
Date, 1.50%.
"Bridge Loan Documents" means the Agreement, the Bridge Note, all
---------------------
guaranties of Borrower's Subsidiaries required to be delivered under the
Agreement, and the other agreements,
<PAGE>
instruments, and documents evidencing, securing, governing, guaranteeing, and/or
pertaining to the Bridge Loan.
"Bridge Loan Obligations" means all Debt from time to time owing by
-----------------------
Borrower or any other Person under or pursuant to any of the Bridge Loan
Documents. "Bridge Loan Obligation" means any part of the Bridge Loan
Obligations.
"Default" means any Event of Default as described in Section 16 and any
-------
default, event or condition which would, with the giving of any requisite
notices and the passage of any requisite periods of time, constitute an Event of
Default.
"Default Rate" means, at the time in question, four percent (4.0%) per
------------
annum. plus the Adjusted Base Rate. The Default Rate shall in no event, however,
exceed the Highest Lawful Rate.
"Eurodollar Portion" means any portion of the unpaid principal balance
------------------
of the Bridge Loan which Borrower designates as such in a Rate Election.
"Eurodollar Rate" means, for any Eurodollar Portion and with respect to
---------------
the related Interest Period therefor, the rate per annum. (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on the Dow Jones Market Service
(formerly Telerate Access Service) Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "Eurodollar Rate" shall mean, for any Eurodollar
Portion and with respect to the related Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits of
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest period for a term comparable to such Interest Period;
provided, however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%); to Bank or shall be
calculated by bank by a substantially similar methodology as that theretofore
used to determine such rate on Reuters Screen LIBO Page.
"Eurodollar Rate Payment Date" means, with respect to any Eurodollar
----------------------------
Portion: (i) the day on which the related Interest Period ends and (ii) any day
on which past due interest or past due principal is owed hereunder with respect
to such Bridge Loan and is unpaid. If the terms of the Bridge Loan Documents
provide that payments of interest or principal with respect to such Bridge Loan
shall be deferred from one Eurodollar Rate Payment Date to another day, such
other day shall also be a Eurodollar Rate Payment Date.
2
<PAGE>
"Eurodollar Spread" means:
-----------------
(a) from the date of the Agreement until and including May 31, 1999,
1.75%;
(b) from and including June 1, 1999 until and including July 31, 1999,
2.25%; and
(c) from and including August 1, 1999 until and including the Maturity
Date, 2.75%.
"Fair Market Value" of any property or any portion thereof or interest
-----------------
therein, as of any date, means the after-tax cash proceeds that would be
obtained in an arms' length transaction for the sale thereof consummated on such
date between an informed and willing buyer and an informed and willing seller,
under no compulsion, respectively, to buy or sell, assuming that such property
has been maintained and operated in all material respects in accordance with the
requirements of the Revolving Credit Agreement, such price to be as agreed
between Borrower and Bank or, if Borrower and Bank are unable to agree, as
determined by a mutually acceptable qualified third-party appraiser.
"Guarantor " means any other Person who has guaranteed some or all of
---------
the Bridge Loan
"Highest Lawful Rate" means, with respect to Bank, the maximum
-------------------
nonusurious rate of interest that Bank is permitted under applicable law to
contract for, take, charge, or receive with respect to the Bridge Loan.
"Interest Period" means, with respect to each particular Eurodollar
---------------
Portion, a period of 1, 2 or 3 months, as specified in the Rate Election
applicable thereto, beginning on and including the date specified in such Rate
Election (which must be a Business Day), and ending on but not including the
same day of the month as the day on which it began (e.g., a period beginning on
the third day of one month shall end on but not. include the third day of
another-month), provided that each Interest Period which would otherwise end on
a day which is not a Business Day shall end on the next succeeding Business Day
(unless such next succeeding Business Day is the first Business Day of a
calendar month, in which case such Interest Period shall end on the immediately
preceding Business Day). No Interest Period may be elected, which would extend
past the date on which the Bridge Note is due and payable in fall.
"Maturity Date" means October 31, 1999.
-------------
"Person" means an individual, corporation, partnership, limited liability
------
company, association, joint stock company, trust or trustee thereof, estate or
executor thereof, unincorporated organization or joint venture, court or
governmental unit or any agency or subdivision thereof, or-any other legally
recognizable entity.
3
<PAGE>
"Prime Rate" means the per annum rate of interest established from time
----------
to time by Bank as its prime rate, which rate may not be the lowest rate of
interest charged by Bank to its customers.
"Rate Election" has the meaning given it in Section 2.
-------------
"Related Person" means any of Borrower, each Guarantor, and each other
--------------
Subsidiary of Borrower, with the exception of Williston Gas Company, Westana,
and Sandia.
"Reserve Requirement" means, on any day with respect to the Bridge Loan,
-------------------
the maximum rate at which reserves (including, without limitation, any marginal,
special, supplemental, or emergency reserves) are required to be maintained
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) by member banks of the Federal Reserve
System against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks with
respect to (i) any category of liabilities which includes deposits by reference
to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category
of extensions of credit or other assets which include the Bridge Loan. The
Adjusted Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Reserve Requirement.
"Revolving Credit Agreement" means that certain Credit Agreement dated as
--------------------------
of May 30, 1997 among Borrower and NationsBank, N.A., successor in interest by
merger to NationsBank of Texas, N.A., as Agent, and certain other financial
institutions, as Lenders, as from time to time amended, supplemented, or
restated.
"Subsidiary" means, with respect to any Person, any corporation,
----------
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or effectively through one or more
intermediaries, controlled by or owned fifty-one percent or more by such Person,
provided that associations, joint ventures or other relationships (a) which are
established pursuant to a standard form operating agreement or similar agreement
or which are partnerships for purposes of federal income taxation only, (b)
which are not corporations or partnerships (or subject to the Uniform
Partnership Act) under applicable state law, and (c) whose businesses are
limited to the exploration, development and operation of oil, gas, mineral, gas
gathering or gas processing properties and interests owned directly by the
parties in such associations, joint ventures or relationships, shall not be
deemed to be "Subsidiaries" of such Person.
4
<PAGE>
Exhibit A
---------
PROMISSORY NOTE
$37,000,000 Dallas, Texas February _, 1999
FOR VALUE RECEIVED, the undersigned, Western Gas Resources Inc., a Delaware
corporation (herein called "Borrower"), hereby promises to pay to the order of
NATIONSBANK, N.A. ("Bank"), the principal sum of Thirty-Seven Million Dollars
($37,000,000), or, if greater or less, the aggregate unpaid principal amount of
the Bridge Loan made under this Note by Bank to Borrower pursuant to the terms
of the Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America at
the offices of Bank, 901 Main Street, Dallas, Texas or at such other place
within Dallas County, Texas, as from time to time may be designated by the
holder of this Note.
This Note (i) is issued and delivered under that certain Agreement dated as
of February 17, 1999, among Borrower and Bank (herein, as from time to time
supplemented, amended or restated, called the "Agreement"), and is the "Bridge
Note" as defined therein, (ii) is subject to the terms and provisions of the
Agreement, which contains provisions for payments and prepayments hereunder and
acceleration of the maturity hereof upon the happening of certain stated events,
and (iii) is secured by and entitled to the benefits of certain guaranties.
Payments on this Note shall be made and applied as provided herein and in the
Agreement. Reference is hereby made to the Agreement for a description of
certain rights, limitations of rights, obligations and duties of the parties
hereto and for the meanings assigned to terms used and not defined herein.
The principal amount of this Note. shall be due and payable in full on the
Maturity Date. This Note is subject to mandatory prepayments as required in the
Agreement.
The Base Rate Portion of the Bridge Loan (exclusive of any past due
principal or interest) from time to time outstanding shall bear interest on each
day outstanding at the Adjusted Base Rate in effect on such day; provided that
if an Event of Default has occurred and is continuing, the Base Rate Portion of
the Bridge Loan (exclusive of any past due principal or interest) from time to
time outstanding shall bear interest on each day outstanding at the Default Rate
in effect on such day. On each Base Rate Payment Date, Borrower shall pay to the
holder hereof all unpaid interest which has accrued on the Base Rate Portion to
but not including such Base Rate Payment Date.
Each Eurodollar Portion of the Bridge Loan (exclusive of any past due
principal or interest) shall bear interest on each day during the related
Interest Period at the related Adjusted Eurodollar Rate in effect on such day;
provided that if an Event of Default has occurred and is continuing, each
Eurodollar Portion of the Bridge Loan (exclusive of any past due principal or
<PAGE>
interest) shall bear interest on each day during the related Interest Period at
the Default Rate in effect on such day. On each Eurodollar Rate Payment Date,
Borrower shall pay to the holder hereof all unpaid interest which has accrued on
such Eurodollar Portion to but not including such Eurodollar Rate Payment Date.
All past due principal of and past due interest on the Bridge Loan shall
bear interest on each day outstanding at the Default Rate in effect on such day,
and such interest shall be due and payable immediately as it accrues.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest rate payable hereon, whether before or
after maturity, exceed the Highest Lawful Rate, and this Note is expressly made
subject to the provisions of the Agreement which more fully set out the
limitations on how interest accrues hereon. In the event applicable law provides
for a ceiling under Chapter 303 of the Texas Finance Code, as amended (the
"Texas Finance Code"), for that day, that ceiling shall be the "weekly" ceiling
as defined in the Texas Finance Code and shall be used in this Note for
calculating the Highest Lawful Rate and for all other purposes. The term
"applicable law" as used in this Note shall mean the laws of the State of Texas
or the laws of the United States, whichever laws allow the greater interest, as
such laws now exist or may be changed or amended or come into effect in the
future.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment for payment, protest, notice of protest,
notice of intention to accelerate the maturity of this Note, notice of the
acceleration of the maturity of this Note, diligence in collecting, the bringing
of any suit against any party and any notice of or defense on account of any
extensions, renewals, partial payments or changes in any manner of or in this
Note or in any of its terms, provisions and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other act of any
trustee or any holder hereof, whether before or after maturity.
2
<PAGE>
THIS NOTE AND THE RIGHTS, DUTIES AND LIABILITIES OF THE PARTIES HEREUNDER
AND/OR ARISING FROM OR RELATING IN ANY WAY TO THE INDEBTEDNESS EVIDENCED BY THIS
NOTE OR THE TRANSACTION OF WHICH SUCH INDEBTEDNESS IS A PART SHALL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT THE SAME ARE GOVERNED BY APPLICABLE FEDERAL LAW.
WESTERN GAS RESOURCES, INC.
By:__________________________________
Name:
Title:
3
<PAGE>
Exhibit B
---------
RATE ELECTION
Reference is made to that certain Agreement dated as of February 17, 1999
(as from Time to time amended, the "Agreement"), by and among Western Gas
---------
Resources, Inc. ("Borrower") and NationsBank, N.A. Terms which are defined in
--------
the Agreement and which are used but not defined herein are used herein with the
meanings given them in the Agreement. Pursuant to the terms of the Agreement
Borrower hereby elects a Eurodollar Portion in the aggregate amount of
$_________ with an Interest Period beginning on _______________ and continuing
for A period of ______________.
The undersigned officer of Borrower hereby certifies that he is a duly
elected, qualified and acting officer of Borrower, having all necessary
authority to act in making the election herein contained.
IN WITNESS WHEREOF this instrument is executed as of ___________, 1999.
WESTERN GAS RESOURCES, INC.
By:________________________________
Name:
Title:
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF WESTERN GAS RESOURCES, INC.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY RELATIONSHIP
- ------------------ ------------
<S> <C>
1) MIGC, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc.
2) MGTC, Inc. Wholly-owned subsidiary of MIGC, Inc.
3) Western Gas Resources - Texas, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc.
4) Western Gas Resources Storage, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc.
5) Western Gas Resources - Oklahoma, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc.
6) Mountain Gas Resources, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc.
7) Western Power Services, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc.
8) Pinnacle Gas Treating, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc.
9) WGR Canada, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc.
10) Lance Oil & Gas Company, Inc. Wholly-owned subsidiary of Western Gas Resources, Inc.
11) Mountain Gas Transportation, Inc. Wholly-owned subsidiary of Mountain Gas Resources, Inc.
12) Western Gas Wyoming, L.L.C. Wholly-owned subsidiary of Western Gas Resources, Inc.
13) Green River Gathering Company A joint venture between Western Gas Resources, Inc.
and Mountain Gas Resources, Inc.
14) Westana Gathering Company A general partnership with Western Gas Resources, Inc.,
as general partner
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 33-66516, No.
33-54741, No. 333-00903 and No. 333-13099) and in the Registration Statements on
Form S-8 (No. 33-67834 and No. 333-29711) of Western Gas Resources, Inc. of our
report dated March 22, 1999 appearing on page 28 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
March , 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,400
<SECURITIES> 0
<RECEIVABLES> 233,574
<ALLOWANCES> 0
<INVENTORY> 56,360
<CURRENT-ASSETS> 297,285
<PP&E> 1,152,076
<DEPRECIATION> (305,589)
<TOTAL-ASSETS> 1,219,377
<CURRENT-LIABILITIES> 281,259
<BONDS> 504,881
0
416
<COMMON> 3,217
<OTHER-SE> 381,583
<TOTAL-LIABILITY-AND-EQUITY> 1,219,377
<SALES> 2,105,980
<TOTAL-REVENUES> 2,133,566
<CGS> 1,914,303
<TOTAL-COSTS> 1,914,303
<OTHER-EXPENSES> 291,270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,616
<INCOME-PRETAX> (105,623)
<INCOME-TAX> (38,418)
<INCOME-CONTINUING> (67,205)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (67,205)
<EPS-PRIMARY> (2.42)
<EPS-DILUTED> (2.42)
</TABLE>
