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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM  TO

Commission file number 1-10389

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

Delaware(State or other jurisdiction of incorporation or organization)

84-1127613(I.R.S. Employer Identification No.)12200 N. Pecos Street, Denver, Colorado(Address of principal executive offices)

80234-3439(Zip Code)


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

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

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

On
November 1, 2001, there were 32,669,888 shares of the registrant's Common Stock outstanding.

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Western Gas Resources, Inc.
Form 10-Q

Table of Contents



|                             |  |                                                                                               
|---------------------------- |  | ----------------------------------------------------------------------------------------------
|PART IFinancial Information
|Item 1.                      |  | Financial Statements                                                                          
|                             |  | Consolidated Balance SheetSeptember 30, 2001 and December 31, 2000                           
|                             |  | Consolidated Statement of Cash FlowsNine Months Ended September 30, 2001 and 2000            
|                             |  | Consolidated Statement of OperationsThree and Nine Months Ended September 30, 2001 and 2000  
|                             |  | Consolidated Statement of Changes in Stockholders' EquityNine Months Ended September 30, 2001
|                             |  | Notes to Consolidated Financial Statements                                                    
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations         
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                    
|PART IIOther Information   
|Item 1.                      |  | Legal Proceedings                                                                             
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                           
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                              
|Signatures                  





PART IFINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

WESTERN GAS RESOURCES, INC.        CONSOLIDATED BALANCE SHEET        (Dollars in thousands, except share data)

|                                                           |                                                                                                                    | September 30,
2001                                                                                                              |           | December 31,
2000 |        
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------- | --------- | ----------------- | -------
|
|ASSETS                                                     |                                                                                                                    |                                                                                                                                 |           |                   |        
|Current assets:                                            |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           | Cash and cash equivalents                                                                                          |                                                                                                                                 | $         | 18,297            |        
|                                                           | Trade accounts receivable, net                                                                                     |                                                                                                                                 |           | 188,790           |        
|                                                           | Product inventory                                                                                                  |                                                                                                                                 |           | 59,796            |        
|                                                           | Parts inventory                                                                                                    |                                                                                                                                 |           | 3,060             |        
|                                                           | Assets from price risk management activities                                                                       |                                                                                                                                 |           | 87,972            |        
|                                                           | Assets held for sale                                                                                               |                                                                                                                                 |           | 5,199             |        
|                                                           | Other                                                                                                              |                                                                                                                                 |           | 590               |        
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           |                                                                                                                    | Total current assets                                                                                                            |           |                   | 363,704
|Property and equipment:                                    |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           | Gas gathering, processing, storage and transportation                                                              |                                                                                                                                 |           | 888,191           |        
|                                                           | Oil and gas properties and equipment (successful efforts method)                                                   |                                                                                                                                 |           | 181,353           |        
|                                                           | Construction in progress                                                                                           |                                                                                                                                 |           | 91,825            |        
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           |                                                                                                                    |                                                                                                                                 | 1,161,369 |                   |        
|Less: Accumulated depreciation, depletion and amortization |                                                                                                                    |                                                                                                                                 | (349,604  | )                 |        
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           |                                                                                                                    | Total property and equipment, net                                                                                               |           |                   | 811,765
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|Other assets:                                              |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           | Gas purchase contracts (net of accumulated amortization of $34,833 and $33,357, respectively)                      |                                                                                                                                 |           | 33,323            |        
|                                                           | Assets from price risk management activities                                                                       |                                                                                                                                 |           | 16,672            |        
|                                                           | Other                                                                                                              |                                                                                                                                 |           | 12,695            |        
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           |                                                                                                                    | Total other assets                                                                                                              |           |                   | 62,690 
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|Total assets                                               |                                                                                                                    | $                                                                                                                               | 1,238,159 |                   | $      
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY                       |                                                                                                                    |                                                                                                                                 |           |                   |        
|Current liabilities:                                       |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           | Accounts payable                                                                                                   |                                                                                                                                 | $         | 236,230           |        
|                                                           | Accrued expenses                                                                                                   |                                                                                                                                 |           | 39,740            |        
|                                                           | Liabilities from price risk management activities                                                                  |                                                                                                                                 |           | 33,160            |        
|                                                           | Dividends payable                                                                                                  |                                                                                                                                 |           | 4,218             |        
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           |                                                                                                                    | Total current liabilities                                                                                                       |           |                   | 313,348
|Long-term debt                                             |                                                                                                                    |                                                                                                                                 | 305,000   |                   |        
|Liabilities from price risk management activities          |                                                                                                                    |                                                                                                                                 |          |                   |        
|Other long-term liabilities                                |                                                                                                                    |                                                                                                                                 | 2,427     |                   |        
|Deferred income taxes payable, net                         |                                                                                                                    |                                                                                                                                 | 121,046   |                   |        
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|Total liabilities                                          |                                                                                                                    |                                                                                                                                 | 741,821   |                   |        
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|Stockholders' equity:                                      |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           | Preferred Stock; 10,000,000 shares authorized:                                                                     |                                                                                                                                 |           |                   |        
|                                                           |                                                                                                                    | $2.28 cumulative preferred stock, par value $.10; 1,400,000 shares issued ($35,000,000 aggregate liquidation preference)        |           |                   | 140    
|                                                           |                                                                                                                    | $2.625 cumulative convertible preferred stock, par value $.10; 2,760,000 issued ($138,000,000 aggregate liquidation preference) |           |                   | 276    
|                                                           | Common stock, par value $.10; 100,000,000 shares authorized; 32,663,530 and 32,361,131 shares issued, respectively |                                                                                                                                 |           | 3,290             |        
|                                                           | Treasury stock, at cost; 25,016 common shares and 44,290 shares of $2.28 cumulative preferred stock                |                                                                                                                                 |           | (1,907            | )      
|                                                           | Additional paid-in capital                                                                                         |                                                                                                                                 |           | 404,909           |        
|                                                           | Retained earnings (deficit)                                                                                        |                                                                                                                                 |           | 60,354            |        
|                                                           | Accumulated other comprehensive income                                                                             |                                                                                                                                 |           | 30,160            |        
|                                                           | Notes receivable from key employees secured by common stock                                                        |                                                                                                                                 |           | (884              | )      
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                           |                                                                                                                    | Total stockholders' equity                                                                                                      |           |                   | 496,338
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|Total liabilities and stockholders' equity                 |                                                                                                                    | $                                                                                                                               | 1,238,159 |                   | $      
|                                                           |                                                                                                                    |                                                                                                                                 |           |                   |        

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



WESTERN GAS RESOURCES, INC.        CONSOLIDATED STATEMENT OF CASH FLOWS        (Unaudited)        (Dollars in thousands)

|                                                                                       |                                                           | Nine Months Ended
September 30, |        
|-------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------- | -------
|
|Reconciliation of net income to net cash provided by operating activities:             |                                                           |                                 |        
|Net income                                                                             |                                                           | $                               | 84,816 
|Add income items that do not affect cash:                                              |                                                           |                                 |        
|                                                                                       | Depreciation, depletion and amortization                  |                                 |        
|                                                                                       | Gain on the sale of property and equipment                |                                 |        
|                                                                                       | Distributions (less than) in excess of equity income, net |                                 |        
|                                                                                       | Foreign currency translation adjustments                  |                                 |        
|                                                                                       | Deferred income taxes                                     |                                 |        
|                                                                                       | Other non-cash items, net                                 |                                 |        
|                                                                                       |                                                           |                                 |        
|                                                                                       |                                                           |                                 | 132,509
|Adjustments to working capital to arrive at net cash provided by operating activities: |                                                           |                                 |        
|                                                                                       | (Increase) decrease in trade accounts receivable          |                                 |        
|                                                                                       | Increase in product inventory                             |                                 |        
|                                                                                       | Decrease in parts inventory                               |                                 |        
|                                                                                       | Decrease in other current assets                          |                                 |        
|                                                                                       | Decrease in other assets and liabilities, net             |                                 |        
|                                                                                       | Increase (decrease) in accounts payable                   |                                 |        
|                                                                                       | Increase (decrease) in accrued expenses                   |                                 |        
|                                                                                       |                                                           |                                 |        
|Net cash provided by operating activities                                              |                                                           |                                 | 144,539
|                                                                                       |                                                           |                                 |        
|Cash flows from investing activities:                                                  |                                                           |                                 |        
|                                                                                       | Purchases of property and equipment                       |                                 |        
|                                                                                       | Proceeds from the dispositions of property and equipment  |                                 |        
|                                                                                       | Contributions to equity investees                         |                                 |        
|                                                                                       |                                                           |                                 |        
|Net cash used in investing activities                                                  |                                                           |                                 | (77,391
|                                                                                       |                                                           |                                 |        
|Cash flows from financing activities:                                                  |                                                           |                                 |        
|                                                                                       | Net proceeds from exercise of common stock options        |                                 |        
|                                                                                       | Repurchase of $2.28 Cumulative Preferred Stock            |                                 |        
|                                                                                       | Proceeds from issuance of long-term debt                  |                                 |        
|                                                                                       | Debt issue costs paid                                     |                                 |        
|                                                                                       | Payments on revolving credit facility                     |                                 |        
|                                                                                       | Borrowings under revolving credit facility                |                                 |        
|                                                                                       | Prepayment of American General notes                      |                                 |        
|                                                                                       | Dividends paid                                            |                                 |        
|                                                                                       |                                                           |                                 |        
|Net cash provided by financing activities                                              |                                                           |                                 | (61,778
|                                                                                       |                                                           |                                 |        
|Net increase (decrease) in cash and cash equivalents                                   |                                                           |                                 | 5,370  
|Cash and cash equivalents at beginning of period                                       |                                                           |                                 | 12,927 
|                                                                                       |                                                           |                                 |        
|Cash and cash equivalents at end of period                                             |                                                           | $                               | 18,297 
|                                                                                       |                                                           |                                 |        

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





WESTERN GAS RESOURCES, INC.        CONSOLIDATED STATEMENT OF OPERATIONS        (Unaudited)        (Dollars in thousands, except share and per share amounts)

|                                                                                      |                                                | Three Months Ended
September 30, |            | Nine Months Ended
September 30, |        
|------------------------------------------------------------------------------------- | ---------------------------------------------- | -------------------------------- | ---------- | ------------------------------- | -------
|
|Revenues:                                                                             |                                                |                                  |            |                                 |        
|                                                                                      | Sale of residue gas                            |                                  | $          | 542,131                         |        
|                                                                                      | Sale of natural gas liquids                    |                                  |            | 94,865                          |        
|                                                                                      | Processing, transportation and storage revenue |                                  |            | 10,418                          |        
|                                                                                      | Non-cash change in fair value of derivatives   |                                  |            | 21,112                          |        
|                                                                                      | Other, net                                     |                                  |            | 2,359                           |        
|                                                                                      |                                                |                                  |            |                                 |        
|                                                                                      |                                                | Total revenues                   |            |                                 | 670,885
|                                                                                      |                                                |                                  |            |                                 |        
|Costs and expenses:                                                                   |                                                |                                  |            |                                 |        
|                                                                                      | Product purchases                              |                                  |            | 594,452                         |        
|                                                                                      | Plant operating expense                        |                                  |            | 18,875                          |        
|                                                                                      | Oil and gas exploration and production expense |                                  |            | 2,614                           |        
|                                                                                      | Depreciation, depletion and amortization       |                                  |            | 17,257                          |        
|                                                                                      | (Gain)/loss on fixed assets                    |                                  |            | 570                             |        
|                                                                                      | Selling and administrative expense             |                                  |            | 7,715                           |        
|                                                                                      | Interest expense                               |                                  |            | 6,132                           |        
|                                                                                      |                                                |                                  |            |                                 |        
|                                                                                      |                                                | Total costs and expenses         |            |                                 | 647,615
|                                                                                      |                                                |                                  |            |                                 |        
|Income before income taxes                                                            |                                                |                                  | 23,270     |                                 |        
|Provision for income taxes:                                                           |                                                |                                  |            |                                 |        
|                                                                                      | Current                                        |                                  |            | 68                              |        
|                                                                                      | Deferred                                       |                                  |            | 8,429                           |        
|                                                                                      |                                                |                                  |            |                                 |        
|                                                                                      |                                                | Total provision for income taxes |            |                                 | 8,497  
|                                                                                      |                                                |                                  |            |                                 |        
|Income before extraordinary items                                                     |                                                |                                  | 14,773     |                                 |        
|Extraordinary charge for early extinguishment of debt, net of tax benefit of $700,000 |                                                |                                  |           |                                 |        
|                                                                                      |                                                |                                  |            |                                 |        
|Net income                                                                            |                                                |                                  | 14,773     |                                 |        
|Preferred stock requirements                                                          |                                                |                                  | (2,584     | )                               |        
|                                                                                      |                                                |                                  |            |                                 |        
|Income attributable to common stock                                                   |                                                | $                                | 12,189     |                                 | $      
|                                                                                      |                                                |                                  |            |                                 |        
|Income per share of common stock                                                      |                                                | $                                | .37        |                                 | $      
|                                                                                      |                                                |                                  |            |                                 |        
|Weighted average shares of common stock outstanding                                   |                                                |                                  | 32,657,637 |                                 |        
|                                                                                      |                                                |                                  |            |                                 |        
|Income per share of common stockassuming dilution                                    |                                                | $                                | .36        |                                 | $      
|                                                                                      |                                                |                                  |            |                                 |        
|Weighted average shares of common stock outstandingassuming dilution                 |                                                |                                  | 33,572,836 |                                 |        
|                                                                                      |                                                |                                  |            |                                 |        

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

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

|                                                                    |                                                  | Shares of
$2.28
Cumulative
Preferred
Stock                          |                                    | Shares of
$2.28
Cumulative
Preferred Stock
in Treasury |   | $2.625
Cumulative
Convertible
Preferred
Stock |   | Shares
of Common
Stock |   | Shares
of Common
Stock
in Treasury |   | $2.28
Cumulative
Preferred
Stock |     | $2.625
Cumulative
Convertible
Preferred
Stock |   | Common
Stock |   | Treasury
Stock |       | Additional
Paid-In
Capital |   | Retained
(Deficit)
Earnings |   | Accumulated
Other
Comprehensive
Income
Net of Tax |         | Notes
Receivable
from Key
Employees |   | Total
Stockholders'
Equity |       
|------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------------------------- | ---------------------------------- | ------------------------------------------------------ | - | --------------------------------------------- | - | ---------------------- | - | ---------------------------------- | - | -------------------------------- | --- | --------------------------------------------- | - | ------------ | - | -------------- | ----- | -------------------------- | - | --------------------------- | - | ------------------------------------------------- | ------- | ----------------------------------- | - | -------------------------- | ------
|Balance at December 31, 2000                                        |                                                  | 1,400,000                                                           |                                    | 39,190                                                 |   | 2,760,000                                     |   | 32,361,131             |   | 25,016                             |   |                                  | 140 |                                               |   | 276          |   |                | 3,265 |                            |   | (1,778                      | ) |                                                   | 400,157 |                                     |   | (11,820                    | )     
|Comprehensive income:                                               |                                                  |                                                                     |                                    |                                                        |   |                                               |   |                        |   |                                    |   |                                  |     |                                               |   |              |   |                |       |                            |   |                             |   |                                                   |         |                                     |   |                            |       
|                                                                    | Net income, nine months ended September 30, 2001 |                                                                     |                                   |                                                        |  |                                               |  |                        |  |                                    |  |                                  |     |                                              |   |              |  |                |       |                           |   |                             |  |                                                   |         |                                    |   |                            | 84,816
|                                                                    |                                                  | Cumulative effect of change in accounting principleJanuary 1, 2001 |                                    |                                                       |   |                                              |   |                       |   |                                   |   |                                 |     |                                               |  |              |   |               |       |                            |  |                             |   |                                                  |         |                                     |  |                            |       
|                                                                    |                                                  | Reclassification adjustment for settled contracts                   |                                    |                                                       |   |                                              |   |                       |   |                                   |   |                                 |     |                                               |  |              |   |               |       |                            |  |                             |   |                                                  |         |                                     |  |                            |       
|                                                                    |                                                  | Changes in fair value of outstanding hedging positions              |                                    |                                                       |   |                                              |   |                       |   |                                   |   |                                 |     |                                               |  |              |   |               |       |                            |  |                             |   |                                                  |         |                                     |  |                            |       
|                                                                    |                                                  | Fair value of new hedge positions                                   |                                    |                                                       |   |                                              |   |                       |   |                                   |   |                                 |     |                                               |  |              |   |               |       |                            |  |                             |   |                                                  |         |                                     |  |                            |       
|                                                                    |                                                  |                                                                     |                                    |                                                        |   |                                               |   |                        |   |                                    |   |                                  |     |                                               |   |              |   |                |       |                            |   |                             |   |                                                   |         |                                     |   |                            |       
|                                                                    |                                                  |                                                                     | Ending accumulated derivative gain |                                                        |  |                                               |  |                        |  |                                    |  |                                  |    |                                               |   |             |   |                |      |                            |   |                            |   |                                                   |        |                                     |   |                           |       
|                                                                    | Translation adjustments                          |                                                                     |                                   |                                                        |  |                                               |  |                        |  |                                    |  |                                  |     |                                              |   |              |  |                |       |                           |   |                             |  |                                                   |         |                                    |   |                            |      
|                                                                    |                                                  |                                                                     |                                    |                                                        |   |                                               |   |                        |   |                                    |   |                                  |     |                                               |   |              |   |                |       |                            |   |                             |   |                                                   |         |                                     |   |                            |       
|                                                                    | Total comprehensive income, net of tax           |                                                                     |                                    |                                                        |   |                                               |   |                        |   |                                    |   |                                  |     |                                               |   |              |   |                |       |                            |   |                             |   |                                                   |         |                                     |   |                            |       
|                                                                    |                                                  |                                                                     |                                    |                                                        |   |                                               |   |                        |   |                                    |   |                                  |     |                                               |   |              |   |                |       |                            |   |                             |   |                                                   |         |                                     |   |                            |       
|Stock options exercised                                             |                                                  |                                                                    |                                    |                                                       |   |                                              |   | 302,399                |   |                                   |   |                                  |    |                                               |   |             |   |                | 25    |                            |   |                            |   |                                                   | 4,752   |                                     |   |                           |       
|Tax benefit related to stock options                                |                                                  |                                                                    |                                    |                                                       |   |                                              |   |                       |   |                                   |   |                                  |    |                                               |   |             |   |                |      |                            |   |                            |   |                                                   |        |                                     |   |                           |       
|Loans forgiven                                                      |                                                  |                                                                    |                                    |                                                       |   |                                              |   |                       |   |                                   |   |                                  |    |                                               |   |             |   |                |      |                            |   |                            |   |                                                   |        |                                     |   |                           |       
|Dividends declared on common stock                                  |                                                  |                                                                    |                                    |                                                       |   |                                              |   |                       |   |                                   |   |                                  |    |                                               |   |             |   |                |      |                            |   |                            |   |                                                   |        |                                     |   | (4,890                     | )     
|Dividends declared on $2.28 cumulative preferred stock              |                                                  |                                                                    |                                    |                                                       |   |                                              |   |                       |   |                                   |   |                                  |    |                                               |   |             |   |                |      |                            |   |                            |   |                                                   |        |                                     |   | (2,319                     | )     
|Dividends declared on $2.625 cumulative convertible preferred stock |                                                  |                                                                    |                                    |                                                       |   |                                              |   |                       |   |                                   |   |                                  |    |                                               |   |             |   |                |      |                            |   |                            |   |                                                   |        |                                     |   | (5,433                     | )     
|Repurchase of $2.28 cumulative preferred stock                      |                                                  |                                                                    |                                    | 5,100                                                  |   |                                              |   |                       |   |                                   |   |                                  |    |                                               |   |             |   |                |      |                            |   | (129                        | ) |                                                   |        |                                     |   |                           |       
|                                                                    |                                                  |                                                                     |                                    |                                                        |   |                                               |   |                        |   |                                    |   |                                  |     |                                               |   |              |   |                |       |                            |   |                             |   |                                                   |         |                                     |   |                            |       
|Balance at September 30, 2001                                       |                                                  | 1,400,000                                                           |                                    | 44,290                                                 |   | 2,760,000                                     |   | 32,652,057             |   | 25,016                             |   | $                                | 140 |                                               | $ | 276          |   | $              | 3,290 |                            | $ | (1,907                      | ) | $                                                 | 404,909 |                                     | $ | 60,354                     |       
|                                                                    |                                                  |                                                                     |                                    |                                                        |   |                                               |   |                        |   |                                    |   |                                  |     |                                               |   |              |   |                |       |                            |   |                             |   |                                                   |         |                                     |   |                            |       

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





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, 2000. The interim consolidated financial statements as of September 30, 2001 and for the
three and nine-month periods ended September 30, 2001 and 2000 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 and nine months ended September 30, 2001 are not necessarily
indicative of the results of operations expected for the year ended December 31, 2001.

Prior
period amounts in the interim consolidated financial statements and notes have been reclassified as appropriate to conform to the presentation used in 2001.

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 and
$7.8 million, respectively, for each of the three and nine-month periods ended September 30, 2001 and 2000. Common stock options and our $2.625 cumulative convertible
preferred stock, which are potential common shares, had a dilutive effect on earnings and increased the weighted average number of shares of common stock outstanding by 915,199 and 681,593 for the
three-month periods ended September 30, 2001 and 2000, respectively, and by 4,445,502 and 536,716 for the nine months ended September 30, 2001 and 2000, respectively. The
numerators and the denominators for these periods were adjusted to reflect these potential shares in calculating fully diluted earnings per share.

On
November 9, 2001, we issued a notice of redemption at the liquidation preference totalling $20.0 million (plus accrued and unpaid dividends) of the remaining
$33.9 million of our $2.28 cumulative preferred stock. The date fixed for redemption is December 10, 2001. This redemption will be funded with amounts available under our Revolving
Credit Facility. The pro rata capitalized offering costs of $920,000 associated with the redeemed preferred stock will be reflected as a special dividend to preferred shareholders in the fourth
quarter of 2001 and will accordingly reduce earnings available to common shareholders in that quarter by approximately $.03 per common share.

OTHER INFORMATION

Bethel Treating Facility.In December 2000, we signed an agreement with Anadarko
Petroleum Corporation for the sale of all the outstanding stock of our wholly-owned subsidiary, Pinnacle Gas Treating, Inc. ("Pinnacle"), for $38.0 million. The only asset of this
subsidiary was a 300 MMcf per day
treating facility and 86 miles of associated gathering assets located in east Texas. The sale closed in January 2001 and resulted in a net pre-tax gain for financial reporting
purposes of $11.2 million in the first quarter of 2001.

Western Gas Resources-California, Inc.In January 2000, we sold all the
outstanding stock of our wholly-owned subsidiary, Western Gas Resources-California, Inc. ("WGR-California"), for

$14.9 million. The only asset of this subsidiary was a 162-mile pipeline in the Sacramento basin of California. We acquired the pipeline through the exercise of an option in a
transaction that closed simultaneously with the sale of WGR-California. We recognized a pre-tax gain on the sale of approximately $5.3 million in the first quarter of
2000.

The
proceeds from these sales were used to reduce borrowings outstanding on the Revolving Credit Facility.

Westana.In February 2000, we acquired the remaining 50% interest in the Westana
Gathering Company for a net purchase price of $9.8 million. The results from our ownership through February 2000 of a 50% equity interest in the Westana Gathering Company are reflected
in revenues in Other, net on the Consolidated Statement of Operations. Beginning in March 2000, the results of these operations are fully consolidated and are included in Revenues and Costs and
expenses. Additionally, in March 2000, our investment in the Westana Gathering Company was reclassified from Other assets to Property and equipment.

Granger Complex.In May 2001, we acquired the remaining 50% interest in a portion of the
Bird Canyon gathering system serving the Granger Complex for a net purchase price of $5.9 million in cash and the settlement of previously disclosed litigation. In September 2001, we
signed an agreement with Questar Gas Management Company for the sale of a 50% interest in a segment of the Bird Canyon gathering
system along with associated field compression for $5.2 million. This sale closed in October 2001. These assets were reclassified on the Consolidated Balance Sheet to Assets held for
sale at September 30, 2001, and a $400,000 pre-tax loss on the excess of the net book value over the sales price of these assets was recognized in the third quarter of 2001.

Also
in October 2001, both Questar and we contributed our respective interests in the Bird Canyon system along with additional field compression and gathering dedications for
gas produced along the Pinedale anticline portion of the Hoback basin to a newly formed joint venture named Rendezvous Gas Services, L.L.C. Each company owns a 50% interest in Rendezvous, and we will
serve as field operator of its systems. In the fourth quarter of 2001, Rendezvous will begin construction of additional gas pipeline and compression facilities with a capacity to transport
approximately 275 MMcf per day of gas production from the Pinedale anticline. This gas will be delivered for blending or processing at either our Granger Complex or at a Questar processing
facility. The total estimated construction cost of the new pipeline and compression facilities is $15.5 million, of which our share will be $7.8 million. Our 50% interest in Rendezvous
will be accounted for under the equity method.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the Financial Accounting Standards Board, (the "FASB"), issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), effective for fiscal years beginning after June 15, 2000. Under SFAS No. 133, which was subsequently amended by SFAS No. 138, we were
required, starting on January 1, 2001, to recognize the change in the market value of all derivatives as either assets or liabilities in the Consolidated Balance Sheet and measure those
instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income depending upon the nature of the underlying transaction.
Also on January 1, 2001, we adopted mark-to-market accounting for the remainder of our marketing activities which, for various reasons, are not designated or qualified
as hedges under SFAS No. 133. Upon the adoption of SFAS No. 133 and mark-to-market accounting on January 1, 2001, the

impact was a decrease in a component of stockholders' equity through Accumulated other comprehensive income of $22.5 million, an increase to Current assets of $52.6 million, an increase
to Current liabilities of $86.9 million, an increase to Other long-term liabilities of $1.1 million and a decrease in Deferred income taxes payable of $12.9 million.

Of
the $22.5 million decrease to Accumulated other comprehensive income resulting from the January 1, 2001 adoption of SFAS No. 133, $19.4 million was
reversed in the first nine months of 2001 with gains and losses from the underlying transactions recognized through Total revenues. An additional $2.6 million of this transition entry is
currently anticipated to be recognized through Total revenues in the fourth quarter of 2001.

The
non-cash impact to our results of operations in the first nine months of 2001 resulting from the adoption of mark-to-market accounting
for our marketing activities resulted in additional pre-tax income of $23.3 million.

ADOPTION OF STOCKHOLDER RIGHTS PLAN

In the first quarter of 2001, we adopted a Stockholder Rights Plan under which rights were distributed as a dividend at the rate of one right for each share of
our common stock held by stockholders of record as of the close of business on April 9, 2001. The Rights Plan was not adopted in response to any efforts to acquire control of our company. The
Rights Plan, however, is designed to deter coercive takeover tactics including the accumulation of shares in the open market or through private transactions and to prevent an acquirer from gaining
control of our company without offering a fair and adequate price to all of our stockholders.

Each
right initially will entitle stockholders to buy one unit consisting of 1/100th of a share of a new series of preferred stock for $180 per unit. The right generally
will be exercisable only if a person or group acquires beneficial ownership of 15 percent or more of our then outstanding common stock or commences a tender or exchange offer upon consummation
of which a person or group would
beneficially own 15 percent or more of our then outstanding common stock. The rights will expire on March 22, 2011.

SUPPLEMENTARY CASH FLOW INFORMATION

Interest paid was $18.5 million and $23.3 million for the nine months ended September 30, 2001 and 2000, respectively.

We
paid income taxes of $14.5 million during the nine months ended September 30, 2001. No income taxes were paid during the nine months ended
September 30, 2000.

SEGMENT REPORTING

We operate in four principal business segments, as follows: Gas Gathering and Processing, Exploration and Production, Marketing and Transportation. Management
separately monitors these segments for performance against our 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.

In
our Gas Gathering and Processing segment, we connect producers' wells (including those of our Exploration and Production segment) to our gathering systems for delivery to our
processing or treating

plants, process the natural gas to extract NGLs and treat the natural gas in order to meet pipeline specifications. Our Marketing segment sells the residue gas and NGLs extracted at our processing
facilities.

The
activities of our Exploration and Production segment include the exploration and development of gas properties primarily in basins where our gathering and processing facilities
are located. Our Marketing segment sells the majority of the production from these properties.

Our
Marketing segment buys and sells gas and NGLs nationwide and in Canada from or to a variety of customers. In addition, this segment also markets gas and NGLs produced by our
gathering, processing and production assets. Our Canadian marketing operations, which are immaterial for separate presentation, are included in this segment. The Marketing segment also includes gains
and losses associated with our equity gas and NGL hedging program of $10.6 million and $(10.6) million for the three months ended September 30, 2001 and 2000, respectively,
and $(5.4) million and $(20.2) million for the nine months ended September 30, 2001 and 2000, respectively.

The
Transportation 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 three and nine months ended September 30, 2001 and 2000 (dollars in thousands). Due to our
integrated operations, the use of allocations in the determination of business segment information is necessary. Inter-segment revenues are valued at prices comparable to those of unaffiliated
customers.

|                                               |  | Gas
Gathering
and
Processing |         | Exploration
and
Production |   | Marketing |  | Transmission |         | Corporate |   | Eliminating
Entries |   | Total
|---------------------------------------------- |  | ---------------------------- | ------- | -------------------------- | - | --------- |  | ------------ | ------- | --------- | - | ------------------- | - | -----
|Quarter ended September 30, 2001               |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|Revenues from unaffiliated customers           |  | $                            | 26,878  |                            | $ | 970       |  | $            | 611,152 |           | $ | 1,167               |   | $    
|Interest income                                |  |                              |        |                            |   | 2         |  |              |        |           |   |                    |   |      
|Other, net                                     |  |                              |        |                            |   |          |  |              | 31,759  |           |   |                    |   |      
|Intersegment sales                             |  |                              | 130,817 |                            |   | 17,213    |  |              | 18,245  |           |   | 4,279               |   |      
|                                               |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|Total revenues                                 |  |                              | 157,695 |                            |   | 18,185    |  |              | 661,156 |           |   | 5,446               |   |      
|                                               |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|Product purchases                              |  |                              | 115,362 |                            |   | 1,621     |  |              | 641,736 |           |   | (439                | ) |      
|Plant operating expense                        |  |                              | 16,661  |                            |   | 65        |  |              | (119    | )         |   | 2,861               |   |      
|Oil and gas exploration and production expense |  |                              |        |                            |   | 10,259    |  |              |        |           |   |                    |   |      
|                                               |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|Gross profit                                   |  | $                            | 25,672  |                            | $ | 6,240     |  | $            | 19,539  |           | $ | 3,024               |   | $    
|                                               |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|Depreciation, depletion and amortization       |  |                              | 9,915   |                            |   | 5,829     |  |              | 41      |           |   | 419                 |   |      
|Interest expense                               |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|Loss on sale of assets                         |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|Selling and administrative expense             |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|                                               |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|Income before income taxes                     |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|                                               |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      
|Identifiable assets                            |  | $                            | 585,158 |                            | $ | 171,596   |  | $            | 80      |           | $ | 47,565              |   | $    
|                                               |  |                              |         |                            |   |           |  |              |         |           |   |                     |   |      



|                                               |  | Gas
Gathering
and
Processing |         | Exploration
and
Production |   | Marketing |   | Transmission |         | Corporate |   | Eliminating
Entries |   | Total |       
|---------------------------------------------- |  | ---------------------------- | ------- | -------------------------- | - | --------- | - | ------------ | ------- | --------- | - | ------------------- | - | ----- | ------
|Quarter ended September 30, 2000               |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|Revenues from unaffiliated customers           |  | $                            | 26,338  |                            | $ | 783       |   | $            | 903,127 |           | $ | 1,844               |   | $     | 28    
|Interest income                                |  |                              | 34      |                            |   |          |   |              |        |           |   |                    |   |       | 7,340 
|Other, net                                     |  |                              | 3       |                            |   | (38       | ) |              | (23,845 | )         |   |                    |   |       | 1,341 
|Intersegment sales                             |  |                              | 200,016 |                            |   | 21,440    |   |              | 43,823  |           |   | 3,775               |   |       | 14    
|                                               |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|Total revenues                                 |  |                              | 226,391 |                            |   | 22,185    |   |              | 923,105 |           |   | 5,619               |   |       | 8,723 
|                                               |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|Product purchases                              |  |                              | 174,832 |                            |   | 1,217     |   |              | 922,802 |           |   | (236                | ) |       | 25    
|Plant operating expense                        |  |                              | 16,145  |                            |   | 104       |   |              | 28      |           |   | 2,356               |   |       | 278   
|Oil and gas exploration and production expense |  |                              |        |                            |   | 7,466     |   |              |        |           |   |                    |   |       |      
|                                               |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|Gross profit                                   |  | $                            | 35,414  |                            | $ | 13,398    |   | $            | 275     |           | $ | 3,499               |   | $     | 8,420 
|                                               |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|Depreciation, depletion and amortization       |  |                              | 9,682   |                            |   | 2,709     |   |              | 41      |           |   | 397                 |   |       | 1,372 
|Interest expense                               |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|Gain on sale of assets                         |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|Selling and administrative expense             |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|                                               |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|Income before income taxes                     |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|                                               |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       
|Identifiable assets                            |  | $                            | 542,703 |                            | $ | 116,432   |   | $            | 62      |           | $ | 46,909              |   | $     | 39,971
|                                               |  |                              |         |                            |   |           |   |              |         |           |   |                     |   |       |       

|                                               |  | Gas
Gathering
and
Processing |         | Exploration
and
Production |   | Marketing |   | Transmission |           | Corporate |   | Eliminating
Entries |   | Total |       
|---------------------------------------------- |  | ---------------------------- | ------- | -------------------------- | - | --------- | - | ------------ | --------- | --------- | - | ------------------- | - | ----- | ------
|Nine months ended September 30, 2001           |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Revenues from unaffiliated customers           |  | $                            | 57,078  |                            | $ | 1,798     |   | $            | 2,669,805 |           | $ | 6,151               |   | $     | 314   
|Interest income                                |  |                              | 1       |                            |   | 3         |   |              |          |           |   |                    |   |       | 12,265
|Other, net                                     |  |                              | 4       |                            |   | (1        | ) |              | 17,991    |           |   | 2                   |   |       | 788   
|Intersegment sales                             |  |                              | 668,620 |                            |   | 98,780    |   |              | 38,856    |           |   | 12,937              |   |       | 41    
|                                               |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Total revenues                                 |  |                              | 725,703 |                            |   | 100,580   |   |              | 2,726,652 |           |   | 19,090              |   |       | 13,408
|                                               |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Product purchases                              |  |                              | 571,105 |                            |   | 6,230     |   |              | 2,689,416 |           |   | (439                | ) |       | 180   
|Plant operating expense                        |  |                              | 48,933  |                            |   | 163       |   |              |          |           |   | 6,693               |   |       | 96    
|Oil and gas exploration and production expense |  |                              |        |                            |   | 37,904    |   |              |          |           |   |                    |   |       |      
|                                               |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Gross profit                                   |  | $                            | 105,665 |                            | $ | 56,283    |   | $            | 37,236    |           | $ | 12,836              |   | $     | 13,132
|                                               |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Depreciation, depletion and amortization       |  |                              | 28,876  |                            |   | 12,741    |   |              | 121       |           |   | 1,253               |   |       | 4,027 
|Interest expense                               |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Gain on sale of assets                         |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Selling and administrative expense             |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|                                               |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Income before income taxes                     |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|                                               |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Identifiable assets                            |  | $                            | 585,159 |                            | $ | 171,596   |   | $            | 80        |           | $ | 47,565              |   | $     | 62,154
|                                               |  |                              |         |                            |   |           |   |              |           |           |   |                     |   |       |       



|                                               |  | Gas
Gathering
and
Processing |         | Exploration
and
Production |   | Marketing |  | Transmission |           | Corporate |   | Eliminating
Entries |   | Total |       
|---------------------------------------------- |  | ---------------------------- | ------- | -------------------------- | - | --------- |  | ------------ | --------- | --------- | - | ------------------- | - | ----- | ------
|Nine months ended September 30, 2000           |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|Revenues from unaffiliated customers           |  | $                            | 44,512  |                            | $ | 2,913     |  | $            | 2,091,842 |           | $ | 6,099               |   | $     | 89    
|Interest income                                |  |                              | 68      |                            |   | 2         |  |              | 27        |           |   |                    |   |       | 19,597
|Other, net                                     |  |                              | 1,675   |                            |   | 3         |  |              | (32,756   | )         |   |                    |   |       | 1,873 
|Intersegment sales                             |  |                              | 520,359 |                            |   | 49,347    |  |              | 83,104    |           |   | 12,494              |   |       | 31    
|                                               |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|Total revenues                                 |  |                              | 566,614 |                            |   | 52,265    |  |              | 2,124,217 |           |   | 18,593              |   |       | 21,590
|                                               |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|Product purchases                              |  |                              | 421,085 |                            |   | 2,749     |  |              | 2,142,760 |           |   | (236                | ) |       | (65   
|Plant operating expense                        |  |                              | 44,623  |                            |   | 412       |  |              | 28        |           |   | 6,620               |   |       | 206   
|Oil and gas exploration and production expense |  |                              | 31      |                            |   | 20,068    |  |              |          |           |   |                    |   |       |      
|                                               |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|Gross profit                                   |  | $                            | 100,875 |                            | $ | 29,036    |  | $            | (571      | )         | $ | 12,209              |   | $     | 21,449
|                                               |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|Depreciation, depletion and amortization       |  |                              | 27,244  |                            |   | 9,091     |  |              | 121       |           |   | 1,230               |   |       | 4,047 
|Interest expense                               |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|Gain on sale of assets                         |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|Selling and administrative expense             |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|                                               |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|Income before income taxes                     |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|                                               |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       
|Identifiable assets                            |  | $                            | 542,703 |                            | $ | 116,432   |  | $            | 62        |           | $ | 46,909              |   | $     | 39,971
|                                               |  |                              |         |                            |   |           |  |              |           |           |   |                     |   |       |       

LEGAL PROCEEDINGS

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB, issued SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 143 "Accounting for Asset Retirement
Obligations." As it applies to us, SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. SFAS No. 142 changes the method in which goodwill and other
intangible assets are recorded and amortized. SFAS No. 142 will not have an immediate impact on us as we do not currently have any goodwill recorded in our financial statements. SFAS
No. 143 is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 establishes accounting standards for recognition and measurement of a liability for an
asset retirement obligation and the associated asset retirement cost. We have not yet determined the impact that the adoption of SFAS No. 143 will have on our earnings or financial position.





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 and
nine months ended September 30, 2001 and 2000. Prior year amounts have been reclassified as appropriate to conform to the presentation used in 2001. You should also refer 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 specific 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 and nine months ended September 30, 2001 compared to the three and nine months ended September 30, 2000 (Dollars in thousands, except per
share amounts and operating data).

|                                                   |  | Three Months Ended
September 30, |         |  |   | Nine Months Ended
September 30, |  |     |  
|-------------------------------------------------- |  | -------------------------------- | ------- |  | - | ------------------------------- |  | --- | -
|
|
|Financial results:                                 |  |                                  |         |  |   |                                 |  |     |  
|Revenues                                           |  | $                                | 670,885 |  | $ | 909,836                         |  | (26 | )
|Gross profit                                       |  |                                  | 37,117  |  |   | 42,618                          |  | (13 | )
|Net income                                         |  |                                  | 14,773  |  |   | 14,457                          |  | 2   |  
|Income per share of common stock                   |  |                                  | .37     |  |   | .37                             |  |    |  
|Income per share of common stockassuming dilution |  |                                  | .36     |  |   | .36                             |  |    |  
|Net cash provided by operating activities          |  | $                                | 17,725  |  | $ | 34,317                          |  | (48 | )
|Operating data:                                    |  |                                  |         |  |   |                                 |  |     |  
|Average gas sales (MMcf/D)                         |  |                                  | 2,130   |  |   | 1,970                           |  | 8   |  
|Average NGL sales (MGal/D)                         |  |                                  | 2,335   |  |   | 3,170                           |  | (26 | )
|Average gas prices ($/Mcf)                         |  | $                                | 2.77    |  | $ | 4.08                            |  | (32 | )
|Average NGL prices ($/Gal)                         |  | $                                | .44     |  | $ | .53                             |  | (17 | )

Net income increased $300,000 and $46.8 million for the three and nine months ended September 30, 2001 compared to 2000.
The increase in net income for the nine months ended September 30, 2001 is primarily attributable to significantly higher gas prices in 2001 compared to the same period in prior year,
increased production from the Powder River basin coal bed methane development, and improved results from our marketing segment.

Revenues
from the sale of gas decreased $197.3 million to $542.1 million for the three months ended September 30, 2001 compared to the same period in 2000.
This decrease was primarily due to a reduction in product prices in 2001, which was partially offset by an increase in sales of natural gas purchased from third parties. Average gas prices realized by
us decreased $1.31 per Mcf to $2.77 per Mcf for the quarter ended September 30, 2001 compared to the same period in 2000. Included in the realized gas price were approximately
$10.2 million of gains recognized in the three months ended September 30, 2001 related to futures positions on equity gas volumes, which are treated as hedges under SFAS
No. 133. We have entered into additional futures positions for the majority of our equity gas for the fourth quarter of 2001 and throughout 2002. See further discussion in Item 3. Quantitative
and Qualitative Disclosures about Market RiskRisk Management Activities. Average gas sales

volumes increased 160 MMcf per day to 2,130 MMcf per day for the quarter ended September 30, 2001 compared to the same period in 2000.

Revenues
from the sale of gas increased $684.4 million to $2,343.5 million in the nine months ended September 30, 2001 compared to the same period in 2000.
This increase was primarily due to an improvement in product prices and to a lesser extent from an increase in sales of natural gas purchased from third parties. Average gas prices realized by us
increased $1.23 per Mcf to $4.57 per Mcf in the nine months ended September 30, 2001 compared to the same period in 2000. Included in the realized gas price were approximately
$4.1 million of losses recognized in the nine months ended September 30,
2001 related to futures positions on equity gas volumes, which are treated as hedges under SFAS No. 133. We have entered into additional futures positions for the majority of our equity gas for
the fourth quarter of 2001 and throughout 2002. See further discussion in Item 3. Quantitative and Qualitative Disclosures about Market RiskRisk Management Activities. Average gas sales
volumes increased 70 MMcf per day to 1,880 MMcf per day in the nine months ended September 30, 2001 compared to the same period in 2000.

Revenues
from the sale of NGLs decreased $60.3 million in the third quarter of 2001 compared to the same period in 2000. This decrease is due to a reduction in sales volume and
a decrease in product prices. Average NGL prices realized by us decreased $.09 per gallon to $.44 per gallon in the third quarter of 2001 compared to the same period in 2000. Included in the realized
NGL price were approximately $400,000 of gains recognized in the third quarter of 2001 related to futures positions on equity NGL volumes, which are treated as hedges under SFAS No. 133. We
have entered into additional futures positions for a portion of our equity NGL production for the fourth quarter of 2001. See further discussion in Item 3. Quantitative and Qualitative Disclosures
about Market RiskRisk Management Activities. Average NGL sales volumes decreased 835 MGal per day to 2,335 MGal per day in the third quarter of 2001 compared to the same period in 2000.
This decrease is primarily due to an intentional reduction in the sale of third-party product as these types of sales were generating minimal margins.

Revenues
from the sale of NGLs decreased approximately $73.9 million in the nine months ended September 30, 2001 compared to the same period in 2000. This
decrease is due to a reduction in sales volume, which more than offset an increase in product prices. Average NGL prices realized by us increased $.03 per gallon to $.53 per gallon in the
nine months ended September 30, 2001 compared to the same period in 2000. Included in the realized NGL price were approximately $1.2 million of losses recognized in the
nine months ended September 30, 2001 related to futures positions on equity NGL volumes, which are treated as hedges under SFAS No. 133. We have entered into additional futures
positions for a portion of our equity NGL production for the fourth quarter of 2001. See further discussion in Item 3. Quantitative and Qualitative Disclosures about Market RiskRisk
Management Activities. Average NGL sales volumes decreased 725 MGal per day to 2,315 MGal per day in the nine months ended September 30, 2001 compared to the same period in 2000. This
decrease is primarily due to an intentional reduction in the sale of third-party product as these types of sales were generating minimal margins. Also contributing to the reduction in overall sales
volume was a decrease in the sale of product produced at our facilities as we rejected ethane for a portion of the nine-month period.

Product
purchases decreased by $238.8 million for the quarter ended September 30, 2001 and increased $554.5 million for the nine months ended
September 30, 2001 compared to the same periods in 2000, primarily as a result of the increase in commodity prices. Overall, combined product purchases as a percentage of sales of all products
remained constant at 93% and 92% for the quarter and nine months ended September 30, 2001 and September 30, 2000, respectively.

Marketing
margins on residue gas averaged $0.04 per Mcf in the third quarter of 2001 and $0.09 per Mcf for the nine months ended September 30, 2001. This represents a
significant increase as

compared to the $0.02 per Mcf margin realized during both the third quarter of 2000 and the nine months ended September 30, 2000. The increase in margin for the quarter and
nine months ended September 30, 2001 primarily resulted from the mark-to-market of transactions utilizing a portion of our firm transportation capacity during the
remainder of 2001 and the mark-to-market of storage transactions for the winter of 2001-2002. Under mark-to-market accounting, which we
adopted on January 1, 2001, the margin to be realized over the term of the transaction is recorded in the month of origination. To the extent this amount includes margin to be recognized beyond
the current quarter, it is included in the financial statement caption Non-cash change in fair value of derivatives. Marketing margins on NGLs averaged approximately $0.003 per gallon in the third
quarter and $0.006 per gallon in the nine months ended September 30, 2001. This represents a decrease as compared to the $0.008 per gallon margin realized during both the third quarter
of 2000 and the nine months ended September 30, 2000. This decrease has resulted in our decision to intentionally reduce the sale of third-party NGL products. There is no assurance,
however, that these market conditions for our gas and NGL products and related margins will continue in the future, that we will be in a similar position to benefit from them or that we will continue
to originate the same amount of transactions in future quarters. During 2001, we reserved a total of $1.0 million for doubtful accounts. This reserve is not included in the calculation of the
marketing margins and is reported in Selling and administrative expenses.

Plant
operating expense increased $360,000 in the third quarter of 2001 and by $3.3 million in the nine months ended September 30, 2001 compared to the same
periods in 2000. This increase is primarily due to additional leased compression in the Powder River basin coal bed development and higher fuel costs at our plant facilities.

Oil
and gas exploration and production expenses decreased by $2.4 million in the third quarter of 2001 and increased by $10.3 million in the nine months ended
September 30, 2001 as compared to the same periods in 2000. The decrease in the third quarter of 2001 is primarily due to a reduction in severance taxes resulting from a decrease in product
prices. The increase in the nine-month period is primarily as a result of our overall increasing operations in the Powder River basin coal bed methane development.

Depreciation,
depletion and amortization increased by $3.1 million and $5.3 million in the third quarter and the nine months ended September 30, 2001 as
compared to the same periods in 2000, primarily as a result of our increasing operations in the Powder River basin coal bed methane development.

Extraordinary
charge for early extinguishment of debt decreased in the third quarter and the nine months ended September 30, 2001 as compared to the same periods in 2000
as a result of an after-tax charge of $1.7 million incurred in third quarter of 2000. In September 2000, we prepaid $27.0 million of outstanding indebtedness to
insurance companies, originally due to be paid in November 2005, with funds available under our Revolving Credit Facility. In connection with this prepayment, we paid a pre-tax
make-whole payment of approximately $2.0 million and expensed capitalized fees of approximately $752,000.

Other Information

Bethel Treating Facility.In December 2000, we signed an agreement with Anadarko
Petroleum Corporation for the sale of all the outstanding stock of our wholly owned subsidiary, Pinnacle for $38.0 million. The only asset of this subsidiary was a 300 MMcf per day treating
facility and 86 miles of associated gathering assets located in east Texas. The sale closed in January 2001 and resulted in a net pre-tax gain for financial reporting purposes of
$11.2 million in the first quarter of 2001.

Western Gas Resources-California, Inc.In January 2000, we sold all the
outstanding stock of our wholly owned subsidiary, WGR-California for $14.9 million. The only asset of this subsidiary was a

162-mile pipeline in the Sacramento basin of California. We acquired the pipeline through the exercise of an option in a transaction that closed simultaneously with the sale of
WGR-California. We recognized a pre-tax gain on the sale of approximately $5.3 million in the first quarter of 2000.

The
proceeds from these sales were used to reduce borrowings outstanding on the Revolving Credit Facility.

Westana.In February 2000, we acquired the remaining 50% interest in the Westana
Gathering Company for a net purchase price of $9.8 million. The results from our ownership through February 2000 of a 50% equity interest in the Westana Gathering Company are reflected
in revenues in Other, net on the Consolidated Statement of Operations. Beginning in March 2000, the results of these operations are fully consolidated and are included in Revenues and Costs and
expenses. Additionally, in March 2000, our investment in the Westana Gathering Company was reclassified from Other assets to Property and equipment.

Granger Complex.In May 2001, we acquired the remaining 50% interest in a portion of the
Bird Canyon gathering system serving the Granger Complex for a net purchase price of $5.9 million in cash and the settlement of previously disclosed litigation. In September 2001, we
signed an agreement with Questar Gas Management Company for the sale of a 50% interest in a segment of the Bird Canyon gathering system along with associated field compression for $5.2 million.
This sale closed in October 2001. These assets were reclassified on the Consolidated Balance Sheet to Assets held for sale at September 30, 2001 and a $400,000 pre-tax loss
on the excess of the net book value over the sales price of these assets was recognized in the third quarter of 2001.

Also
in October 2001, both Questar and we contributed our respective interests in the Bird Canyon system along with additional field compression and gathering dedications for
gas produced along the Pinedale anticline portion of the Hoback basin to a newly formed joint venture named Rendezvous Gas Services, L.L.C. Each company owns a 50% interest in Rendezvous, and we will
serve as field operator of its systems. In the fourth quarter of 2001, Rendezvous will begin construction of additional gas pipeline and compression facilities with a capacity to transport
approximately 275 MMcf per day of gas production from the Pinedale anticline. This gas will be delivered for blending or processing at either our Granger Complex or at a Questar processing
facility. The total estimated construction cost of the new pipeline and compression facilities is $15.5 million, of which our share will be $7.8 million. Our 50% interest in Rendezvous
will be accounted for under the equity method.

Business Strategy

Improved product prices in 2000 and 2001 have strengthened our financial position, which will allow us to emphasize the growth aspects of our business
strategy. Our long-term business plan is to increase our profitability by: (i) optimizing the efficiency and utilization of our existing operations; (ii) developing natural
gas reserves and increasing production volumes on our existing acreage positions; and (iii) investing in projects or acquiring assets that complement and extend our core natural gas gathering,
processing, exploration and production and marketing businesses.

We
are actively evaluating acquisitions of either assets or companies. These acquisitions can be related to gathering and processing or exploration and production with emphasis on
properties located in the Rocky Mountains or Canada. Capital expenditures budgeted for existing operations in 2001 are estimated to be approximately $172.5 million. This includes approximately
$96.7 million related to gathering, processing and pipeline assets and approximately $53.1 million for the acquisition of undeveloped acreage and development of gas reserves in the
Powder River basin. In the first nine months of 2001, our capital expenditures totaled $115.5 million.

We
consistently seek to improve the profitability of our existing operations by increasing natural gas throughput levels through new well connections and expansion of our gathering
systems, increasing

our efficiency through the modernization of equipment and consolidation of existing gathering and processing facilities, evaluating the economic performance of each of our operating facilities to
ensure that a targeted rate of return is achieved and controlling operating and overhead expenses.

We
continually seek to increase reserves dedicated to our gathering and processing facilities. Our operations are located in some of the most actively drilled oil and gas producing
basins in the United
States. We enter into agreements under which we gather and process natural gas produced on acreage dedicated to us by third parties. We contract for production from new wells or undeveloped acreage in
order to replace declines in existing reserves or increase reserves that are dedicated for gathering and processing at our facilities. At December 31, 2000, our estimated dedicated reserves
totaled 2.7 Tcf. In 2000, including the reserves developed by us and associated with our partnerships and excluding the reserves and production associated with the facilities sold during this period,
we connected new reserves to our facilities to replace approximately 222% of throughput. In order to obtain additional dedicated acreage and to secure contracts on favorable terms, we may participate
to a limited extent with third-party producers in exploration and production activities to supply our facilities. For the same reason, we may also offer to sell ownership interests in our facilities
to selected producers.

We
selectively participate in exploration and production activities largely to secure additional gas supply for our facilities. Beginning in 1997, we substantially increased our
investment in the acquisition of undeveloped acreage and development of the Powder River basin coal bed methane. We have acquired drilling rights on approximately 524,000 net acres in the basin. At
December 31, 2000 we had proved developed and undeveloped reserves of approximately 350 Bcf on a portion of this acreage. We also have participated in the development of properties in southwest
Wyoming and Colorado. As of December 31, 2001, these properties had an additional 58 Bcf of proved developed and undeveloped reserves. This represents an increase of approximately 50% in our
proved reserves from December 31, 1999. We currently estimate a net total of 2.2 Tcf of probable or possible reserves on an unrisked basis associated with undeveloped acreage in these areas.
There can be no assurance, however, as to the ultimate recovery of these probable or possible reserves. We will also consider investing in other exploration and production prospects that we consider
to be low risk and complementary to our other business segments.

We
will continue to invest in projects that complement and extend our core natural gas gathering, processing, exploration and production and marketing businesses including the
consideration of expansion into additional geographic areas in the continental United States and Canada.

In
October 2001, Mr. Peter A. Dea was appointed President, Chief Executive Officer and Director effective November 1, 2001. Mr. Dea was most recently the
Chairman of the Board and CEO of Barrett Resources Corporation. He had been employed with Barrett since 1994 in various executive positions, including Executive Vice President-Exploration. Prior to
joining Barrett, Mr. Dea served as President of Nautilus Oil and Gas Company from 1992 to 1993. By amendment to our bylaws, the board of directors has been expanded from nine members to ten to
allow for Mr. Dea's appointment to the board. Mr. Lanny Outlaw, our former Chief Executive Officer and President, retired on October 31, 2001. Mr. Outlaw intends to serve
his remaining term on the board of directors, which expires in May 2003.

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 debt and 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. Product prices, sales of inventory, the volumes of natural gas processed by

our facilities, the volume of natural gas produced from our producing properties, the margin on third-party product purchased for resale, as well as the timely collection of our receivables will all
affect 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.

We
believe that the amounts available to be borrowed under the Revolving Credit Facility, together with net cash provided by operating activities will provide us with sufficient funds
to connect new reserves, maintain our existing facilities, complete our current capital expenditure program and make any scheduled debt principal payments and redeem a portion of our $2.28 cumulative
preferred stock. 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 acquisitions, sell existing assets or a combination of 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 additional financing. We also believe that cash provided by operating activities and amounts available
under the Revolving Credit Facility will be sufficient to meet our debt service and preferred stock dividend requirements for the remainder of 2001 and for 2002.

During
the past several years some of our plants have experienced declines in dedicated reserves, overall we have been successful in connecting additional reserves to more than
offset the natural declines. Higher gas prices, improved technology, e.g. 3-D seismic and horizontal drilling, and increased pipeline capacity from the Rocky Mountain region have
stimulated drilling in many of our operating areas. The overall level of drilling will depend upon, among other factors, the prices for oil and gas, the drilling budgets of third-party producers, the
energy policy and regulation by governmental agencies and the availability of foreign oil and gas, none of which is within our control. 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 Securities and Exchange Commission for an aggregate of $200 million of debt securities and preferred stock, along
with the shares of common stock, if any, into which those securities are convertible, and $62 million of debt securities, preferred stock or common stock.

Our
sources and uses of funds for the nine months ended September 30, 2001 are summarized as follows (dollars in thousands):

|Sources of funds: |                                                                 |                        |  
|----------------- | --------------------------------------------------------------- | ---------------------- | -
|                  | Borrowings under the Revolving Credit Facility                  |                        | $
|                  | Proceeds from the dispositions of property and equipment        |                        |  
|                  | Net cash provided by operating activities                       |                        |  
|                  | Proceeds from exercise of common stock options                  |                        |  
|                  |                                                                 |                       
|                  |                                                                 | Total sources of funds |  
|                  |                                                                 |                       
|Uses of funds:    |                                                                 |                        |  
|                  | Payments related to long-term debt (including debt issue costs) |                        | $
|                  | Capital expenditures                                            |                        |  
|                  | Dividends paid                                                  |                        |  
|                  | Other                                                           |                        |  
|                  |                                                                 |                       
|                  |                                                                 | Total uses of funds    |  
|                  |                                                                 |                       



Additional sources of liquidity available to us are our inventories of gas and NGLs in storage facilities. We held gas in storage and in imbalances of approximately 16.1 Bcf at an
average cost of $3.37 per Mcf at September 30, 2001 compared to 13.9 Bcf at an average cost of $3.31 per Mcf at September 30, 2000 under storage contracts at various third-party
facilities. These positions will be substantially liquidated within the next two quarters at prices prevailing at that time as adjusted by any associated derivative instruments. Under
mark-to-market accounting, the profit to be earned on these transactions was recorded in the month of origination.

We
held NGLs in storage of 7,409 MGal, consisting primarily of propane and normal butane, at an average cost of $0.38 per gallon and 14,213 MGal at an average cost of $0.41 per gallon
at September 30, 2001 and 2000, respectively, at various third-party storage facilities. These inventory positions will be substantially liquidated within the next two quarters at prices
prevailing at that time as adjusted by any associated derivative instruments.

Preferred Stock Repurchase and Redemption Program

Through the first nine months of 2001, we purchased in open market transactions a total of 5,100 shares of our $2.28 cumulative preferred stock for a
total cost, including broker commissions, of approximately $129,000, or an average of $25.25 per share of preferred stock. These shares will be retired. On November 9, 2001, we issued a notice
of redemption at the liquidation preference totaling $20.0 million (plus accrued and unpaid dividends) of the remaining $33.9 million of our $2.28 cumulative preferred stock. The date
fixed for redemption is December 10, 2001. This redemption will be funded with amounts available under our Revolving Credit Facility. The pro rata capitalized offering costs of
$1.0 million associated with the redeemed preferred stock will be reflected as a special dividend to preferred shareholders in the fourth quarter of 2001 and will accordingly reduce earnings
available to common shareholders in that quarter by approximately $.03 per common share.

Capital Investment Program

Primarily as a result of additional drilling behind our systems and in the Powder River basin, we have increased our capital budget for the year ending
December 31, 2001 by approximately $36.7 million. We now expect capital expenditures related to existing operations to be approximately $172.5 million during 2001, consisting of
the following: (i) approximately $96.7 million related to gathering, processing and pipeline assets, of which $14.7 million is for maintaining existing facilities;
(ii) approximately $71.1 million related to exploration and production activities; and (iii) approximately $4.7 million for miscellaneous items. Overall, capital
expenditures in the Powder River basin coal bed methane development and in southwest Wyoming operations represent 40% and 20%, respectively, of the total 2001 budget.

As
of September 30, 2001, we have expended $115.5 million, consisting of the following: (i) $62.7 million related to gathering, processing and pipeline
assets, of which $4.9 million is for maintaining existing facilities; (ii) $50.6 million related to exploration and production activities; and (iii) $2.1 million for
miscellaneous items.

Coal Bed MethaneWe continue to develop our Powder River basin coal bed gas reserves and the associated gathering system in
Wyoming. The Powder River basin coal bed methane area is currently one of the largest on-shore plays for the development of natural gas in the United States. In the first
nine months of 2001, we continued to be the largest producer of natural gas (together with our partner), the largest gatherer of natural gas and the largest gas transporter out of the basin. At
September 30, 2001, we held the drilling rights on approximately 524,000 net acres, in the basin. As of December 31, 2000, we had established proven developed and undeveloped reserves
totaling 350 Bcf on a portion of this acreage. This represented a 50% increase in proved reserves as compared to December 31, 1999. As of June 30, 2001, we estimated that there was a net
total of 2.1 Tcf of probable

and possible reserves on an unrisked basis associated with undeveloped acreage in this area. There can be no assurance, however, as to the ultimate recovery of these reserves.

We
participated in the drilling of 686 gross wells in the first ten months of 2001 and plan to participate in a total of 840 gross wells in 2001. The average drilling,
completion and gathering cost for our coal bed methane gas wells is approximately $70,000 to $90,000 per well with proved reserves per well of approximately 330 MMcf. Our average finding and
development costs in this area are estimated to be $.31 per Mcf. As deeper wells are drilled to the Big George coal, reserves per well are expected to increase as will the average cost per well. It is
expected that the deeper Big George wells will result in a higher rate of return. Our share of production from wells in which we own an interest has increased from an average of approximately 50 MMcf
per day at December 31, 1999 to 100 MMcf per day at October 31, 2001. We currently anticipate production rates of 108 net MMcf per day (270 gross MMcf per day) from this area by
the end of 2001. Within the Hoe Creek area of the Powder River basin, approximately 150 gross wells have not responded to dewatering as expected and may not achieve our original estimate of production
or reserves. All of the remaining areas under development in the Wyodak coal continue to produce at or above forecasted levels.

We
are currently evaluating eight pilot development areas in the Big George. Several of these pilots are in close proximity to leases operated by third-parties, which are currently
producing growing volumes of natural gas. By the end of 2001, we expect to have drilled 250 gross wells in the pilot areas. Five of these pilot areas are currently in the de-watering
phase. Our All Night Creek pilot is currently producing a total of 3.8 gross MMcf per day of gas from 53 wells.

Future
drilling on federal acreage will be delayed subject to completion of the Powder River Basin Oil & Gas Environmental Impact Statement. We anticipate the study to be
completed in the third quarter of 2002. Our drilling plans for the remainder of 2001 are not expected to be substantially impacted by this study due to our large inventory of non-federal
drilling locations and the issuance of drilling permits by the Bureau of Land Management for approximately 250 well locations to prevent drainage of federal acreage.

Additionally,
the Wyoming Department of Environmental Quality, DEQ, has revised some standards for surface water discharge that have allowed the issuance of most of the permits that
apply to the Cheyenne and Belle Fourche drainage areas. The Wyoming and Montana DEQs have reached agreement on procedures for discharging and monitoring water into the Powder River drainage areas, in
which most of our Big George prospects are located. The Wyoming DEQ has begun to release permits on a limited basis to the Powder River drainage area in order to evaluate the impact, if any, of the
discharges. The majority of wells on our acreage producing from the Wyodak formation drain into the Cheyenne and Belle Fourche drainage areas. We can make no assurance that the conditions under which
additional permits will be granted will not impact the level of drilling or the timing of production.

In
addition to the revenues earned from the production of our coal bed methane gas, we also earn fees for gathering and transporting the natural gas. During the third quarter of 2001,
we were gathering 284 MMcf per day of our own production and of other third-party producers. Of that volume, approximately 135 MMcf per day was transported through our MIGC pipeline.

Our
capital budget in this area provides for expenditures of approximately $69.8 million during 2001. This capital budget includes approximately $53.5 million for
drilling costs for our interest in approximately 840 wells, production equipment and undeveloped acreage and $16.3 million for compression. Depending upon future drilling success, we may need
to make additional capital expenditures to continue expansion in this basin. Due to drilling and regulatory uncertainties that are beyond our control, we can make no assurance that we will incur this
level of capital expenditure. In the first nine months of 2001, capital expenditures in this area totaled $53.6 million.

In 1998, we joined with other industry participants to form Fort Union Gas Gathering, L.L.C., to construct a 106-mile long, 24-inch gathering pipeline and
treater to gather and treat natural gas in the Powder River basin in northeast Wyoming. We own a 13% equity interest in Fort Union and are the construction manager and field operator. The gathering
header has a capacity of approximately 435 MMcf per day and in June 2001 it had throughput of approximately 310 MMcf per day. The header delivers coal bed methane gas to a treating facility
near Glenrock, Wyoming and accesses interstate pipelines serving gas markets in the Rocky Mountain and Midwest regions of the United States. In 1999, we entered into a ten-year agreement
for firm gathering services on 60 MMcf per day of capacity at $.14 per Mcf on Fort Union. In the fourth quarter of 2000, we and the other participants in the Fort Union Gas Gathering, L.L.C. approved
an expansion of the system. Construction of the 62-mile
expansion was completed in the third quarter of 2001 and increased the system capacity by an additional 200 MMcf per day. The expansion costs totaled approximately $21.5 million and were
project financed. We shall invest approximately $500,000 as an equity contribution to Fort Union in conjunction with the expansion. Also in connection with the expansion, we increased our commitment
for firm gathering services by an additional 23 MMcf per day of capacity at $.14 per Mcf.

Southwest Wyoming.Our facilities in southwest Wyoming are comprised of the Granger and Lincoln
Road facilities, or collectively the Granger Complex, and our Red Desert facility. These facilities have a combined operational capacity of 327 MMcf per day and processed an average of 160 MMcf per
day in the first nine months of 2001. Our capital budget in this area provides for expenditures of approximately $37.7 million during 2001. This capital budget includes approximately
$14.4 million for drilling costs and production equipment and approximately $23.3 million related to the gathering systems and plant facilities. Due to drilling and regulatory
uncertainties that are beyond our control, there can be no assurance that we will incur this level of capital expenditure. During the first nine months of 2001, we expended $15.6 million
in this area, which includes the purchase of the remaining 50% interest in the Bird Canyon gathering system serving the Granger Complex.

In
September 2001, we signed an agreement with Questar Gas Management Company for the sale of a 50% interest in a segment of the Bird Canyon gathering system along with
associated field compression for $5.2 million. This sale closed in October 2001. Also in October 2001, both Questar and we contributed our respective interests in the Bird Canyon
system along with additional field compression and gathering dedications for gas produced along the Pinedale anticline portion of the Hoback basin to a newly formed joint venture named Rendezvous Gas
Services, L.L.C. Each company owns a 50% interest in Rendezvous and we will serve as field operator of its systems. In the fourth quarter of 2001, Rendezvous will begin construction of additional gas
pipeline and compression facilities with a capacity to transport approximately 275 MMcf per day of gas production from the Pinedale anticline. This gas will be delivered for blending or
processing at either our Granger Complex or at a Questar processing facility. The total estimated construction cost of the new pipeline and compression facilities is $15.5 million, of which our
share will be $7.8 million.

Under
a 1997 agreement, we participate in approximately 246,000 gross acres, or approximately 36,000 net acres, in the Jonah and Hoback basins. Year to date through October 31,
2001, we participated in 36 gross wells, or 5 net wells, in these areas and we expect to participate in the drilling of four more gross wells, or one net well, in the remainder of 2001. The expected
drilling and completion costs per gross well are approximately $2.4 million to $3.5 million and the average well depth in this area approximates 13,000 feet. Our average finding and
development costs are estimated to be $0.57 per Mcf. We have established proven developed and undeveloped reserves totaling 52 Bcf at December 31, 2000. This represents a 73% increase as
compared to December 31, 1999. As of June 30, 2001, we estimate a net total of 102 Bcf of probable and possible reserves on an unrisked basis associated with undeveloped acreage in this
area. There can be no assurance, however, as to the ultimate recovery of these reserves.

Financing Facilities

Revolving Credit Facility.The Revolving Credit Facility is with a syndicate of banks and
provides for a maximum borrowing commitment of $250 million consisting of an $83 million 364-day Revolving Credit Facility, or Tranche A, and a $167 million Revolving
Credit Facility, or Tranche B, which matures on April 30, 2004. At September 30, 2001, no amounts were outstanding under this facility. The Revolving Credit Facility bears interest at
certain spreads over the Eurodollar rate, or the greater of the Federal Funds rate or the agent bank's 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%. At September 30, 2001, the interest rate
payable on any borrowings under this facility would have been 3.6%. We are required to maintain a total debt to capitalization ratio of not more than 55%, and a senior debt to capitalization ratio of
not more than 40% through December 31, 2001 and of not more than 35% thereafter. The agreement also requires a quarterly test of the ratio of EBITDA (excluding some non-recurring
items) for the last four quarters, to interest and dividends on preferred stock for the same period. The ratio must exceed 1.80 to 1.0 through September 30, 2001 and increases periodically to
3.25 to 1.0 by December 31, 2002. This facility is guaranteed and secured via a pledge of the stock of some of our subsidiaries.

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 September 30, 2001 are as indicated in the following table (dollars in thousands):

|Issue Date        |  | Amount |         | Interest
Rate |      | Final
Maturity |                   | Principal Payments Due
|----------------- |  | ------ | ------- | ------------- | ---- | -------------- | ----------------- | ----------------------
|October 27, 1992  |  | $      | 25,000  |               | 7.99 | %              | October 27, 2003  |                       
|December 27, 1993 |  |        | 25,000  |               | 7.23 | %              | December 27, 2003 |                       
|October 27, 1994  |  |        | 25,000  |               | 9.05 | %              | October 27, 2001  |                       
|October 27, 1994  |  |        | 25,000  |               | 9.24 | %              | October 27, 2004  |                       
|July 28, 1995     |  |        | 50,000  |               | 7.61 | %              | July 28, 2007     |                       
|                  |  |        |         |               |      |                |                   |                       
|                  |  | $      | 150,000 |               |      |                |                   |                       
|                  |  |        |         |               |      |                |                   |                       

Under
our agreement with Prudential, 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, a total debt to
capitalization ratio of not more than 60% through December 31, 2001 and of not more than 55% thereafter and a senior debt to capitalization ratio of not more than 40% through March 2002
and not more than 35% thereafter. This agreement also requires an EBITDA to interest ratio of not less than 3.25 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 5.00 to 1.0 increasing to a ratio of not less than 5.50 to 1.0 by March 31, 2002. EBITDA in these calculations excludes certain
non-recurring items. In addition, this agreement contains a calculation limiting dividends under which approximately $87.5 million was available at September 30, 2001. We are
currently paying an annual fee of 0.50% on the amounts outstanding on the Master Shelf Agreement. This fee will continue until we receive an implied investment grade rating on our senior secured debt
from
Moody's Investors Service or Standard & Poor's. Borrowings under the Master Shelf Agreement are guaranteed and secured via a pledge of the stock of some of our subsidiaries.

In
October 2001, we made scheduled principal repayments to Prudential totaling $33.3 million. These repayments were made with funds available under the Revolving Credit
Facility.

Senior Subordinated Notes.In 1999, we sold $155.0 million of Senior Subordinated Notes
in a private placement with a final maturity of 2009 due in a single payment which were subsequently exchanged for registered publicly tradable notes under the same terms and conditions. The Senior
Subordinated Notes bear interest at 10% per annum and were priced at 99.225% to yield 10.125%. These notes contain maintenance covenants that include limitations on debt incurrence, restricted
payments, liens and sales of assets. Under the calculation limiting restricted payments, including common dividends, approximately $60.0 million was available at September 30, 2001. The
Senior Subordinated Notes are unsecured and are guaranteed on a subordinated basis by some of our subsidiaries. We incurred approximately $5.0 million in offering commissions and expenses that
have been capitalized and are being amortized over the term of the notes.

Covenant Compliance.We were in compliance with all covenants in our debt agreements at
September 30, 2001. Taking into account all the covenants contained in these agreements, we had approximately $250 million of available borrowing capacity at September 30, 2001.





ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 counter parties,
consisting primarily of financial institutions and other natural gas companies. We conduct our standard credit review of OTC counter parties 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 counter parties 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 counter parties 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 counter parties 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.

For
the fourth quarter of 2001, we have entered into hedging positions for approximately 82,000 MMbtus per day of our equity gas volumes at an average of $4.32 per MMbtu. These
positions represent approximately 68 percent of our projected equity gas volumes in the quarter. For 2002, we have hedged approximately 80,000 MMbtus per day, or 57 percent of our
projected 2002 equity gas production, with collar structures providing for an average minimum price of $3.81 per MMbtu and an average maximum price of $5.87 per MMbtu. These prices are
NYMEX-equivalents.

For
the fourth quarter of 2001, we have purchased puts for 125,000 barrels per month of NYMEX monthly average settlement of $23.96 per barrel to hedge a portion of our equity
production of natural gasoline, condensates, butanes and crude oil.

For the fourth quarter of 2001, we have purchased puts for 125,000 barrels per month of OPIS Mt. Belvieu monthly average settlement of $.434 per gallon to hedge a portion of our
equity production of propane.

For
the fourth quarter of 2001, we have purchased puts for 60,000 barrels per month of OPIS Mt. Belvieu monthly average settlement of $.3175 per gallon of purity ethane to hedge a
portion of our equity production of ethane.

We
do not hold any crude oil or NGL futures, swaps or options for settlement beyond 2001.

Foreign Currency Derivative Market Risk.As a normal part of our business, we enter into
physical gas transactions which are payable in Canadian dollars. We enter into forward purchases and sales of Canadian dollars from time to time to fix the cost of our future Canadian dollar
denominated natural gas purchase, sale, storage and transportation obligations. This is done to protect marketing margins
from adverse changes in the U.S. and Canadian dollar exchange rate between the time the commitment for the payment obligation is made and the actual payment date of such obligation. As of
September 30, 2001, the net notional value of such contracts was approximately $21.6 million in Canadian dollars, which approximates its fair market value.

Accounting for Derivative Instruments and Hedging Activities.In June 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), effective for us beginning on January 1, 2001. Under SFAS No. 133,
which was subsequently amended by SFAS No. 138, we are required to recognize the change in the market value of all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income depending upon the nature of
the underlying transaction. Also on January 1, 2001, we adopted mark-to-market accounting for the remainder of our marketing activities which, for various reasons, are
not designated or qualified as hedges under SFAS No. 133. Upon the adoption of SFAS No. 133 and mark-to-market accounting on January 1, 2001, the impact
was a decrease in a component of stockholders' equity through Accumulated other comprehensive income of $22.5 million, an increase to Current assets of $52.6 million, an increase to
Current liabilities of $86.9 million, an increase to Other long-term liabilities of $1.1 million and a decrease in Deferred income taxes payable of $12.9 million.

Of
the $22.5 million decrease to Accumulated other comprehensive income resulting from the January 1, 2001 adoption of SFAS No. 133, $19.4 million was
reversed in the first nine months of 2001 with gains and losses from the underlying transactions recognized through operating income. An additional $2.6 million of this transition entry
is currently anticipated to be recognized through operating income in the fourth quarter of 2001.

The
non-cash impact to our results of operations in the first nine months of 2001 resulting from the adoption of mark-to-market accounting
for our marketing activities resulted in additional pre-tax income of $23.3 million.





The following tables provide information concerning our principal facilities at September 30, 2001. We also own and operate several smaller treating,
processing and transportation facilities located in the same areas as our other facilities.

|           |                            |       |      |  |       |       |     | Average for the Nine Months Ended
September 30, 2001
|---------- | -------------------------- | ----- | ---- |  | ----- | ----- | --- | ----------------------------------------------------
|
|
|Texas      |                            |       |      |  |       |       |     |                                                     
|           | Gomez Treating             |       | 1971 |  | 385   |       | 280 |                                                     
|           | Midkiff/Benedum            |       | 1949 |  | 2,173 |       | 165 |                                                     
|           | Mitchell Puckett Gathering |       | 1972 |  | 90    |       | 120 |                                                     
|Louisiana  |                            |       |      |  |       |       |     |                                                     
|           | Toca(7)(8)                 |       | 1958 |  |      |       | 160 |                                                     
|Wyoming    |                            |       |      |  |       |       |     |                                                     
|           | Coal Bed Methane Gathering |       | 1990 |  | 444   |       | 223 |                                                     
|           | Fort Union Gas Gathering   |       | 2000 |  | 106   |       | 450 |                                                     
|           | Granger(7)(9)(10)(14)      |       | 1987 |  | 482   |       | 235 |                                                     
|           | Hilight Complex(7)         |       | 1969 |  | 626   |       | 80  |                                                     
|           | Kitty/Amos Draw(7)         |       | 1969 |  | 314   |       | 17  |                                                     
|           | Lincoln Road(10)           |       | 1988 |  | 149   |       | 50  |                                                     
|           | Newcastle(7)               |       | 1981 |  | 146   |       | 5   |                                                     
|           | Red Desert(7)              |       | 1979 |  | 111   |       | 42  |                                                     
|           | Reno Junction(9)           |       | 1991 |  |      |       |    |                                                     
|Oklahoma   |                            |       |      |  |       |       |     |                                                     
|           | Chaney Dell                |       | 1966 |  | 2,054 |       | 130 |                                                     
|           | Westana                    |       | 1981 |  | 871   |       | 45  |                                                     
|New Mexico |                            |       |      |  |       |       |     |                                                     
|           | San Juan River(6)          |       | 1955 |  | 140   |       | 60  |                                                     
|Utah       |                            |       |      |  |       |       |     |                                                     
|           | Four Corners Gathering     |       | 1988 |  | 104   |       | 15  |                                                     
|           |                            |       |      |  |       |       |     |                                                     
|           |                            | Total |      |  |       | 8,195 |     | 2,077                                               
|           |                            |       |      |  |       |       |     |                                                     

|             |       |      |  |     |     | Average for the Nine Months Ended
September 30, 2001
|------------ | ----- | ---- |  | --- | --- | ----------------------------------------------------
|
|MIGC(11)(13) |       | 1970 |  | 245 |     | 130                                                 
|MGTC(12)     |       | 1963 |  | 252 |     | 18                                                  
|             |       |      |  |     |     |                                                     
|             | Total |      |  |     | 497 |                                                     
|             |       |      |  |     |     |                                                     

---







PART IIOTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Western Gas Resources, Inc., v. Amerada Hess Corporation, District Court, Denver County, Colorado, Civil Action
No. 00-CV-1433.We were a defendant in prior litigation, styled asBerco Resources, Inc.
v. Amerada Hess Corporation and Western Gas Resources, Inc., United States District Court, District of Colorado, Civil Action
No. 97-WM-1332,which was settled in 2000 for an amount which did not have a material impact on our financial position or results of operations.
We are seeking reimbursement from Amerada Hess under a contractual indemnity. We amended our original complaint and requested a jury trial in this case. Amerada Hess filed a new complaint based upon
the same factual issues as the original complaint and these cases were consolidated and are set for trial in June 2002. Both parties have filed cross motions for summary judgment.

Barrett Resources Corporation and Lance Oil & Gas Company, Inc. (together the Plaintiffs) v. Westport Oil and Gas Company, Inc.,
(Defendant) Civil Action No. 00CV6973, District Court, City and County of Denver, Colorado.On September 15, 2000, Plaintiffs, including our subsidiary Lance
Oil & Gas Company, filed a complaint for damages and declaratory relief related to a dispute arising under a Farmout Agreement between the parties dated September 26, 1995, as amended.
The dispute centers on Plaintiffs' alleged delay of drilling of wells on a portion of the acreage covered by the Farmout Agreement. In October 2000, Defendant counterclaimed that the Farmout
Agreement was terminated due to Plaintiffs' alleged delay of drilling. In July 2001, Plaintiffs notified Defendant of the commencement of drilling eleven wells on the acreage covered by the
Farmout Agreement. In August 2001, Defendant filed supplemental counterclaims which included claims for trespass, conversion, accounting and constructive trust on the eleven wells drilled by
Plaintiff and compensatory and exemplary damages in connection with these wells. A trial for this case is set for December 3, 2001 and the parties are currently proceeding with discovery. We
intend to vigorously defend against the counterclaims but cannot express an opinion as to the outcome of this litigation. We believe that any unfavorable outcome will not have a material adverse
effect on our financial position or results of operations.

Other.We are involved in various other litigation and administrative proceedings arising in
the normal course of our 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

|3.3   |  | Amended and Restated Bylaws of Western Gas Resources, Inc. adopted by the Board of Directors on October 12, 2001.              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------
|10.7  |  | Revised 2001 Employment Agreement by and between Western Gas Resources, Inc. and officers.                                     
|10.27 |  | Consultation Agreement by and between Western Gas Resources, Inc. and Larry F. Outlaw dated November 1, 2001.                  
|10.28 |  | Employment Agreement by and between Western Gas Resources, Inc. and Peter A. Dea, with Exhibits thereto dated October 15, 2001.







SIGNATURES

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

|                        |  | WESTERN GAS RESOURCES, INC. (Registrant)
|----------------------- |  | ----------------------------------------
|Date: November 12, 2001 |  | By:                                     
|Date: November 12, 2001 |  | By: