UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                ------------------------------------------------
                             Washington, D.C. 20549
                             ----------------------

                                   FORM 10-Q
(Mark One)
----------

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO
     _________________


                         Commission file number 1-10389
                         ------------------------------


                                        
                          WESTERN GAS RESOURCES, INC.
                          ---------------------------
             (Exact name of registrant as specified in its charter)


             Delaware                                            84-1127613
  -------------------------------                           --------------------
  (State or other jurisdiction of                           (I.R.S. Employer
   incorporation or organization)                            Identification No.)

  12200 N. Pecos Street, Denver, Colorado                        80234-3439
--------------------------------------------------------------------------------
  (Address of principal executive offices)                       (Zip Code)


                                 (303) 452-5603
--------------------------------------------------------------------------------
               Registrant's telephone number, including area code

                                   No changes
--------------------------------------------------------------------------------
   (Former name, former address and former fiscal year, if changed since last
                                    report).



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes   X    No 
                                       -----     -----     


On May 1, 1999, there were 32,147,993 shares of the registrant's Common Stock
outstanding.

                                       1
<PAGE>
 
                          Western Gas Resources, Inc.
                                   Form 10-Q
                               Table of Contents



<TABLE>
<CAPTION>
                                        

PART I - Financial Information                                                                 Page
------------------------------                                                                 ----
<S>         <C>                                                                                <C> 
  Item 1.   Financial Statements
 
            Consolidated Balance Sheet - March 31, 1999 and December 31, 1998................   3
 
            Consolidated Statement of Cash Flows - Three Months Ended March 31, 1999
            and 1998.........................................................................   4
 
            Consolidated Statement of Operations - Three Months Ended March 31, 1999 and 1998   5
 
            Consolidated Statement of Changes in Stockholders' Equity - Three Months Ended
            March 31, 1999...................................................................   6
 
            Notes to Consolidated Financial Statements.......................................   7
 
  Item 2.   Management's Discussion and Analysis of Financial Condition and Results of
            Operations.......................................................................  10
 
<CAPTION> 
 
PART II - Other Information
---------------------------
<S>         <C>                                                                                <C> 
  Item 1.   Legal Proceedings................................................................  19  
 
  Item 6.   Exhibits and Reports on Form 8-K.................................................  20
 
Signatures...................................................................................  21
</TABLE>

                                       2
<PAGE>
 
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
         --------------------
                          WESTERN GAS RESOURCES, INC.
                           CONSOLIDATED BALANCE SHEET
                   (Dollars in thousands, except share data)e
<TABLE>
<CAPTION>
                                                                                 March 31,   December 31,
                                                                                   1999          1998
                                                                                -----------  -------------
ASSETS                                                                          (unaudited)
------
<S>                                                                             <C>          <C>
Current assets:
 Cash and cash equivalents....................................................  $   12,697     $    4,400
 Trade accounts receivable, net...............................................     185,169        233,574
 Product inventory............................................................      22,114         46,207
 Parts inventory..............................................................       9,913         10,153
 Other........................................................................       2,239          2,951
                                                                                ----------     ----------
  Total current assets........................................................     232,132        297,285
                                                                                ----------     ----------
Property and equipment:
 Gas gathering, processing, storage and transmission..........................     966,065        952,531
 Oil and gas properties and equipment.........................................     114,488        111,602
 Construction in progress.....................................................      89,012         87,943
                                                                                ----------     ----------
                                                                                 1,169,565      1,152,076
Accumulated depreciation, depletion and amortization..........................    (317,388)      (305,589)
                                                                                ----------     ----------
  Total property and equipment, net...........................................     852,177        846,487
                                                                                ----------     ----------
Other assets:
 Gas purchase contracts (net of accumulated amortization of $30,531 and
  $29,978, respectively)......................................................      40,710         41,263
 Other........................................................................      37,654         34,342
                                                                                ----------     ----------
  Total other assets..........................................................      78,364         75,605
                                                                                ----------     ----------
Total assets..................................................................  $1,162,673     $1,219,377
                                                                                ==========     ==========
<CAPTION> 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S>                                                                             <C>          <C>
Current liabilities:
 Accounts payable.............................................................  $  180,850     $  245,315
 Accrued expenses..............................................................     25,978         31,727
 Dividends payable............................................................       4,217          4,217
                                                                                ----------     ----------
  Total current liabilities...................................................     211,045        281,259
Long-term debt................................................................     526,609        504,881
Deferred income taxes payable.................................................      46,648         48,021
                                                                                ----------     ----------
  Total liabilities...........................................................     784,302        834,161
                                                                                ----------     ----------
Commitments and contingent liabilities........................................           -              -
 
Stockholders' equity:
 Preferred stock, par value $.10; 10,000,000 shares authorized:
  $2.28 cumulative preferred stock; 1,400,000 shares issued and outstanding
   ($35,000,000 aggregate liquidation preference).............................         140            140
  $2.625 cumulative convertible preferred stock; 2,760,000 shares issued and
   outstanding ($138,000,000 aggregate liquidation preference)................         276            276
 Common stock, par value $.10; 100,000,000 shares authorized; 32,173,009 and
  32,173,009 shares issued respectively.......................................       3,217          3,217
 Treasury stock, at cost, 25,016 shares in treasury...........................        (788)          (788)
 Additional paid-in capital...................................................     397,344        397,344
 Accumulated deficit..........................................................     (23,467)       (17,075)
 Accumulated other comprehensive income.......................................       2,533          3,053
 Notes receivable from key employees secured by common stock..................        (884)          (951)
                                                                                ----------     ----------
  Total stockholders' equity..................................................     378,371        385,216
                                                                                ----------     ----------
Total liabilities and stockholders' equity....................................  $1,162,673     $1,219,377
                                                                                ==========     ==========
</TABLE>
   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       3
<PAGE>
 
                          WESTERN GAS RESOURCES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                          Three Months Ended
                                                                                               March 31,
                                                                                        ----------------------
                                                                                           1999        1998
                                                                                        ----------  ----------
<S>                                                                                     <C>         <C>
Reconciliation of net income (loss) to net cash provided by (used in) operating 
  activities:
Net income (loss).....................................................................  $  (2,176)  $  13,185
Add income items that do not affect cash:
 Depreciation, depletion and amortization.............................................     13,558      14,502
 Gain on the sale of property and equipment...........................................       (145)    (14,866)
 Deferred income taxes................................................................     (1,373)     10,343
 Other non-cash items, net............................................................       (371)        282
                                                                                        ----------  ----------
                                                                                            9,493      23,446
                                                                                        ----------  ----------

Adjustments to working capital to arrive at net cash provided by (used in)
 operating activities:
 Decrease in trade accounts receivable................................................     48,405      28,727
 (Increase) decrease in product inventory.............................................     24,093      (3,423)
 (Increase) decrease in parts inventory...............................................        240         (27)
 Decrease in other current assets.....................................................        712         228
 Decrease in other assets and liabilities, net........................................         67         109
 Decrease in accounts payable.........................................................    (64,465)    (65,186)
 Decrease in accrued expenses.........................................................     (5,884)       (190)
                                                                                        ---------   ---------
 
Net cash provided by (used in) operating activities...................................     12,661     (16,316)
                                                                                        ---------   ---------
 
Cash flows from investing activities:
 Purchases of property and equipment..................................................    (20,843)    (30,839)
 Proceeds from the dispositions of property and equipment.............................        100      22,150
 Contributions to equity investees....................................................       (891)       (992)
                                                                                        ---------   ---------
 
Net cash used in investing activities.................................................    (21,634)     (9,681)
                                                                                        ---------   ---------
 
Cash flows from financing activities:
 Proceeds from exercise of common stock options.......................................          -          11
 Debt issue costs paid................................................................       (243)         (2)
 Payments on revolving credit facility................................................   (794,650)   (669,050)
 Borrowings under revolving credit facility...........................................    864,951     684,050
 Payments on notes....................................................................    (48,571)          -
 Dividends paid.......................................................................     (4,217)     (4,217)
                                                                                        ---------   ---------
 
Net cash provided by financing activities.............................................     17,270      10,792
                                                                                        ---------   ---------
Net increase (decrease) in cash and cash equivalents..................................      8,297     (15,205)
Cash and cash equivalents at beginning of period......................................      4,400      19,777
                                                                                        ---------   ---------
Cash and cash equivalents at end of period............................................  $  12,697   $   4,572
                                                                                        =========   =========
</TABLE>
   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       4
<PAGE>
 
                          WESTERN GAS RESOURCES, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (Unaudited)
           (Dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                                                 March 31,
                                                                         --------------------------
                                                                             1999          1998
                                                                         ------------  ------------
<S>                                                                      <C>           <C>
Revenues:
 Sale of gas...........................................................  $   350,841   $   426,627
 Sale of natural gas liquids...........................................       63,648       123,758
 Processing, transportation and storage revenue........................       11,073        11,335
 Other, net............................................................        3,943        18,735
                                                                         -----------   -----------
 
  Total revenues.......................................................      429,505       580,455
                                                                         -----------   -----------
 
Costs and expenses:
 Product purchases.....................................................      381,365       507,287
 Plant operating expense...............................................       19,465        20,255
 Oil and gas exploration and production expense........................        1,858         1,392
 Depreciation, depletion and amortization..............................       13,558        14,502
 Selling and administrative expense....................................        7,815         8,124
 Interest expense......................................................        8,743         8,156
                                                                         -----------   -----------
 
  Total costs and expenses.............................................      432,804       559,716
                                                                         -----------   -----------
 
Income (loss) before taxes.............................................       (3,299)       20,739
 
Provision for (benefit from) income taxes:
 Current...............................................................          250        (2,789)
 Deferred..............................................................       (1,373)       10,343
                                                                         -----------   -----------
 
                                                                              (1,123)        7,554
                                                                         -----------   -----------
 
Net income (loss)......................................................       (2,176)       13,185
 
Preferred stock requirements...........................................       (2,610)       (2,610)
                                                                         -----------   -----------
 
Income (loss) attributable to common stock.............................  $    (4,786)  $    10,575
                                                                         ===========   ===========
 
Earnings (loss) per share of common stock..............................  $      (.15)  $      . 33
                                                                         ===========   ===========
 
Weighted average shares of common stock outstanding....................   32,147,993    32,146,570
                                                                         ===========   ===========
 
Earnings (loss) per share of common stock-assuming dilution............  $      (.15)  $      . 33
                                                                         ===========   ===========
 
Weighted average shares of common stock outstanding-assuming dilution..   32,147,993    32,149,869
                                                                         ===========   ===========
 
</TABLE>



   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       5
<PAGE>
 
                          WESTERN GAS RESOURCES, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                  (Unaudited)
                  (Dollars in thousands, except share amounts)



<TABLE>
<CAPTION>
 
                                                     Shares of                                                            
                                      Shares of        $2.625                                                    $2.625
                                        $2.28        Cumulative                     Shares        $2.28        Cumulative 
                                      Cumulative    Convertible      Shares       Of Common     Cumulative    Convertible 
                                      Preferred      Preferred     of Common        Stock       Preferred      Preferred  
                                        Stock          Stock         Stock       in Treasury      Stock          Stock    
                                    ------------------------------------------------------------------------------------- 
<S>                                   <C>           <C>            <C>           <C>            <C>           <C>         
Balance at December 31, 1998........   1,400,000      2,760,000    32,147,993         25,016         $ 140          $ 276 
Comprehensive Income:
Net loss............................           -              -             -              -             -              - 
Foreign Currency Translation........           -              -             -              -             -              - 
Comprehensive Income                           
Dividends:
Dividends declared on common                                                                                              
 stock..............................           -              -             -              -             -              - 
                                                                                                                          
Dividends declared on $2.28                                                                                               
 cumulative preferred stock.........           -              -             -              -             -              - 
                                                                                                                          
Dividends declared on $2.625                                                                                              
 cumulative convertible preferred                                                                                         
 stock..............................           -              -             -              -             -              - 
                                                                                                                          
                                                                                                                          
Stock options exercised.............           -              -             -              -             -              - 
Loans forgiven......................           -              -             -              -             -              - 
                                      ----------     ----------    ----------     ----------    ----------     ----------
Balance at March 31, 1999...........   1,400,000      2,760,000    32,147,993         25,016         $ 140          $ 276 
                                    ===================================================================================== 
 
<CAPTION> 
                                                                                                         
                                                                                              Accumulated        Notes      Total 
                                                                 Additional                      Other         Receivable   Stock- 
                                         Common     Treasury      Paid-in     Accumulated     Comprehensive      from Key   holders'
                                         Stock       Stock        Capital       Deficit          Income         Employees   Equity 
                                    ------------------------------------------------------------------------------------------------

<S>                                     <C>        <C>          <C>           <C>          <C>               <C>          <C>     
Balance at December 31, 1998........     $3,217       $(788)      $397,344    $(17,075)           $3,053          $(951)  $385,216
Comprehensive Income:
Net loss............................          -           -              -      (2,176)                -              -     (2,176)
Foreign Currency Translation........          -           -              -           -               (520)            -       (520)
                                                                                                                          --------
Comprehensive Income                                                                                                        (2,696)
                                                                                                                          --------
Dividends:
Dividends declared on common                                                                                                  
 stock..............................          -           -              -      (1,607)                -              -     (1,607)
                                                                                                                                    
Dividends declared on $2.28                                                                                                         
 cumulative preferred stock.........          -           -              -        (798)                -              -       (798)

Dividends declared on $2.625                                                                                                        
 cumulative convertible preferred                                                                                                   
 stock..............................          -           -              -      (1,811)                -              -     (1,811)

Stock options exercised.............          -           -              -           -                 -              -          -
Loans forgiven......................          -           -              -           -                 -             67         67
                                      ---------      -------      --------     ---------        ----------    ---------   --------
Balance at March 31, 1999...........     $3,217       $(788)      $397,344     $(23,467)           $2,533         $(884)  $378,371
                                    ==============================================================================================


</TABLE> 

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       6
<PAGE>
 
                          WESTERN GAS RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
                                        
GENERAL

The interim consolidated financial statements presented herein should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 1998.
The interim consolidated financial statements as of March 31, 1999 and for the
three month periods ended March 31, 1999 and 1998 included herein are unaudited
but reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly present the results for such
periods.  The results of operations for the three months ended March 31, 1999
are not necessarily indicative of the results of operations expected for the
year ended December 31, 1999.

Certain prior year's amounts in the Consolidated Financial Statements and Notes
have been reclassified to conform to the presentation used in 1999.

EARNINGS PER SHARE OF COMMON STOCK

Earnings per share of common stock is computed by dividing income attributable
to common stock by the weighted average shares of common stock outstanding. In
addition, earnings per share of common stock - assuming dilution is computed by
dividing income attributable to common stock by the weighted average shares of
common stock outstanding as adjusted for potential common shares. Income
attributable to common stock is income less preferred stock dividends. We
declared preferred stock dividends of $2.6 million for each of the three-month
periods ended March 31, 1999 and 1998. Common stock options, which are potential
common shares, were anti-dilutive for the period ended March 31, 1999 and were
not included in the calculation of earnings per share. For the period ended
March 31, 1998 common stock options had a dilutive effect on earnings and
increased the weighted average shares of common stock outstanding by 3,299. The
numerators and the denominators for the three month periods ended March 31, 1999
and 1998 are not adjusted to reflect our $2.625 Cumulative Convertible Preferred
Stock outstanding. These shares are antidilutive as the incremental shares
result in an increase in earnings per share after giving effect to the dividend
requirements.

SUPPLEMENTARY CASH FLOW INFORMATION

Interest paid was $9.7 million and $8.0 million for the three months ended March
31, 1999 and 1998, respectively.

No income taxes were paid during the three months ended March 31, 1999 or for
the three months ended March 31, 1998.

Segment Reporting

We operate in four principal business segments, as follows: Gas Gathering and
Processing, Producing Properties, Marketing and Transmission.  These segments
are separately monitored by management for performance against its internal
forecast and are consistent with our 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 include the exploration and
development of certain oil and gas producing properties in basins where our
facilities are located.  The majority of the gas and oil produced from these
properties is sold by the Marketing segment.

The Marketing segment buys and sells gas and NGLs nationwide and in Canada,
providing storage, transportation, scheduling, peaking and other services our
customers. In addition, this segment also markets gas and NGLs produced by our
facilities. The operations associated with the Katy Facility are included in the
Marketing segment as are our Canadian marketing operations (which is immaterial
for separate presentation).

The Transmission segment reflects the operations of our 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 our segment information as of and for the
quarters ended March 31, 1999 and 1998 (in thousands). Due to our 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.
<PAGE>

<TABLE>
<CAPTION>
 
                                               Gas                                                                           
                                            Gathering                                                     Elim-              
                                               and      Producing                 Trans-                 inating             
                                            Processing  Properties  Marketing    mission    Corporate    Entries      Total  
                                            ----------  ----------  ----------  ----------  ----------  ----------  --------- 
<S>                                         <C>         <C>         <C>         <C>         <C>         <C>         <C> 
Quarter ended March 31, 1999
Revenues from unaffiliated customers......    $ 11,225    $    531   $414,302     $ 1,799     $ 1,468   $     (14)  $429,311
Interest income...........................           1           -          2           -       7,053      (6,993)        63
Other, net................................         108           -         23           -           -           -        131
Intersegment sales........................      75,557       6,016     17,989       4,099           -    (103,661)         -
                                              --------    --------   --------     -------     -------   ---------   --------
Total revenues............................      86,891       6,547    432,316       5,898       8,521    (110,668)   429,505
                                              --------    --------   --------     -------     -------   ---------   --------
Product purchases.........................      59,083         448    427,197      (1,077)     (1,329)   (102,957)   381,365
Plant operating expense...................      13,539         498      1,112       3,729         922        (335)    19,465
Oil and gas exploration
and production expense....................           -       1,776        (44)          -         126           -      1,858
                                              --------    --------   --------     -------     -------   ---------   --------
Operating profit..........................    $ 14,269    $  3,825   $  4,051     $ 3,246     $ 8,802   $  (7,376)  $ 26,817
                                              ========    ========   ========     =======     =======   =========   ========
 
Depreciation, depletion and amortization..                                                                            13,558
Interest expense..........................                                                                             8,743
Selling and administrative expense.......                                                                              7,815
                                                                                                                    --------
Income (loss) before income taxes.........                                                                          $ (3,299)
                                                                                                                    ========
 
Identifiable assets.......................    $557,149    $ 94,965   $117,633     $66,700     $35,631   $       -   $872,078
                                              ========    ========   ========     =======     =======   =========   ========
<CAPTION> 
 
                                               Gas                                                                           
                                            Gathering                                                     Elim-              
                                               and      Producing                 Trans-                 inating             
                                            Processing  Properties  Marketing    mission    Corporate    Entries      Total  
                                            ----------  ----------  ----------  ----------  ----------  ----------  --------- 
<S>                                         <C>         <C>         <C>         <C>         <C>         <C>         <C> 
Quarter ended March 31, 1998
Revenues from unaffiliated customers......    $  9,017    $    350   $552,108     $ 2,292     $    93   $     197   $564,057
Interest income...........................           -           -          -           -       6,613      (5,912)       701
Other, net................................      15,123         408        166           -           -           -     15,697
Intersegment sales........................     110,906       6,983     18,838       2,635           -    (139,362)         -
                                              --------    --------   --------     -------     -------   ---------   --------
Total revenues............................     135,046       7,741    571,112       4,927       6,706    (145,077)   580,455
                                              --------    --------   --------     -------     -------   ---------   --------
Product purchases.........................      83,388         369    562,600         625      (1,452)   (138,243)   507,287
Plant operating expense...................      15,191         792      1,364       2,333       1,417        (842)    20,255
Oil and gas exploration
and production expense....................                   1,377          3           -           -          12      1,392
                                              --------    --------   --------     -------     -------   ---------   --------
Operating profit..........................    $ 36,467    $  5,203   $  7,145     $ 1,969     $ 6,741   $  (6,004)  $ 51,521
                                              ========    ========   ========     =======     =======   =========   ========
 
Depreciation, depletion and amortization..                                                                            14,502
Interest expense..........................                                                                             8,156
Selling and administrative expense.......                                                                              8,124
                                                                                                                    --------
Income (loss) before income taxes.........                                                                          $ 20,739
                                                                                                                    ========
 
Identifiable assets.......................    $677,930    $112,298   $120,768     $50,065     $28,735   $       -   $989,796
                                              ========    ========   ========     =======     =======   =========   ========
 
</TABLE>

Subsequent Events

Effective April 30, 1999 we sold all of the stock of our wholly owned
subsidiary, Western Gas Resources Storage, Inc. to the Aquila Energy
Corporation, a business unit of Utilicorp United. The sole asset of Western Gas
Resources Storage, Inc. is the Katy Hub and Gas Storage Facility. The proceeds
received from the sale of the Katy facility were $100.0 million. We will realize
an after tax loss on this sale of approximately $10.9, subject to final
accounting adjustment, million in the second quarter of 1999. In connection with
this transaction, Aquila purchased approximately 5.1 Bcf of stored gas at the
facility for proceeds of $11.7 million. The proceeds of the sale were equal to
the value of the inventory on our books.

Also on April 30, 1999 we completed the sale of our Giddings gathering system to
GPM Gas Corporation, a business unit of Phillips Petroleum Company. This
transaction had an effective date of January 1, 1999. The proceeds from this
sale were $36.0 million. We will realize an after-tax loss on this sale of
approximately $3.7, subject to final accounting adjustment, million in the
second quarter of 1999.

The proceeds of $147.7 million received from these transactions was used to
reduce outstanding debt.

                                       7
<PAGE>
 
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133") with an effective date for fiscal
years beginning after June 15, 1999.  We will comply with the accounting and
reporting requirements of SFAS No. 133 when required.  We have not completed our
evaluation of the impact that SFAS No. 133 will have upon our financial
statements.

LEGAL PROCEEDINGS

Reference is made to "Part II - Other Information - Item 1. Legal Proceedings,"
of this Form 10-Q.

                                       8
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         -----------------------------------------------------------------------
OF OPERATIONS
-------------

The following discussion and analysis relates to factors which have affected our
consolidated financial condition and results of operations for the three months
ended March 31, 1999 and 1998. Certain prior year amounts have been reclassified
to conform to the presentation used in 1999. Reference should also be made to
our interim Consolidated Financial Statements and Notes thereto included
elsewhere in this document. This section, as well as other sections in this Form
10-Q, contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology, such as "may," "intend," "will," "expect,"
"anticipate," "estimate," or "continue" or the negative thereof or other
variations thereon or comparable terminology. In addition to the important
factors referred to herein, numerous factors affecting the gas processing
industry generally and in the markets for gas and NGLs in which we operate could
cause actual results to differ materially from those in such forward-looking
statements.

Results of Operations

Three months ended March 31, 1999 compared to the three months ended March 31,
1998
(Dollars in thousands, except per share amounts and operating data).
<TABLE>
<CAPTION>
 
                                                            Three Months Ended
                                                                 March 31,         
                                                           ---------------------   Percent 
                                                              1999       1998      Change
                                                           ----------  ---------  --------
<S>                                                        <C>         <C>        <C>
Financial results:
Revenues.................................................   $429,505   $580,455       (26)
Gross profit.............................................     13,259     37,019       (64)
Net income (loss)........................................     (2,176)    13,185         -
Earnings (loss) per share of common stock - basic and 
  diluted................................................       (.15)       .33         -
Net cash (used in) provided by operating activities......   $ 12,661   $(16,316)        -
 
Operating data:
Average gas sales (MMcf/D)...............................      2,135      2,280        (6)
Average NGL sales (MGal/D)...............................      3,030      4,655       (35)
Average gas prices ($/Mcf)...............................   $   1.82   $   2.08       (12)
Average NGL prices ($/Gal)...............................   $    .23   $    .29       (21)
</TABLE>

Net income decreased $15.4 million for the quarter ended March 31, 1999 compared
to 1998. The decrease in net income for the first quarter was primarily due to
lower volumes and significantly lower prices compared to the prior year.

Revenues from the sale of gas decreased approximately $75.9 million for the
three months ended March 31, 1999 compared to the same period in 1998. Average
gas sales volumes decreased 145 MMcf per day to 2,135 MMcf per day for the three
months ended March 31, 1999 compared to the same period in 1998, largely due to
a decrease in the sale of gas purchased from third parties. Average gas prices
realized by us decreased $.26 per Mcf to $1.82 per Mcf for the three months
ended March 31, 1999 compared to the same period in 1998. Included in the
realized gas price was approximately $337,000 of gain recognized for the three
months ended March 31, 1999 related to futures positions on equity gas volumes.
We have entered into futures positions for a portion of our equity gas for the
remainder of 1999 and throughout 2000. See further discussion in " - Liquidity
and Capital Resources - Risk Management Activities."

Revenues from the sale of NGLs decreased approximately $60.1 million for the
three months ended March 31, 1999 compared to the same period in 1998. Average
NGL sales volumes decreased 1,625 MGal per day to 3,030 MGal per day for the
three months ended March 31, 1999 compared to the same period in 1998, primarily
due to a decrease in sales of third-party product. Average NGL prices realized
by us decreased $.06 per gallon to $.23 per gallon for the three months ended
March 31, 1999 compared to the same period in 1998. Included in the realized NGL
price was approximately $62,000 of loss recognized for the three months ended
March 31, 1999 related to futures positions on equity NGL volumes. We have has
entered into futures positions for a portion of our equity production for the
remainder of 1999. See further discussion in " - Liquidity and Capital Resources
- Risk Management Activities."

                                       9
<PAGE>
 
Other net revenue decreased approximately $14.8 million for the three months
ended March 31, 1999 compared to the same period in 1998. This decrease was
primarily due to both a gain recognized on the sale of the Perkins facility of
$14.9 million and the recognition of a $1.0 million non-refundable option
payment from RIS Resources (USA) Inc. in the first quarter of 1998.

The decrease of $125.9 million in product purchases was primarily due to a
decrease in both commodity prices and sales volumes. Combined product purchases
as a percentage of gas and NGL sales remained constant at 92% for the three
months ended March 31, 1999 compared to the same period in 1998. Included in
product purchases for the three months ended March 31, 1998 were lower of cost
or market write-downs of NGL inventory of $328,000. There were no inventory
write-downs for the first quarter of 1999.

Depreciation, depletion and amortization decreased $944,000 for the quarter
ended March 31, 1999 compared to the same quarter in 1998. The decrease was
primarily due to the sales of assets during 1998. The Perkins plant was sold in
March 1998 and the Edgewood gathering system was sold in October 1998.

Interest expense increased $587,000 for the three months ended March 31, 1999
compared to the same period in 1998. The increase was due to less interest being
capitalized related to capital projects and larger debt balances outstanding
during the first quarter of 1999 compared to the corresponding period in 1998.
The larger debt balances resulted primarily from capital expenditures and
reduced income from operations.

Subsequent Events

Effective April 30, 1999 we sold all of the stock of our wholly owned
subsidiary, Western Gas Resources Storage, Inc. to the Aquila Energy
Corporation, a business unit of Utilicorp United. The sole asset of Western Gas
Resources Storage, Inc. is the Katy Hub and Gas Storage Facility. The proceeds
received from the sale of the Katy facility were $100.0 million. We will realize
an after tax loss on this sale of approximately $10.9, subject to final
accounting adjustment, million in the second quarter of 1999. In connection with
this transaction, Aquila purchased approximately 5.1 Bcf of stored gas at the
facility for proceeds of $11.7 million. The proceeds of the sale were equal to
the value of the inventory on our books.

Also on April 30, 1999 we completed the sale of our Giddings gathering system to
GPM Gas Corporation, a business unit of Phillips Petroleum Company. This
transaction had an effective date of January 1, 1999. The proceeds from this
sale were $36.0 million. We will realize an after-tax loss on this sale of
approximately $3.7, subject to final accounting adjustment, million in the
second quarter of 1999.

The proceeds of $147.7 million received from these transactions was used to
reduce outstanding debt.


                                       10
<PAGE>
 
Liquidity and Capital Resources

Our sources of liquidity and capital resources historically have been net cash
provided by operating activities, funds available under our financing facilities
and proceeds from offerings of equity securities. In the past, these sources
have been sufficient to meet our needs and finance the growth of our business.
We can give no assurance that the historical sources of liquidity and capital
resources will be available for future development and acquisition projects, and
we may be required to seek alternative financing sources. In 1998, sources of
liquidity included the sales of the Perkins facility and the Edgewood facility
and related production. In April 1999, we completed the sales of our Giddings
and Katy facilities. In connection with the sale, we sold gas held in storage at
the Katy facility. The total proceeds from these 1999 transactions were $147.7
million. We used the proceeds from these sales to reduce debt. Product prices,
sales of inventory, our success in increasing the number and efficiency of our
facilities and the volumes of natural gas processed by these facilities, the
margin on third-party product purchased for resale, as well as the timely
collection of our receivables will affect all future net cash provided by
operating activities. Additionally, our future growth will be dependent upon
obtaining additions to dedicated plant reserves, acquisitions, new project
development, marketing, efficient operation of our facilities and our ability to
obtain financing at favorable terms.

Given the depressed oil and NGL prices we have experienced and the disappointing
results from the Bethel treating facility, we have successfully negotiated
amendments to in our various financing facilities which are intended to provide
more flexibility in a low price environment.  There can be no assurance that we
can obtain further amendments or waivers in the future, if necessary, or that
the terms would be favorable to us.  To strengthen our credit ratings and to
reduce our overall debt outstanding, we will continue to dispose of non-
strategic assets and investigate alternative financing sources, including
project-financing, joint ventures, issuance of public debt and operating
leases.

We believe 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 us with sufficient funds to connect new
reserves, maintain our existing facilities and complete our current capital
expenditure program.  Depending on the timing and the amount of our future
projects, we may be required to seek additional sources of capital.  Our ability
to secure such capital is restricted by our financing facilities, although we
may request additional borrowing capacity from our lenders, seek waivers from
our lenders to permit us 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
we believe that we would be able to secure additional financing, if required, we
can provide no assurance that we will be able to do so or as to the terms of any
such financing.  We also believe that cash provided by operating activities and
amounts available under our Revolving Credit Facility will be sufficient to meet
our debt service and preferred stock dividend requirements for the remainder of
1999.

      Historically, while certain individual plants have experienced declines in
dedicated reserves, we have 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. The overall 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 is within our
control. We have increased our dedicated estimated plant reserves from 2.2 Tcf
at December 31, 1993 to 3.1 Tcf at December 31, 1998. On average, over this five
year period, including the reserves associated with our joint ventures and
partnerships and excluding the facilities sold during this period, we connected
new reserves to our facilities to replace approximately 165% of throughput over
this period. There is no assurance that we will continue to be successful in
replacing the dedicated reserves processed at our facilities.

      We have effective shelf registration statements filed with the 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.

Our sources and uses of funds for the three months ended March 31, 1999 are
summarized as follows (In thousands):
<TABLE>
<CAPTION>
 
Sources of funds:
<S>                                                              <C> 
     Borrowings under revolving credit facility................  $864,951
     Proceeds from the dispositions of property and equipment..       100
     Net cash provided by operating activities.................    12,661
                                                                 --------
       Total sources of funds..................................  $877,712
                                                                 ========
<CAPTION> 
Uses of funds:
<S>                                                              <C> 
     Payments related to long-term debt........................  $843,464
     Capital expenditures......................................    21,734
     Dividends paid............................................     4,217
                                                                 --------
       Total uses of funds.....................................  $869,415
                                                                 ========
</TABLE>

Additional sources of liquidity available to us are our inventories of gas and
NGLs in storage facilities.  We store gas and NGLs primarily to ensure an
adequate supply for long-term sales contracts and for resale during periods when
prices are favorable.  We held gas in storage and in imbalances of approximately
11.4 Bcf at an average cost of $1.70 per Mcf at March 31, 1999 compared to 8.2
Bcf at an average cost of $2.02 per Mcf at March 31, 1998, at various storage
facilities, including the Katy facility.  On April 30, 1999 we sold 5.1 Bcf of
stored gas at the Katy facility for $11.7 million.  At March 31, 1999, we had
hedging contracts in place for anticipated sales of approximately 11.3 Bcf of
stored gas at a weighted average price of $2.13 per Mcf for the stored
inventory.

                                       11
<PAGE>
 
We held NGLs in storage of 6,900 MGal, consisting primarily of propane and
normal butane, at an average cost of $.24 per gallon and 14,800 MGal at an
average cost of $.32 per gallon at March 31, 1999 and 1998, respectively, at
various third-party storage facilities. At March 31, 1999, we had no significant
hedging contracts in place for anticipated sales of stored NGLs.

Capital Investment Program

Largely as a result of low commodity prices, primarily affecting NGL products,
we have reduced our budget for capital expenditures in 1999 from the levels
expended in 1997 and 1998. We expect capital expenditures related to existing
operations to be approximately $67.0 million during 1999, consisting of the
following: (i) approximately $39.6 million related to gathering, processing and
pipeline assets, of which $6.3 million is for maintaining existing facilities;
(ii) approximately $24.6 million on exploration and production activities; and
(iii) approximately $2.8 million for miscellaneous items. 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. As of March 31, 1999, we have expended $21.7 million, consisting of
the following: (i) $12.6 million for new connects, system expansions and asset
consolidations; (ii) $1.2 million for maintaining existing facilities; (iii)
$7.8 million for exploration and production activities; and (iv) $178,000
related to other miscellaneous items.

Powder River Basin - We continue to develop our Powder River basin coal bed
methane natural gas gathering system and our coal seam gas reserves in Wyoming.
The average drilling, completion and gathering cost for our coal bed methane
wells is approximately $65,000 with average proven reserves per well of
approximately 300 MMcf. As deeper wells are drilled, the average cost per well
is expected to increase. Production of coal bed methane from the Powder River
basin has been expanding, and approximately 116 MMcf/D of gas volumes in March
1999 were being produced by several operators in the area as compared to 61
MMcf/D in January 1998. Approximately 75% of this production is from acreage
equally owned by our partner, Barrett Resources Corporation and us. We transport
most of the coal bed methane gas through our MIGC interstate pipeline located in
Wyoming, for redelivery to gas markets in the Rocky Mountain and Midwest regions
of the United States.

In December 1998, we joined with other industry partners to form Fort Union Gas
Gathering, L.L.C., which is currently constructing a 106-mile long, 24-inch
gathering pipeline and treater to gather and treat natural gas produced in the
Powder River basin.  We own a 13% equity interest in Fort Union and are the
construction manager and field operator.  We expect this new gathering pipeline
to have an initial capacity of approximately 450 MMcf/D of natural gas with
expansion capability.  This project is expected to be operational on or about
the end of the third quarter of 1999.

Southwest Wyoming - The United States Geologic Survey estimates that the Greater
Green River basin  contains over 120 Tcf of unrecovered natural gas reserves.
Our facilities are located in the Southwest Wyoming portion of this basin.  They
include the Granger gathering and processing facility and a 72% ownership
interest in the Lincoln Road gathering and processing facility.  These
facilities have a combined operational capacity of 225 MMcf/D and processed an
average of 179 MMcf/D in the first quarter of 1999.  We connected 65 new gas
wells to these facilities in 1998 despite low commodity prices.  We believe that
as governmental drilling restrictions affecting a portion of our service area in
this basin are removed in the fourth quarter of 1999, we may have the
opportunity to expand these facilities in the year 2000.

Financing Facilities

      Revolving Credit Facility. The Revolving Credit Facility is with a
syndicate of banks and provides for a maximum borrowing commitment of $300
million, $268.8 million of which was outstanding at March 31, 1999. The interest
rate payable on the facility at March 31, 1999 was 6.7%. In April 1999, we
restated the facility to reflect the following changes. The restated Revolving
Credit Facility provides for an aggregate borrowing commitment of $250 million
consisting of an $83 million 364-day Revolving Credit Facility, or Tranche A,
and a five-year $167 million Revolving Credit Facility, or Tranche B. The
Revolving Credit Facility bears interest at certain spreads over the Eurodollar
rate, at the Federal Funds rate plus .50% or at the agent banks' prime rate. We
have the option to determine which rate will be used. We also pay a facility fee
on the commitment. The interest rate spreads and facility fee are adjusted based
on our debt to capitalization ratio and range from .75% to 2.00%. We are
required to maintain a total 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, excluding certain non-recurring items, to
interest and dividends on preferred stock as of the end of any fiscal quarter,
for the four preceding quarters, of not less than 1.35 to 1.0 beginning June 30,
1999 and increasing to 3.25 to 1.0 by December 31, 2002. This facility is
guaranteed and secured via a pledge of the stock of our

                                       12
<PAGE>
 
significant subsidiaries. We generally utilize excess daily funds to reduce any
outstanding balances on the Revolving Credit Facility and associated interest
expense, and we intend to continue such practice.


     Master Shelf Agreement.  In December 1991, we entered into a Master Shelf
agreement with The Prudential Insurance Company of America.  Amounts outstanding
under the Master Shelf agreement at March 31, 1999 are as indicated in the
following table (Dollars in thousands):
<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 April 1999, effective January 1999, we amended our agreement with Prudential
with the following provisions. We are required to maintain a current ratio, as
defined therein, of at least .9 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 total debt to capitalization ratio of not more than 60%
through December 31, 2001 and of not more than 55% thereafter. A senior debt to
capitalization ratio will be implemented, if and when, we issue subordinated
debt. This amendment also requires an EBITDA to interest ratio of not less than
1.75 to 1.0 increasing to a ratio of not less than 3.75 to 1.0 by March 31, 2002
and an EBITDA to interest on senior debt ratio of not less than 1.75 to 1.0
increasing to a ratio of not less than 5.50 to 1.0 by March 31, 2002. A senior
debt to EBITDA ratio will be implemented, if and when we issue subordinated
debt. EBITDA in these calculations excludes certain non-recurring items. In
addition, we are 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 March
31, 1999, $32.0 million was available under this limitation. This amount is
expected to be reduced by approximately $14.6 million as a result of the
after-tax losses recognized on the sales of the Giddings and Katy facilities. We
presently intend to finance the $8.3 million payment due in October 1999 with
amounts available under the Revolving Credit Facility. The Master Shelf
agreement is guaranteed and secured via a pledge of the stock of our significant
subsidiaries.

      1995 Senior Notes. In 1995, we 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 March 1999, we prepaid $15 million of the principal amounts
outstanding on the 1995 Senior Notes at par. These payments were financed by a
portion of the $37 million Bridge Loan (described below) 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 secured via a pledge of the stock of our
significant subsidiaries. This facility contains covenants similar to the Master
Shelf agreement. In April 1999, we posted letters of credit for approximately
$5.0 million for the benefit of the holders of the 1995 Senior Notes for
approximately 4% of the net proceeds from the sale of Katy and Giddings.

We are currently paying an average annual fee of not more than .65% on the
amounts outstanding on the Master Shelf and the 1995 Senior Notes. This fee will
continue until we have received an implied investment grade rating on our senior
secured debt. On the portion of the 1995 Senior Notes for which a letter of
credit is posted, this annual fee will not be due.

      1993 Senior Notes. In 1993, we 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, we prepaid $33.5 million of the total principal
amounts outstanding of $35.6 million at par. These payments were financed by a
portion of the $37 million Bridge Loan (described below). We prepaid the
remaining outstanding principal of $2.1 million in April 1999 with amounts
available under the Revolving Credit Facility.

                                       13
<PAGE>
 
      Bridge Loan. In February 1999, in order to finance prepayments of amounts
outstanding on the 1993 and 1995 Senior Notes, we entered into a Bridge Loan
agreement in the amount of $37 million with our agent bank. This facility was
paid in full in April 1999 with a portion of the proceeds from the sale of the
Katy facility.

      Covenant Compliance. Taking into account all the covenants contained in
these agreements, we had approximately $31.0 million of available borrowing
capacity at March 31, 1999. In April 1999, we amended our 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 we have experienced at our
Bethel Treating facility. We can provide no assurance that further amendments or
waivers can be obtained in the future, if necessary, or that the terms would be
favorable to us. To strengthen our credit ratings and to reduce our overall debt
outstanding, we will continue to dispose of non- strategic assets and
investigate alternative financing sources including the issuance of public debt,
project financing, joint ventures and operating leases.


Risk Management Activities

Our commodity price risk management program has two primary objectives. The
first goal is to preserve and enhance the value of our 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 our operating
budget. The second goal is to manage price risk related to our 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.

We utilize 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, or OTC, market to accomplish these objectives.
These instruments allow us to preserve value and protect margins because
corresponding losses or gains in the value of the financial instruments offset
gains or losses in the physical market.

We use 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.

We enter into futures transactions on the New York Mercantile Exchange, or
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. We conduct our standard credit review of OTC
counterparties and have agreements with these parties that contain collateral
requirements. We generally use standardized swap agreements that allow for
offset of positive and negative exposures. OTC exposure is marked to market
daily for the credit review process. Our OTC credit risk exposure is partially
limited by our ability to require a margin deposit from our major counterparties
based upon the mark-to-market value of their net exposure. We are subject to
margin deposit requirements under these same agreements. In addition, we are
subject to similar margin deposit requirements for our NYMEX counterparties
related to our net exposures.

The use of financial instruments may expose us to the risk of financial loss in
certain circumstances, including instances when (i) equity volumes are less than
expected, (ii) our customers fail to purchase or deliver the contracted
quantities of natural gas or NGLs, or (iii) our OTC counterparties fail to
perform. To the extent that we engage in hedging activities, we may be prevented
from realizing the benefits of favorable price changes in the physical market.
However, we are similarly insulated against decreases in these prices.

We hedged a portion of our estimated equity volumes of gas and NGLs in 1999,
particularly in the first quarter, at pricing levels approximating our 1999
operating budget. Our equity hedging strategy establishes a minimum and maximum
price while allowing market participation between these levels. As of March 31,
1999 we had hedged approximately 76% of our anticipated equity gas for 1999 at a
weighted average NYMEX equivalent minimum price of $2.00 per Mcf. Additionally,
we have hedged approximately 77% of our anticipated equity NGLs for 1999 at a
weighted average composite Mont Belvieu and West Texas Intermediate crude oil
equivalent minimum price of $.23 per gallon.

                                      14
<PAGE>
 
At March 31, 1999, we had $50,000 of losses deferred in inventory that will be
recognized over the remainder of 1999, and will be offset by margins from our
related forward fixed price hedges and physical sales. At March 31, 1999, we had
unrecognized net losses of $432,000 related to financial instruments that were
offset by corresponding unrecognized net gains from our obligations to sell
physical quantities of gas and NGLs.

We enter into speculative futures, swap and option trades on a very limited
basis for purposes that include testing of hedging techniques.  Our policies
contain strict guidelines for these trades including predetermined stop-loss
requirements and net open position 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 these
speculative activities for the quarters ended March 31, 1999 and 1998 were not
material.

Year 2000

We have made a comprehensive review of our computer systems to identify the
systems that could be affected by the Year 2000 issue and are in the process of
identifying and making the appropriate modifications to these computer systems.
We have: (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, we have
initiated a program under which we survey our business counterparties
periodically regarding their Year 2000 conversion and contingency plans.
Currently, we anticipate spending approximately $1.5 million, of which
approximately 67% is currently committed, for remediation purposes, which are
primarily consisting of hardware and operating system upgrades. We have incurred
and will continue to incur internal staff costs as well as some consulting and
other expenses, which have been and are expected to continue to be immaterial.
We anticipate our Year 2000 conversion project to be substantially completed by
October 1999. Currently, we believe our most significant risk for the Year 2000
issue is that the systems of other companies on which we rely will not be Year
2000 compliant and that any failure to convert by another company will have an
adverse effect on our results of operations or financial position. In order to
mitigate this risk, we continue to develop contingency plans and are surveying
our vendors and customers to verify the status of their conversion and
contingency plans.

                                      15
<PAGE>
 
Principal Facilities

The following tables provide information concerning our principal facilities at
March 31, 1999. We also own and operate several smaller treating, processing and
transmission facilities located in the same areas as its other facilities.
<TABLE>
<CAPTION>
                                                                                         Average for the Three Months Ended
                                                                                                     March 31, 1999
                                                      Gas              Gas        --------------------------------------------------
                                                   Gathering       Throughput          Gas                Gas               NGL
                                   Year Placed      Systems         Capacity        Throughput        Production         Production
      Plant Facilities (1)         In Service      Miles(2)        (MMcf/D)(2)     (MMcf/D)(3)        (MMcf/D)(4)       (MGal/D)(5)
---------------------------------  -----------  ---------------  ---------------  --------------  -------------------   ------------

<S>                                <C>          <C>              <C>              <C>             <C>                  <C>
Southern Region:
 Texas
  Bethel Treating (6)............         1997            86             350              70                   66               -
  Giddings Gathering(14).........         1979           661              80              46                   32              68
  Gomez Treating.................         1971           385             280             108                  101               -
  Midkiff/Benedum................         1955         2,139             165             139                   94             836
  Mitchell Puckett Gathering.....         1972            86             120             107                   70               2
  MiVida Treating (6)............         1972           289             150              48                   46               -
  Rosita Treating................         1973             -              60              39                    -               -
 Louisiana
  Black Lake.....................         1966            56              75              12                    7              17
  Toca (7)(8)....................         1958             -             160              66                   62              56
 Northern Region:
 Wyoming
  Coal Bed Methane
   Gathering.....................         1990           389             105             107                   85               -
  Granger (7)(9)(10).............         1987           448             235             155                  142             156
  Hilight Complex (7)............         1969           622              80              25                   20              73
  Kitty/Amos Draw (7)............         1969           313              17              12                    9              48
  Lincoln Road (10)..............         1988           149              50              24                   22              22
  Newcastle......................         1981           146               5               2                    1              16
  Red Desert.....................         1979           111              42              18                   16              31
  Reno Junction (9)..............         1991             -               -               -                    -              51
Oklahoma
  Arkoma.........................         1985            72               8               5                    5               -
  Chaney Dell....................         1966         2,050             180              61                   47             203
  Westana........................         1986           791              45              69                   60              45
 New Mexico
  San Juan River (6).............         1955           149              60              25                   21              16
 Utah
  Four Corners Gathering.........         1988           104              15               3                    3               9
                                                       -----           -----           -----                  ---           -----
   Total.........................                      9,046           2,282           1,141                  909           1,649
                                                       =====           =====           =====                  ===           =====
 
</TABLE> 

<TABLE> 
<CAPTION> 

                                                                                                 Average for the
                                                                                                Three Months Ended
                                                                                                  March 31, 1999
                                                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)(3)
---------------------------------  -----------  ------------     -----------      ----------      ---------------
<S>                                <C>          <C>              <C>              <C>             <C> 
Katy Facility (11)(14)...........         1994            17              20               -                  241
MIGC (12)(15)....................         1970           245               -             130                  153
MGTC (13)........................         1963           252               -              18                   14
                                                       -----           -----           -----                  ---
  Total..........................                        514              20             148                  408
                                                       =====           =====           =====                  ===
</TABLE>

Footnotes on following page.

                                       16
<PAGE>
 
(1)  Our interest in all facilities is 100% except for Midkiff/Benedum (73%);
     Black Lake (69%); Lincoln Road (72%); Westana Gathering Company (50%);
     Newcastle (50%) and Coal Bed Methane Gathering (50%). We operate all
     facilities and all data includes our interests and the interests of other
     joint interest owners and producers of gas volumes dedicated to the
     facility. Unless otherwise indicated, all facilities shown in the table are
     gathering and processing facilities.
(2)  Gas gathering systems miles, interconnect and transmission miles, gas
     storage capacity and pipeline capacity are as of March 31, 1999.
(3)  Gas throughput capacity is as of March 31, 1999 and represents capacity in
     accordance with design specifications unless other constraints exist,
     including permitting or field compression limits.
(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 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. 
(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)  Straddle plant, or a plant located near a transmission pipeline that
     processes gas dedicated to or gathered by a pipeline company or another
     third party.
(9)  NGL production includes conversion of third-party feedstock to iso-butane.
(10) We and our joint venture partner at the Lincoln Road facility have agreed
     to process such gas at our Granger facility so long as there is available
     capacity at the Granger facility.  Accordingly, operations at the Lincoln
     Road facility were temporarily suspended for the period between January
     1999 and March 1999.
(11) Hub and gas storage facility.
(12) MIGC is an interstate pipeline located in Wyoming and is regulated by the
     Federal Energy Regulatory Commission.
(13) MGTC is a public utility located in Wyoming and is regulated by the Wyoming
     Public Service Commission.
(14) On April 30, 1999 we sold both of these facilities.
(15) Pipeline capacity represents capacity at the Powder River junction only and
     it does not include northern delivery points.

                                       17
<PAGE>
 
                          PART II - OTHER INFORMATION

Item 1.   Legal Proceedings
          -----------------
   McMurry Oil Company, et al. v. TBI Exploration, Inc., Mountain Gas Resources,
   Inc. and Wildhorse Energy Partners, LLC, District Court, Ninth Judicial
   District, Sublette County, Wyoming, Civil Action No. 5882.

McMurry Oil Company and certain other producers (collectively, "McMurry") filed
suit against TBI Exploration, Inc. ("TBI"), Mountain Gas Resources, Inc., our
wholly-owned subsidiary ("Mountain Gas") and Wildhorse Energy Partners, LLC
("Wildhorse"). The central dispute in this case concerns certain preferential
rights which are set forth in a December 23, 1991 Lease Participation Agreement
(the "Participation Agreement") entered into by Presidio Exploration, Inc.
("Presidio") and McMurry. The Participation Agreement granted Presidio a call on
certain gas and the right to match offers for gathering and/or purchasing gases
(collectively, the "Preferential Rights"). There is a dispute between McMurry
and Mountain Gas as to whether any Preferential Rights exist and, if they do,
whether Mountain Gas has exercised the Preferential Rights and whether McMurry
has tendered all third-party offers to Mountain Gas in order to allow Mountain
Gas to determine if it wishes to exercise the Preferential Rights. In addition,
McMurry and Mountain Gas dispute the extent of the Preferential Rights. There is
also a dispute as to who owns the Preferential Rights contained in the
Participation Agreement which consolidated Presidio Oil Company's and it's
gathering, processing, and marketing business into Mountain Gas. In November
1998, the Wyoming District Court granted summary judgment on all claims in favor
of McMurry and against Mountain Gas, TBI and Wildhorse (with the exception of
Mountain Gas' third-party claim against Jonah Gas Gathering Company). In early
1999, McMurry, TBI and Wildhorse settled their claims and crossclaims and TBI
and Wildhorse were dismissed. The allegation of Mountain Gas' liability to
McMurry for Mountain Gas' slander of title and its intentional interference with
contract has been set for trial beginning May 10, 1999. At the present time, it
is not possible to express an opinion as to the likely outcome of this
litigation 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. is an independent producer and marketer of natural gas and
alleges that 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
us.  Berco alleges that we, along with Amerada Hess have conspired, through the
purchase and sale of our 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 us of threefold the amount of damages actually sustained by Berco, in an
amount to be determined at trial, and/or divestiture of the assets which Amerada
Hess acquired, for an order restraining and enjoining us and Amerada Hess from
violating the antitrust laws, and for costs, attorney fees and interest.  We
believe that we have 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 or to estimate the amount of potential damages.

   Internal Revenue Service

The Internal Revenue Service ("IRS") has completed its examination of our 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, we would incur an interest charge as a result of such
adjustments. We are currently 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
 
We are 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 our financial position or results
of operations.

Item 6.   Exhibits and Reports on Form 8-K
          --------------------------------

(a)  Exhibits:

     10.20   Loan Agreement dated April 29, 1999 by and among Western Gas
             Resources, Inc. and NationsBank, as agent, and the Lenders.
 
     10.21   Amended and Restated Note Purchase Agreement dated April 28, 1999
             by and among Western Gas Resources, Inc. and the purchasers
             identified in the original agreement dated November 29, 1995.

     10.22   Letter Amendment No. 2 dated March 31, 1999 to the Second Amended
             and Restated Master Shelf Agreement effective January 31, 1996 by
             and among Western Gas Resources, Inc. and The Prudential Insurance
             Company of America and Pruco Life Insurance Company.

(b)  Reports on Form 8-K:

     A report on Form 8-K was filed on May 11, 1999 with the Securities and
     Exchange Commission to notify our stockholders of the disposition of our
     Katy Hub and Gas Storage Facility and the disposition of our Giddings
     gathering system.

                                       18
<PAGE>
 
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                      WESTERN GAS RESOURCES, INC.
                                      ---------------------------
                                      (Registrant)


Date: May 13, 1999                    By: /s/ LANNY F. OUTLAW
                                          --------------------- 
                                          Lanny F. Outlaw
                                          President and Chief Operating Officer


Date: May 13, 1999                    By: /s/WILLIAM J. KRYSIAK
                                          --------------------- 
                                          William J. Krysiak
                                          Vice President - Finance
                                          (Principal Financial and Accounting
                                          Officer)

                                       19