Use these links to rapidly review the documentWestern Gas Resources, Inc. Form 10-Q Table of Contents

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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

OR

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

FOR THE TRANSITION PERIOD FROM  TO

Commission
file number 1-10389

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

Delaware

84-1127613(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)12200 N. Pecos Street, Denver, Colorado

80234-3439(Address of principal executive offices)

(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).

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 ý    No o

On
May 1, 2002, there were 32,993,762 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. |                                                                                            
|                             |         | Consolidated Balance SheetMarch 31, 2002 and December 31, 2001                            
|                             |         | Consolidated Statement of Cash FlowsThree Months Ended March 31, 2002 and 2001            
|                             |         | Consolidated Statement of OperationsThree Months Ended March 31, 2002 and 2001            
|                             |         | Consolidated Statement of Changes in Stockholders' EquityThree Months Ended March 31, 2002
|                             |         | Notes to Consolidated Financial Statements                                                 
|                             | Item 2. |                                                                                            
|                             | Item 3. |                                                                                            
|PART IIOther Information   
|                             | Item 1. |                                                                                            
|                             | Item 4. |                                                                                            
|                             | Item 6. |                                                                                            
|Signatures                  





PART IFINANCIAL INFORMATION

Item 1. Financial Statements

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

|                                                  |                                                                                                                    | March 31,
2002                                                                                                                  |           | December 31,
2001 |        
|------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------- | --------- | ----------------- | -------
|
|ASSETS                                            |                                                                                                                    |                                                                                                                                 |           |                   |        
|Current assets:                                   |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                  | Cash and cash equivalents                                                                                          |                                                                                                                                 | $         | 6,244             |        
|                                                  | Trade accounts receivable, net                                                                                     |                                                                                                                                 |           | 246,726           |        
|                                                  | Product inventory                                                                                                  |                                                                                                                                 |           | 24,922            |        
|                                                  | Parts inventory                                                                                                    |                                                                                                                                 |           | 43                |        
|                                                  | Assets from price risk management activities                                                                       |                                                                                                                                 |           | 37,623            |        
|                                                  | Other                                                                                                              |                                                                                                                                 |           | 2,071             |        
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                  |                                                                                                                    | Total current assets                                                                                                            |           |                   | 317,629
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|Property and equipment:                           |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                  | Gas gathering, processing, storage and transportation                                                              |                                                                                                                                 |           | 923,374           |        
|                                                  | Oil and gas properties and equipment (successful efforts method)                                                   |                                                                                                                                 |           | 205,957           |        
|                                                  | Construction in progress                                                                                           |                                                                                                                                 |           | 111,075           |        
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                  |                                                                                                                    |                                                                                                                                 | 1,240,406 |                   |        
|                                                  | Less: Accumulated depreciation, depletion and amortization                                                         |                                                                                                                                 |           | (380,414          | )      
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                  |                                                                                                                    | Total property and equipment, net                                                                                               |           |                   | 859,992
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|Other assets:                                     |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                  | Gas purchase contracts (net of accumulated amortization of $35,805 and $35,329, respectively)                      |                                                                                                                                 |           | 32,351            |        
|                                                  | Assets from price risk management activities                                                                       |                                                                                                                                 |           | 3,390             |        
|                                                  | Other                                                                                                              |                                                                                                                                 |           | 22,602            |        
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                  | Total other assets                                                                                                 |                                                                                                                                 |           | 58,343            |        
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|TOTAL ASSETS                                      |                                                                                                                    | $                                                                                                                               | 1,235,964 |                   | $      
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY              |                                                                                                                    |                                                                                                                                 |           |                   |        
|Current liabilities:                              |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                  | Accounts payable                                                                                                   |                                                                                                                                 | $         | 224,199           |        
|                                                  | Accrued expenses                                                                                                   |                                                                                                                                 |           | 30,349            |        
|                                                  | Liabilities from price risk management activities                                                                  |                                                                                                                                 |           | 19,600            |        
|                                                  | Dividends payable                                                                                                  |                                                                                                                                 |           | 3,779             |        
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                  |                                                                                                                    | Total current liabilities                                                                                                       |           |                   | 277,927
|Long-term debt                                    |                                                                                                                    |                                                                                                                                 | 369,867   |                   |        
|Liabilities from price risk management activities |                                                                                                                    |                                                                                                                                 | 1,844     |                   |        
|Other long-term liabilities                       |                                                                                                                    |                                                                                                                                 | 2,141     |                   |        
|Deferred income taxes payable, net                |                                                                                                                    |                                                                                                                                 | 113,006   |                   |        
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|Total liabilities                                 |                                                                                                                    |                                                                                                                                 | 764,785   |                   |        
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|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)        |           |                   | 59     
|                                                  |                                                                                                                    | $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; 32,975,770 and 32,689,009 shares issued, respectively |                                                                                                                                 |           | 3,319             |        
|                                                  | Treasury stock, at cost; 25,016 common shares and 44,290 shares of $2.28 cumulative preferred stock in treasury    |                                                                                                                                 |           | (1,907            | )      
|                                                  | Additional paid-in capital                                                                                         |                                                                                                                                 |           | 393,299           |        
|                                                  | Retained earnings                                                                                                  |                                                                                                                                 |           | 70,349            |        
|                                                  | Accumulated other comprehensive income                                                                             |                                                                                                                                 |           | 6,668             |        
|                                                  | Notes receivable from key employees secured by common stock                                                        |                                                                                                                                 |           | (884              | )      
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|                                                  |                                                                                                                    | Total stockholders' equity                                                                                                      |           |                   | 471,179
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        |                                                                                                                    | $                                                                                                                               | 1,235,964 |                   | $      
|                                                  |                                                                                                                    |                                                                                                                                 |           |                   |        

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)

|                                                                                       |                                                          | Three Months Ended
March 31, |        
|-------------------------------------------------------------------------------------- | -------------------------------------------------------- | ---------------------------- | -------
|
|Reconciliation of net income to net cash provided by operating activities:             |                                                          |                              |        
|Net income                                                                             |                                                          | $                            | 8,000  
|Add income items that do not affect cash:                                              |                                                          |                              |        
|                                                                                       | Depreciation, depletion and amortization                 |                              |        
|                                                                                       | Gain on the sale of property and equipment               |                              |        
|                                                                                       | Deferred income taxes                                    |                              |        
|                                                                                       | Non-cash change in fair value of derivatives             |                              |        
|                                                                                       | Other non-cash items, net                                |                              |        
|                                                                                       |                                                          |                              |        
|                                                                                       |                                                          |                              | 40,759 
|                                                                                       |                                                          |                              |        
|Adjustments to working capital to arrive at net cash provided by operating activities: |                                                          |                              |        
|                                                                                       | (Increase) decrease in trade accounts receivable         |                              |        
|                                                                                       | Decrease in product inventory                            |                              |        
|                                                                                       | Decrease in parts inventory                              |                              |        
|                                                                                       | (Increase) decrease in other current assets              |                              |        
|                                                                                       | (Increase) decrease in other assets and liabilities, net |                              |        
|                                                                                       | Decrease in accounts payable                             |                              |        
|                                                                                       | Decrease in accrued expenses                             |                              |        
|                                                                                       |                                                          |                              |        
|Net cash provided by operating activities                                              |                                                          |                              | 22,525 
|                                                                                       |                                                          |                              |        
|Cash flows from investing activities:                                                  |                                                          |                              |        
|                                                                                       | Purchases of property and equipment                      |                              |        
|                                                                                       | Proceeds from the dispositions of property and equipment |                              |        
|                                                                                       | Contributions to equity investees                        |                              |        
|                                                                                       |                                                          |                              |        
|Net cash provided by (used in) investing activities                                    |                                                          |                              | (31,566
|                                                                                       |                                                          |                              |        
|Cash flows from financing activities:                                                  |                                                          |                              |        
|                                                                                       | Proceeds from exercise of common stock options           |                              |        
|                                                                                       | Repurchase of $2.28 cumulative preferred stock           |                              |        
|                                                                                       | Payments on revolving credit facility                    |                              |        
|                                                                                       | Borrowings under revolving credit facility               |                              |        
|                                                                                       | Effect of re-priced options                              |                              |        
|                                                                                       | Dividends paid                                           |                              |        
|                                                                                       |                                                          |                              |        
|Net cash provided by (used in) financing activities                                    |                                                          |                              | 5,253  
|                                                                                       |                                                          |                              |        
|Net increase (decrease) in cash and cash equivalents                                   |                                                          |                              | (3,788 
|Cash and cash equivalents at beginning of period                                       |                                                          |                              | 10,032 
|                                                                                       |                                                          |                              |        
|Cash and cash equivalents at end of period                                             |                                                          | $                            | 6,244  
|                                                                                       |                                                          |                              |        

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
March 31,     |           
|--------------------------------------------------------------------- | ---------------------------------------------- | -------------------------------- | ----------
|
|Revenues:                                                             |                                                |                                  |           
|                                                                      | Sale of gas                                    |                                  | $         
|                                                                      | Sale of natural gas liquids                    |                                  |           
|                                                                      | Processing and transportation revenue          |                                  |           
|                                                                      | Unrealized gain (loss) on marketing activities |                                  |           
|                                                                      | Other, net                                     |                                  |           
|                                                                      |                                                |                                  |           
|                                                                      |                                                | Total revenues                   |           
|                                                                      |                                                |                                  |           
|Costs and expenses:                                                   |                                                |                                  |           
|                                                                      | Product purchases                              |                                  |           
|                                                                      | Plant operating expense                        |                                  |           
|                                                                      | Oil and gas exploration and production expense |                                  |           
|                                                                      | Depreciation, depletion and amortization       |                                  |           
|                                                                      | Gain (loss) on sale of assets                  |                                  |           
|                                                                      | Selling and administrative expense             |                                  |           
|                                                                      | Interest expense                               |                                  |           
|                                                                      |                                                |                                  |           
|                                                                      |                                                | Total costs and expenses         |           
|                                                                      |                                                |                                  |           
|Income before taxes                                                   |                                                |                                  | 12,594    
|Provision for income taxes:                                           |                                                |                                  |           
|                                                                      | Current                                        |                                  |           
|                                                                      | Deferred                                       |                                  |           
|                                                                      |                                                |                                  |           
|                                                                      |                                                | Total provision for income taxes |           
|                                                                      |                                                |                                  |           
|Net income                                                            |                                                |                                  | 8,000     
|Preferred stock requirements                                          |                                                |                                  | (2,130    
|                                                                      |                                                |                                  |           
|Income attributable to common stock                                   |                                                | $                                | 5,870     
|                                                                      |                                                |                                  |           
|Earnings per share of common stock                                    |                                                | $                                | .18       
|                                                                      |                                                |                                  |           
|Weighted average shares of common stock outstanding                   |                                                |                                  | 32,760,081
|                                                                      |                                                |                                  |           
|Income attributable to common stockassuming dilution                 |                                                | $                                | 5,870     
|                                                                      |                                                |                                  |           
|Earnings per share of common stockassuming dilution                  |                                                | $                                | .18       
|                                                                      |                                                |                                  |           
|Weighted average shares of common stock outstandingassuming dilution |                                                |                                  | 33,457,239
|                                                                      |                                                |                                  |           

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



WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN 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
Earnings |   | Accumulated
Other
Comprehensive
Income
Net of Tax |         | Notes
Receivable
from Key
Employees |   | Total
Stock-
holders'
Equity |      
|------------------------------------------------------------------- | ------------------------------------------------------ | ----------------------------------------------------- | - | ------------------------------------------------------ | - | --------------------------------------------- | - | ---------------------- | - | ---------------------------------- | - | -------------------------------- | -- | --------------------------------------------- | - | ------------ | - | -------------- | ----- | -------------------------- | - | ----------------- | - | ------------------------------------------------- | ------- | ----------------------------------- | - | ---------------------------- | -----
|Balance at December 31, 2001                                        |                                                        | 591,136                                               |   | 44,290                                                 |   | 2,760,000                                     |   | 32,689,009             |   | 25,016                             |   | $                                | 59 |                                               | $ | 276          |   | $              | 3,293 |                            | $ | (1,907            | ) | $                                                 | 387,505 |                                     | $ | 66,128                       |      
|Comprehensive income:                                               |                                                        |                                                       |   |                                                        |   |                                               |   |                        |   |                                    |   |                                  |    |                                               |   |              |   |                |       |                            |   |                   |   |                                                   |         |                                     |   |                              |      
|                                                                    | Net income, three months ended March 31, 2002          |                                                       |  |                                                        |  |                                               |  |                        |  |                                    |  |                                  |    |                                              |   |              |  |                |       |                           |   |                   |  |                                                   |         |                                    |   |                              | 8,000
|                                                                    | Translation adjustments                                |                                                       |  |                                                        |  |                                               |  |                        |  |                                    |  |                                  |    |                                              |   |              |  |                |       |                           |   |                   |  |                                                   |         |                                    |   |                              |     
|                                                                    | Reclassification adjustment for settled contracts      |                                                       |  |                                                        |  |                                               |  |                        |  |                                    |  |                                  |    |                                              |   |              |  |                |       |                           |   |                   |  |                                                   |         |                                    |   |                              |     
|                                                                    | Changes in fair value of outstanding hedging positions |                                                       |  |                                                        |  |                                               |  |                        |  |                                    |  |                                  |    |                                              |   |              |  |                |       |                           |   |                   |  |                                                   |         |                                    |   |                              |     
|                                                                    | Reduction due to estimated ineffectiveness             |                                                       |  |                                                        |  |                                               |  |                        |  |                                    |  |                                  |    |                                              |   |              |  |                |       |                           |   |                   |  |                                                   |         |                                    |   |                              |     
|                                                                    | Fair value of new hedge positions                      |                                                       |  |                                                        |  |                                               |  |                        |  |                                    |  |                                  |    |                                              |   |              |  |                |       |                           |   |                   |  |                                                   |         |                                    |   |                              |     
|                                                                    |                                                        |                                                       |   |                                                        |   |                                               |   |                        |   |                                    |   |                                  |    |                                               |   |              |   |                |       |                            |   |                   |   |                                                   |         |                                     |   |                              |      
|                                                                    |                                                        | Change in accumulated derivative comprehensive income |   |                                                       |   |                                              |   |                       |   |                                   |   |                                 |    |                                               |  |              |   |               |       |                            |  |                   |   |                                                  |         |                                     |  |                              |      
|                                                                    |                                                        |                                                       |   |                                                        |   |                                               |   |                        |   |                                    |   |                                  |    |                                               |   |              |   |                |       |                            |   |                   |   |                                                   |         |                                     |   |                              |      
|                                                                    | Total comprehensive income, net of tax                 |                                                       |   |                                                        |   |                                               |   |                        |   |                                    |   |                                  |    |                                               |   |              |   |                |       |                            |   |                   |   |                                                   |         |                                     |   |                              |      
|                                                                    |                                                        |                                                       |   |                                                        |   |                                               |   |                        |   |                                    |   |                                  |    |                                               |   |              |   |                |       |                            |   |                   |   |                                                   |         |                                     |   |                              |      
|Stock options exercised                                             |                                                        |                                                      |   |                                                       |   |                                              |   | 286,761                |   |                                   |   |                                  |   |                                               |   |             |   |                | 26    |                            |   |                  |   |                                                   | 5,451   |                                     |   |                             |      
|Effect of re-priced stock options                                   |                                                        |                                                      |   |                                                       |   |                                              |   |                       |   |                                   |   |                                  |   |                                               |   |             |   |                |      |                            |   |                  |   |                                                   | 343     |                                     |   |                             |      
|Tax benefit related to stock options                                |                                                        |                                                      |   |                                                       |   |                                              |   |                       |   |                                   |   |                                  |   |                                               |   |             |   |                |      |                            |   |                  |   |                                                   |        |                                     |   |                             |      
|Loans forgiven                                                      |                                                        |                                                      |   |                                                       |   |                                              |   |                       |   |                                   |   |                                  |   |                                               |   |             |   |                |      |                            |   |                  |   |                                                   |        |                                     |   |                             |      
|Dividends declared on common stock                                  |                                                        |                                                      |   |                                                       |   |                                              |   |                       |   |                                   |   |                                  |   |                                               |   |             |   |                |      |                            |   |                  |   |                                                   |        |                                     |   | (1,649                       | )    
|Dividends declared on $2.28 cumulative preferred stock              |                                                        |                                                      |   |                                                       |   |                                              |   |                       |   |                                   |   |                                  |   |                                               |   |             |   |                |      |                            |   |                  |   |                                                   |        |                                     |   | (319                         | )    
|Dividends declared on $2.625 cumulative convertible preferred stock |                                                        |                                                      |   |                                                       |   |                                              |   |                       |   |                                   |   |                                  |   |                                               |   |             |   |                |      |                            |   |                  |   |                                                   |        |                                     |   | (1,811                       | )    
|Repurchase of $2.28 cumulative preferred stock                      |                                                        |                                                      |   |                                                       |   |                                              |   |                       |   |                                   |   |                                  |   |                                               |   |             |   |                |      |                            |   |                  |   |                                                   |        |                                     |   |                             |      
|                                                                    |                                                        |                                                       |   |                                                        |   |                                               |   |                        |   |                                    |   |                                  |    |                                               |   |              |   |                |       |                            |   |                   |   |                                                   |         |                                     |   |                              |      
|Balance at March 31, 2002                                           |                                                        | 591,136                                               |   | 44,290                                                 |   | 2,760,000                                     |   | 32,975,770             |   | 25,016                             |   | $                                | 59 |                                               | $ | 276          |   | $              | 3,319 |                            | $ | (1,907            | ) | $                                                 | 393,299 |                                     | $ | 70,349                       |      
|                                                                    |                                                        |                                                       |   |                                                        |   |                                               |   |                        |   |                                    |   |                                  |    |                                               |   |              |   |                |       |                            |   |                   |   |                                                   |         |                                     |   |                              |      

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, 2001. The interim consolidated financial statements as of March 31, 2002 and for the three month
periods ended March 31, 2002 and 2001 included herein are unaudited but reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to
fairly present the results for such periods. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results of operations expected for
the year ended December 31, 2002.

Prior
period amounts in the interim consolidated financial statements and notes have been reclassified as appropriate to conform to the presentation used in 2002.

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 $2.1 million and $2.6 million
for the three-month periods ended March 31, 2002 and 2001, respectively. Common stock options and our $2.625 Cumulative Convertible Preferred Stock are
potential common shares. Outstanding common stock options in both three-month periods and our $2.625 Cumulative Convertible Preferred Stock, which is convertible into 3,471,698 shares of common stock,
in the three months ended March 31, 2001 had a dilutive effect on earnings. This resulted in an increase in the weighted average number of shares of common stock outstanding by 697,158
and 4,352,074 for the three-month periods ended March 31, 2002 and 2001, respectively. The numerators and the denominators for these periods were adjusted to reflect these potential shares and
any related preferred dividends in calculating fully diluted earnings per share.

ACCUMULATED OTHER COMPREHENSIVE INCOME

Included in Accumulated other comprehensive income at March 31, 2002 were unrealized gains of $4.7 million from the fair value of derivatives designated as
cash flow hedges and $1.9 million of cumulative foreign currency translation adjustments.

Included
in Accumulated other comprehensive income at March 31, 2002 were unrealized losses of ($8.4) million from the fair value of derivatives designated as cash flow hedges and
$2.4 million of cumulative foreign currency translation adjustments.

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 $12.1 million in the first quarter of 2001. The proceeds from this sale were used to reduce borrowings outstanding on the Revolving Credit Facility.

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 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 133.

SUPPLEMENTARY CASH FLOW INFORMATION

Interest paid was $3.0 million and $4.2 million for the three months ended March 31, 2002 and 2001, respectively.

No
income taxes were paid during the three months ended March 31, 2002 or the three months ended March 31, 2001.

SEGMENT REPORTING

We operate in four principal business segments, as follows: Gas Gathering, Processing and Treating, Exploration and Production, Marketing and Transportation.
These segments are separately monitored by management for performance against its internal forecast and are consistent with our internal financial reporting package. These segments have been
identified based upon the differing products and services, regulatory environment and the expertise required for these operations.

In
the Gas Gathering, Processing and Treating segment, we connect producers' wells (including those of the 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. The Marketing segment sells the residue gas and NGLs
extracted at our processing facilities.

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

Our
Marketing segment buys and sells gas and NGLs in the United States and 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. Also included in this segment are our Canadian marketing operations (which are immaterial for separate presentation). The Marketing segment also includes
gains and (losses) associated with our equity gas and NGL hedging program of $9.4 million and ($14.5) million for the three months ended March 31, 2002 and 2001,
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 months ended March 31, 2002 and 2001 (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,
Processing
and
Treating |         | Exploration
and
Production |   | Marketing |   | Transmission |         | Corporate |   | Eliminating
Entries |  | Total |       
|---------------------------------------------- |  | -------------------------------------- | ------- | -------------------------- | - | --------- | - | ------------ | ------- | --------- | - | ------------------- |  | ----- | ------
|Quarter ended March 31, 2002                   |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|Revenues from unaffiliated customers           |  | $                                      | 14,451  |                            | $ | 1,309     |   | $            | 598,707 |           | $ | 3,004               |  | $     | 16    
|Interest income                                |  |                                        |        |                            |   | 10        |   |              |        |           |   |                    |  |       | 1,827 
|Other, net                                     |  |                                        | 352     |                            |   | (17       | ) |              | (1,622  | )         |   | 12                  |  |       | 517   
|Inter-segment sales                            |  |                                        | 121,115 |                            |   | 20,984    |   |              | 3,560   |           |   | 4,129               |  |       | 14    
|                                               |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|Total revenues                                 |  |                                        | 135,918 |                            |   | 22,286    |   |              | 600,645 |           |   | 7,145               |  |       | 2,374 
|                                               |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|Product purchases                              |  |                                        | 101,192 |                            |   | 1,700     |   |              | 584,070 |           |   |                    |  |       | 322   
|Plant operating expense                        |  |                                        | 16,532  |                            |   |          |   |              |        |           |   | 2,615               |  |       | 232   
|Oil and gas exploration and production expense |  |                                        |        |                            |   | 13,045    |   |              |        |           |   |                    |  |       |      
|                                               |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|Operating profit                               |  | $                                      | 18,194  |                            | $ | 7,541     |   | $            | 16,575  |           | $ | 4,530               |  | $     | 1,820 
|                                               |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|Depreciation, depletion and amortization       |  |                                        | 10,275  |                            |   | 5,643     |   |              | 40      |           |   | 435                 |  |       | 1,553 
|Interest expense                               |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|Gain on sale of assets                         |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|Selling and administrative expense             |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|                                               |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|Income before income taxes                     |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|                                               |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       
|Identifiable assets                            |  | $                                      | 608,524 |                            | $ | 195,732   |   | $            | 79      |           | $ | 46,412              |  | $     | 58,246
|                                               |  |                                        |         |                            |   |           |   |              |         |           |   |                     |  |       |       



|                                               |  | Gas
Gathering,
Processing
and
Treating |         | Exploration
and
Production |   | Marketing |   | Transmission |           | Corporate |   | Eliminating
Entries |   | Total |       
|---------------------------------------------- |  | -------------------------------------- | ------- | -------------------------- | - | --------- | - | ------------ | --------- | --------- | - | ------------------- | - | ----- | ------
|Quarter ended March 31, 2001                   |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Revenues from unaffiliated customers           |  | $                                      | 14,035  |                            | $ | 721       |   | $            | 1,209,769 |           | $ | 2,675               |   | $     | 282   
|Interest income                                |  |                                        |        |                            |   |          |   |              |          |           |   |                    |   |       | 5,086 
|Other, net                                     |  |                                        | 4       |                            |   | (1        | ) |              | (31,872   | )         |   | 2                   |   |       | 1,377 
|Inter-segment sales                            |  |                                        | 318,073 |                            |   | 52,150    |   |              | 11,486    |           |   | 4,267               |   |       | 14    
|                                               |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Total revenues                                 |  |                                        | 332,112 |                            |   | 52,870    |   |              | 1,189,383 |           |   | 6,944               |   |       | 6,759 
|                                               |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Product purchases                              |  |                                        | 272,839 |                            |   | 2,645     |   |              | 1,188,165 |           |   | (434                | ) |       | 13    
|Plant operating expense                        |  |                                        | 15,320  |                            |   | 30        |   |              | 39        |           |   | 2,094               |   |       | 375   
|Oil and gas exploration and production expense |  |                                        |        |                            |   | 17,054    |   |              |          |           |   |                    |   |       |      
|                                               |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Operating profit                               |  | $                                      | 43,953  |                            | $ | 33,141    |   | $            | 1,179     |           | $ | 5,284               |   | $     | 6,371 
|                                               |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Depreciation, depletion and amortization       |  |                                        | 9,500   |                            |   | 3,067     |   |              | 40        |           |   | 415                 |   |       | 1,456 
|Interest expense                               |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Gain on sale of assets                         |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Selling and administrative expense             |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|                                               |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Income before income taxes                     |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|                                               |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       
|Identifiable assets                            |  | $                                      | 563,850 |                            | $ | 141,430   |   | $            | 57        |           | $ | 46,808              |   | $     | 55,384
|                                               |  |                                        |         |                            |   |           |   |              |           |           |   |                     |   |       |       

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. 143 "Accounting for Asset Retirement Obligations." 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.

In
October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. This statement addresses the accounting for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. We have not yet determined the
impact that the adoption of SFAS No. 144 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 that have affected our consolidated financial condition and results of operations for the three months
ended March 31, 2002 and 2001. Certain prior year amounts have been reclassified to conform to the presentation used in 2002. 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 months ended March 31, 2002 compared to the three months ended March 31, 2001
(Dollars in thousands, except per share amounts and operating data).

|                                           |  | Three Months Ended
March 31, |         |  |  
|------------------------------------------ |  | ---------------------------- | ------- |  | -
|
|
|Financial results:                         |  |                              |         |  |  
|Revenues                                   |  | $                            | 616,766 |  | $
|Gross profit                               |  |                              | 27,945  |  |  
|Net income                                 |  |                              | 8,000   |  |  
|Earnings per share of common stock         |  |                              | .18     |  |  
|Earnings per share of common stock-diluted |  |                              | .18     |  |  
|Net cash provided by operating activities  |  | $                            | 22,525  |  | $
|Operating data:                            |  |                              |         |  |  
|Average gas sales (MMcf/D)                 |  |                              | 2,445   |  |  
|Average NGL sales (MGal/D)                 |  |                              | 1,940   |  |  
|Average gas prices ($/Mcf)                 |  | $                            | 2.47    |  | $
|Average NGL prices ($/Gal)                 |  | $                            | .37     |  | $

Net
income decreased $32.6 million for the three months ended March 31, 2002 compared to the same period in 2001. The decrease in net income was primarily
attributable to a significant reduction in gas and NGL prices in the first quarter of 2002 compared to the same period last year. This decrease in prices more than offset increased production from the
Powder River basin coal bed methane development. Also contributing to the decrease in net income was a pre-tax $8.5 million reduction in operating income from our marketing
operations in the three months ended March 31, 2002 compared to the same period in 2001. The three months ended March 31, 2001 also included an after-tax gain
of $7.1 million from the sale of a subsidiary corporation in that quarter. These decreases were partially offset by a net increase in after-tax gains on hedging activities on our
equity gas and NGLs of $15.3 million in the first quarter of 2002 as compared to the same period in 2001.

Revenues
from the sale of gas decreased $500.8 million for the three months ended March 31, 2002 compared to the same period in 2001. This decrease was due to
reduction in product prices in 2002 which more than offset an increase in sales volume. Average gas prices realized by us decreased $4.50 per Mcf to $2.47 per Mcf for the quarter ended
March 31, 2002 compared to the same period in 2001. Average gas sales volumes increased 780 MMcf per day to 2,445 MMcf per day for the quarter ended March 31, 2002 compared to the same period in 2001. This increase was due to an intentional reduction in 2001 by us in our third-party transactions due to the high price of natural gas
and its impact on the credit exposure to our individual counter-parties. With the decrease in prices, we have returned to a more traditional level of third party sales.

Revenues
from the sale of NGLs decreased approximately $64.7 million for the three months ended March 31, 2002 compared to the same period in 2001. This decrease is
primarily due to a significant reduction in product prices and to a lesser extent, a reduction in sales volumes. Average NGL prices realized by us decreased $.26 per gallon to $.37 per gallon for the
three months ended March 31, 2002 compared to the same period in 2001. Average NGL sales volumes decreased 290 MGal per day to 1,940 MGal per day for the three months ended
March 31, 2002 compared to the same period in 2001.

Product
purchases decreased by $542.0 million for the quarter ended March 31, 2002 compared to the same period in 2001 as a result of the significant decrease in commodity
prices. Overall, combined product purchases as a percentage of sales of all products decreased to 89% in the first quarter of 2002 from 91% in the first quarter of 2001. The reduction in this
percentage is primarily the result of the decrease in commodity prices and our level of third party purchases and sales.

Marketing
margins on residue gas averaged $.02 per Mcf in the first quarter of 2002 compared to $.06 per Mcf in the first quarter of 2001. Marketing margins on NGLs averaged $.01 per
gallon in the first quarter of 2002 compared to $.008 per gallon in the first quarter of 2001. The reduction in the margin earned on the sale of residue gas was due to a $5.0 million gain in
the first quarter of 2001 resulting from the adoption of SFAS 133, "Accounting for Derivative Instruments and Derivative Activities", and lesser margin earned in the quarter ended
March 31, 2002 on our firm transportation capacity positions. 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 the first quarter of 2002, we did not add to our reserve for doubtful accounts and in the first quarter of
2001 we reserved a total of $1.6 million for doubtful accounts. This reserve is not included in the calculation of the marketing margins and is reported in Selling and administrative expenses.

Oil
and gas exploration and production expenses decreased $2.2 million for the quarter ended March 31, 2002 compared to the same period in 2001. This decrease is due to a
reduction in production taxes resulting from the significant decrease in price received for natural gas, which was partially offset by an increase in lease operating expenses resulting from an
increase in the number of wells and higher utility costs.

Depreciation,
depletion and amortization increased by $3.4 million in the quarter ended March 31, 2002 compared to the same period in 2001 due to increased production and
the number of wells in operation. Also contributing to the increase is the reduction in product prices which reduced the average calculated reserves per well.

Cash Flow Information

Cash flows from operating activities decreased by $84.0 million in the first quarter of 2002 compared to the same period in 2001. This reduction was primarily due
to a decrease in net income in the first quarter of 2002 compared to the prior year and the timing of cash receipts and payables.

Cash
flows from investing activities decreased by $43.6 million in the first quarter of 2002 compared to the same period in 2001. This reduction was primarily due to the sale of our
Bethel Treating facility in the first quarter of 2001.

Cash
flows from financing activities increased by $62.3 million in the first quarter of 2002 compared to the same period in 2001. This increase was due to the application of the proceeds received in the sale of our Bethel Treating facility in the first quarter of 2001 to reduce the amounts outstanding under our revolving credit facility.

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 an approximate pre-tax gain for financial reporting purposes of
$12.1 million in the first quarter of 2001. The proceeds from this sale were used to reduce borrowings outstanding on the Revolving Credit Facility.

Business Strategy

Maximizing the value of our existing core assets is the focal point of our business strategy. Our core assets are our midstream operations in west Texas and
Oklahoma and our fully integrated upstream and midstream assets in the Powder River and Green River Basins in Wyoming. Our long-term business plan is to increase shareholder value by:
(i) doubling proven reserves and equity production of natural gas over the course of the next three to five years; (ii) meeting or exceeding throughput projections in our
midstream operations; and (iii) optimizing annual returns.

Double Proven Natural Gas Reserves and Equity Production of Natural Gas.In order to achieve this
goal, we will focus on continued development of our leasehold positions in the Powder River Basin coal bed methane, CBM, development, in the Green River Basin and in the Sand Wash Basin. We have
acquired drilling rights on approximately 827,000 net acres in these and other Rocky Mountain basins. At December 31, 2001, we had proved developed and undeveloped reserves of approximately
476 billion cubic feet equivalent, Bcfe, on a portion of this acreage position. In total this represents an increase of approximately 15% in our proved reserves from December 31, 2000.
Reserve life of our producing properties remains at over 13 years. Our production in the first quarter of 2002 as compared to the same period in 2001 increased by 33% to 10.9 Bcfe and in 2001,
we replaced 275% of that year's production. All of our 2001 reserve growth and our 2002 production growth was achieved organically through the drill bit. As of December 31, 2001, we estimated
that there was a net total of 2.1 trillion cubic feet, Tcf, of probable and possible reserves associated with our undeveloped acreage in these areas. In the Powder River Basin, this potential lies in
over 10,000 development locations in the Big George, Wyodak and related coals. In the Green River Basin, our reserve potential lies in the development of 80-acre and 40-acre
locations on our leasehold on the Pinedale Anticline.

We
are also actively seeking to add another core project which is focused on Rocky Mountain natural gas. We will utilize our expertise in the low-risk development of coal bed
methane plays and in tight-gas sands to evaluate acquisitions of either additional leaseholds, proven and undeveloped reserves or companies with operations focused in this area. The
addition of another core project will ideally result in additional investment opportunities in our midstream operations.

Meet or Exceed Throughput Projections in our Midstream Operations.To achieve this goal, we must
continue to seek to increase natural gas throughput levels through new well connections and expansion of gathering systems and to increase our efficiency by modernization of equipment and the
consolidation of existing facilities. We also seek new growth opportunities for gathering and processing through our development of new gas reserves.

Our
midstream 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 or produced by us. We contract for production from newly developed 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, 2001, our estimated dedicated reserves totaled 3.2 Tcf. This includes third party reserves dedicated to our
facilities, our proven reserves, but does not include our 2.1 Tcf of probable and possible reserves. In 2001, 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 190% of throughput. In the first quarter of
2002, we spent approximately $23.0 million on additional well connections and compression and gathering system expansions. We will also evaluate investments in expansions or acquisitions of
assets that complement and extend our core natural gas gathering, processing, treating and marketing businesses.

Optimize Annual Returns.To optimize our annual returns, we will focus our efforts in our primary
operating areas of the Powder River and Green River Basins in Wyoming, the Anadarko Basin in Oklahoma and the Permian Basin in west Texas. We review the economic performance and growth opportunities
of each of our operating facilities to ensure that a satisfactory rate of return is achieved. If an operating facility is not generating targeted returns or is outside of our core operating areas, we
explore various options, such as consolidation with other Western-owned or third-party-owned facilities, dismantlement, asset trades or sale. Additionally, we routinely evaluate our business for
methods to reduce our operating and administrative costs, including the implementation of information technology.

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 or for our other liquidity needs, 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, or general downturns in the national economy, 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, developing our existing leaseholds, 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 including contributions to joint ventures, make any scheduled debt principal and interest
payments and to pay common and preferred dividends. 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 use 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 2002.

During
the past several years some of our plants have experienced declines in dedicated reserves. However, overall we have been successful in connecting additional reserves to
more than offset the natural declines. Higher gas prices throughout recent years, 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, energy and environmental policy and regulation by governmental agencies and the availability of foreign oil
and gas, none of which are 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 quarter ended March 31, 2002 are summarized as follows (dollars in thousands):

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

Inventories and Storage Capacity.An additional source of liquidity available to us is our
inventories of gas and NGLs in storage facilities. We continue to view access to storage capacity as a significant element of our marketing strategy. We customarily store gas in underground storage
facilities to ensure an adequate supply for long-term sales contracts and to capture seasonal price differentials. As of March 31, 2002, we had contracts in place for approximately
17.3 Bcf of storage capacity at various third-party facilities. A contract for storage capacity for 3 Bcf expired in April 2002. The fees associated with these contracts during 2002 will
average $0.30 per Mcf of annual capacity, and the associated contract periods range from three months to three years, with an average tenor of one and one-half years. Several
of these long-term storage contracts require an annual renewal. At March 31, 2002, we held gas in storage and in imbalances of approximately 9.0 Bcf at an average cost of $2.04 per
Mcf compared to 2.4 Bcf at an average cost of $5.03 per Mcf at March 31, 2001 under these storage contracts. These positions are for storage withdrawals within the next twelve months.
Under mark-to-market accounting, the profit to be earned on these transactions was recorded in the month of origination.

At
March 31, 2002, we also held NGLs in storage at various third-party facilities of 3,261 MGal, consisting primarily of propane and normal butane, at an average cost of $0.27 per
gallon compared to 5,831 MGal at an average cost of $0.44 per gallon at March 31, 2001.

Firm Transportation Capacity.We also continue to view access to firm transportation as a significant
element of our marketing strategy. Firm transportation ensures that our equity production has access to downstream markets and allows us to capture incremental profit when pricing differentials between physical locations occur. As of March 31, 2002, we had contracts for approximately 628 MMcf per day of firm transportation. This amount represents our total contracted amount on each
individual pipeline. In many cases it is necessary to utilize sequential pipelines to deliver gas into a specific sales market. For example, to transport 100 MMcf per day of gas produced in the Powder
River to the Mid-Continent utilizes a total of 300 MMcf per day of firm capacity on four separate pipelines. The fixed fees associated with these contracts during 2002 will average
approximately $0.13 per Mcf per day, and the associated contract periods range from three months to fifteen years. In addition, some contracts contain provisions requiring us to pay the
fees associated with these contracts whether or not the transportation is used. In conjunction with an expansion of the Trailblazer pipeline in May 2002, we entered into a ten-year
contract for an additional 56 MMcf per day of firm transportation capacity on this pipeline at the prevailing tariff. We have also entered into 112 MMcf per day of firm transportation precedent
agreements for transportation on pipeline expansions which are not completed. These expansions are anticipated to be completed in 2002. When the expansions are completed, we will enter into firm
transportation agreements.

Operating Leases.Primarily to support our growing development in the Powder River coal bed
development, we have entered into several operating leases for compression equipment. Payments made on these leases are a component of operating expenses and are reflected on the Consolidated
Statement of Operations. As of March 31, 2002, we had leased a total of 93 compression units. These leases have terms ranging from two to ten years with fair market purchase options
available at various times during the lease. We anticipate entering into additional leases during 2002 to accommodate future production growth in the Powder River coal bed development.

Capital Investment Program.Capital expenditures related to existing operations totaled approximately
$31.6 million during the first quarter of 2002, consisting of the following: (i) approximately $12.0 million related to gathering, processing and pipeline assets, including
$700,000 for maintaining existing facilities; (ii) approximately $17.7 million related to exploration and production activities; and (iii) approximately $1.9 million for
miscellaneous items. Overall, capital expenditures in the Powder River Basin coal bed methane development and in the Green River Basin in southwest Wyoming operations represented 49% and 31%,
respectively, of the total capital expenditures in the quarter.

We
expect capital expenditures related to existing operations to be approximately $139.8 million during 2002. The 2002 budget represents an approximate 15% decrease from the
amount expended in 2001 due to an expectation of lower commodity prices. The 2002 capital budget consists of the following: (i) approximately $69.3 million related to gathering,
processing, treating and transportation assets, including $6.4 million for maintaining existing facilities; (ii) approximately $67.6 million related to exploration and production
and lease acquisition activities; and (iii) approximately $2.9 million for miscellaneous items. Overall, capital expenditures in the Powder River Basin coal bed methane development and
in southwest Wyoming operations represent 54% and 25%, respectively, of the total 2002 budget. Due to drilling and regulatory uncertainties that are beyond our control, we can make no assurance that
our capital budget for 2002 will not change. We anticipate that funds for the 2002
capital budget will be provided primarily by internally generated cash flow. This budget may be increased to provide for acquisitions if approved by our board of directors.

Powder River Basin Coal Bed Methane.We continue to develop our Powder River Basin coal bed gas
reserves and the associated gathering system in northeast 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. Within this area, in the first quarter of 2002, 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 this basin. At March 31, 2002, we held the drilling rights on approximately 527,000 net acres in this basin. As of December 31, 2001, we had
established proven developed and undeveloped reserves totaling 393 Bcfe on a portion of this acreage. This represented a 12% increase in proved reserves as compared to December 31, 2000. As of December 31, 2001, we
estimated that there was a net total of 1.9 Tcf of probable and possible reserves associated with our undeveloped acreage in this area. There can be no assurance, however, as to the ultimate recovery
of these reserves.

We
plan to participate in over 900 gross wells in 2002, of which 378 were drilled in the first quarter. The average drilling and completion cost for our coal bed methane gas wells is
approximately $90,000 per well with average reserves per successful well of approximately 250 to 320 million cubic feet, MMcf. Our average finding and development costs in this area are
estimated to be approximately $0.42 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 81 MMcf per day in the
three months ended March 31, 2001 to 106 MMcf per day in the three months ended March 31, 2002. As of May 1, 2002, we were producing an average of 113 MMcf per day,
net to our interest. We currently anticipate production rates of 145 net MMcf per day (370 gross MMcf per day) from this area by the end of 2002. 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 fourteen pilot development areas in the Big George. By the end of 2002, we expect to have drilled approximately 425 gross wells in these areas. Several of
these areas are in close proximity to four producing Big George areas, including our All Night Creek pilot. Production from these areas is increasing and in the first quarter of 2002, they were
producing over 28 MMcf per day. As of February 20, 2002, our All Night Creek pilot was producing 7.5 gross MMcf per day of gas from 51 wells with an additional 18 wells in the
de-watering stage and another 29 awaiting connection to our gathering system. At December 31, 2001, we had proven reserves of 26 Bcfe in the Big George coal.

Future
drilling on federal acreage will be delayed subject to completion of the Powder River Basin Oil & Gas Environmental Impact Statement (EIS). The comment period for the draft
EIS has been extended to May 15, 2002. We anticipate the study to be completed in the late third or early fourth quarter of 2002. However, we can make no assurance the EIS will be completed
within this time period. Our drilling plans for 2002 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, BLM, for approximately 250 well locations to prevent drainage
of federal acreage. Our drilling plans for 2003 are dependent on permits to be issued pursuant to the completion of the EIS. However, we could drill up to 800 wells on various state and fee acreage in
2003 without the completion of the EIS.

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 majority of wells on our acreage producing from the Wyodak formation drain into these areas. The Wyoming and Montana DEQ offices 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, however only when it can be demonstrated that none of the discharge water will reach the Powder River itself. Discussions are in progress
between the Wyoming and Montana DEQ offices to implement numeric standards for sodium absorption ratio, electro-conductivity and total dissolved solids. We can make no assurance that the conditions
under which additional permits will be granted will not impact the level of our drilling or the timing of the associated production.

On
April 26, 2002, the Interior Board of Land Appeals (IBLA) ruled that the Bureau of Land Management (BLM) did not comply with the National Environmental Policy Act (NEPA) prior
to issuing three federal oil and gas leases held by unaffiliated third parties in the Powder River Basin,156 IBLA at 358-59. There has not
been a final decision regarding the validity of the three leases. The IBLA has remanded the case to the Wyoming BLM State Director without specifying a remedy. The State Director could, among other
things, require additional NEPA analysis to be done on these three leases. The Powder River Basin Environmental Impact Statement is currently being conducted basin wide. This study includes a NEPA
analysis covering coal bed methane development. Additionally, the decision by the IBLA is still under review by the parties involved in the case and further action may include a petition to overturn
the decision by the Secretary of the Interior, a petition for reconsideration or filing for judicial review. We do not have any interests in these leases nor have we received notice of any challenge
to leases that we hold. We are continuing to monitor the development of the issue.

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 first quarter of 2002, we
were gathering 348 MMcf per day of our own production and that of other third-party producers. Of that volume, approximately 130 MMcf per day was transported through our wholly-owned MIGC pipeline.

Our
capital budget in the Powder River Basin coal bed development provides for expenditures of approximately $74.8 million during 2002 of which $15.5 million was spent in
the first quarter. This capital budget includes approximately $51.0 million for drilling costs for our interest in over 900 wells, production equipment and undeveloped acreage and
$23.8 million for gathering lines and installation of compression. We have entered into several operating leases for compression equipment. As of
March 31, 2002, we had leased a total of 93 compression units. These leases have terms ranging from two to ten years with fair market purchase options available at various times during
the lease. Depending upon future drilling success, we may need to make additional capital expenditures or leasing commitments to continue expansion in this basin. Due to drilling and regulatory
uncertainties which are beyond our control, we can make no assurance that we will incur this level of capital expenditure.

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
initially had a capacity of approximately 435 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. The gathering pipeline went into service in the third quarter of 1999. Construction of the gathering header and treating system was
project financed by Fort Union and required a cash investment by us of approximately $900,000. In 1999, we entered into a ten year agreement for firm gathering services on 60 MMcf per day of capacity
at $0.14 per Mcf on Fort Union. In the fourth quarter of 2000, Western and the other participants in Fort Union approved an expansion of the system. Construction of the 62-mile expansion
was completed in the third quarter of 2001 and brought the system's capacity to 635 MMcf per day. The expansion costs totaled approximately $22.0 million and were project financed by Fort
Union. In the fourth quarter of 2001, we invested approximately $500,000 as an equity contribution to Fort Union in conjunction with the project financing. Also in connection with the expansion, we
increased our commitment for firm gathering services, effective December 2001, to a total of 83 MMcf per day of capacity at $0.14 per Mcf. All participants in Fort Union have guaranteed the
project financing on a proportional basis resulting in our guarantee of $7.3 million of the debt of Fort Union. This guarantee is not reflected on our Consolidated Balance Sheet.

Green River Basin.Our assets in the Green River Basin of southwest Wyoming are comprised of the
Granger and Lincoln Road facilities, or collectively the Granger Complex, our 50% equity interest in Rendezvous Gas Services, L.L.C., our Red Desert facility and production in the Jonah Field and Pinedale Anticline areas. These facilities have a combined operational capacity of 327 MMcf per day
and processed an average of 237 MMcf per day in the first quarter of 2002. Our capital budget in this area provides for expenditures of approximately $35.1 million during 2002 of which
$10.5 million was spent in the first quarter. This capital budget includes approximately $12.5 million for drilling costs and production equipment and approximately $22.6 million
related to the gathering systems, plant facilities and additional capital contributions to Rendezvous. Due to drilling and regulatory uncertainties which are beyond our control, there can be no
assurance that we will incur this level of capital expenditure.

In
September 2001, we signed an agreement with Questar 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. Both Questar and Western contributed our respective interests in the Bird Canyon system along with additional field compression and
gathering dedications for gas produced along the Pinedale Anticline to Rendezvous. Each company owns a 50% interest in Rendezvous, and we serve as field operator of its systems. In the fourth quarter
of 2001, Rendezvous began construction of additional gas gathering pipelines and compression facilities with a capacity to transport
approximately 275 MMcf per day of gas production from the Pinedale Anticline. The first phase of our 50% owned Rendezvous gathering expansion into the Pinedale Anticline is completed. The second phase
of the construction is expected to be completed in November 2002. The first two phases will add a total of 175 MMcf per day of gathering capacity. 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 this expansion is $44.0 million, of which our share will be
$22.0 million. Of this $22.0 million, approximately $18.3 million is expected to be spent in 2002 and is included in our capital expenditure budget.

At
March 31, 2002, we owned approximately 245,000 gross oil and gas leasehold acres, or approximately 35,000 net acres, in the Jonah Field and Pinedale Anticline areas. During
2002, we expect to participate in the drilling of over 30 gross wells, or approximately 4 net wells on the Pinedale Anticline. Drilling in this area cannot commence until the removal of winter
stipulations in May 2002. 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 $0.80 to $0.90 per Mcf. We had established proven developed and undeveloped reserves totaling 71 Bcfe at
December 31, 2001. This represents a 29% increase as compared to December 31, 2000. As of December 31, 2001, we estimate a net total of 101 Bcf of probable and possible reserves
associated with undeveloped acreage in this area. There can be no assurance, however, as to the ultimate recovery of these reserves.



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 March 31, 2002, $98.0 million was 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 March 31, 2002, the interest rate payable
on the borrowings under this facility was 2.9%. 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 35%.
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 2.5 to 1.0 through September 30, 2002 and increases to 3.25 to 1.0 at December 31, 2002. This facility also limits our ability to enter into operating and sale leaseback transactions. This facility is guaranteed by, and secured via, a pledge of the stock of
all of our material 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 March 31, 2002 are as indicated in the following table (dollars in thousands):

|Issue Date        |  | Amount |         | Interest
Rate |      | Final
Maturity |                   | Principal Payments Due
|----------------- |  | ------ | ------- | ------------- | ---- | -------------- | ----------------- | ----------------------
|October 27, 1992  |  | $      | 16,666  |               | 7.99 | %              | October 27, 2003  |                       
|December 27, 1993 |  |        | 25,000  |               | 7.23 | %              | December 27, 2003 |                       
|October 27, 1994  |  |        | 25,000  |               | 9.24 | %              | October 27, 2004  |                       
|July 28, 1995     |  |        | 50,000  |               | 7.61 | %              | July 28, 2007     |                       
|                  |  |        |         |               |      |                |                   |                       
|                  |  | $      | 116,666 |               |      |                |                   |                       
|                  |  |        |         |               |      |                |                   |                       

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 55% 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 3.75 to 1.0 and an EBITDA to interest on senior debt ratio of not less than 5.50 to 1.0.  EBITDA in these calculations excludes certain
non-recurring items. In addition, this agreement contains a calculation limiting dividends. Under this limitation, approximately $79.4 million was available to be paid at
March 31, 2002. This facility also limits our ability to enter into operating and sale leaseback transactions. 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 by, and secured via, a pledge of the stock of all of our material subsidiaries.

In
October 2002, we will make a required principal repayment of $8.3 million 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 tradeable 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 which include limitations on debt incurrence, restricted
payments, liens and sales of assets. Under the calculation limiting restricted payments, including common dividends, approximately $46.8 million was available at March 31, 2002. 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 which
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
March 31, 2002. Taking into account all the covenants contained in these agreements, we had approximately $118 million of available borrowing capacity at March 31, 2002.





ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 fixed price purchase and sale commitments, the value of storage inventories and exposure to
physical market price volatility.

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 goals. 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 many of 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.

Hedge Positions.For the remaining three quarters of 2002, we have hedged approximately 58% of our
projected equity natural gas volumes and approximately 59% of our estimated equity production of crude oil, condensate, and NGLs. In 2003, we have entered into hedging positions for approximately 25%
of our projected equity gas volumes. These contracts are designated and accounted for as cash flow hedges. As such, gains and losses related to the effective portions of the changes in the fair value
of the derivatives are recorded in Accumulated other comprehensive income, a component of Stockholders' equity. Any gains or losses on these cash flow hedges are recognized in the Consolidated
Statement of Operations through Product purchases when the hedged transactions occur. Gains or losses from the ineffective portions of changes in the fair value of cash flow hedges are recognized
currently in earnings through Non-cash change in the fair value of derivatives. During the quarter ended March 31, 2002, we recognized a total of $426,000 of loss from the
ineffective portions of our hedges.

To
qualify as cash flow hedges, the hedge instruments must be designated as cash flow hedges and changes in their fair value must correlate with changes in the price of the forecasted
transaction being hedged so that our exposure to the risk of commodity price changes is reduced. To meet this requirement, we hedge both the price of the commodity and the basis between that
derivative's contract delivery location and the cash market location used for the actual sale of the product. This structure attains a high level of effectiveness, insuring that a change in the price
of the forecasted transaction will result in an equal and opposite change in the cash price of the hedged commodity.

For
the remaining three quarters of 2002, we have entered into hedging positions for approximately 58 percent and 59 percent of our projected equity gas and NGL volumes
respectively. In 2003, we have entered into hedging positions for approximately 25 percent of our projected equity gas volumes.

Outstanding
Equity Hedges for the remainder of 2002. All prices are NYMEX-equivalents and do not include the cost of NGL hedges in 2002 of approximately $3 million.

|                                                |  | 2nd Quarter of 2002                                                                                        |  | 3rd and 4th Quarters of 2002                                                                                                  
|----------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Natural gas                                     |  | 80,000 MMbtu per day with an average minimum and maximum price of $3.81 and $5.87 per MMbtu, respectively.
|Crude, Condensate, Natural Gasoline and Butanes |  | 75,000 Barrels per month Fixed price of $20.20 per barrel                                                  |  | 75,000 Barrels per month Fixed price of $20.20 per Barrel with right to participate in price increases above $22.50 per barrel
|                                                |  | 55,000 Barrels per month Fixed price of $21.15 per barrel                                                  |  | 55,000 Barrels per month Floor at $20.00 per barrel                                                                           
|Propane                                         |  | 75,000 Barrels per month Fixed price of $0.32 per gallon                                                   |  | 120,000 Barrels per month Floor at $0.32 per gallon                                                                           
|Ethane                                          |  | 50,000 Barrels per month Fixed price of $0.21 per gallon                                                   |  | 50,000 Barrels per month Floor at $0.21 per gallon                                                                            
|                                                |  | 20,000 Barrels per month Sold at $0.21 per gallon                                                          |  | 20,000 Barrels per month Sold at $0.21 per gallon with right to participate in price increases above $0.25 per gallon         

Outstanding
Equity Hedges for 2003. All prices are NYMEX equivalents.

|Natural gas |  | 20,000 MMbtu per day at an average price of $3.75 per MMbtu.                                       
|----------- |  | ---------------------------------------------------------------------------------------------------
|            |  | 20,000 MMbtu per day with a minimum price of $3.50 and an average maximum price of $4.43 per MMbtu.

Account
balances related to these transactions at March 31, 2002, were $12.9 million in Current Assets from price risk management activities, $1.3 million in Non-current Assets from
price risk management activities, $7.1 million in Current Liabilities from price risk management activities, $2.7 million in Deferred income taxes payable, net and a $4.7 million after-tax unrealized
gain in Accumulated other comprehensive income, a component of Shareholder's Equity. Based on the commodity prices as of March 31, 2002, an after-tax gain of $3.7 million would be re-classified from
Accumulated other comprehensive income to Product Purchases during the next twelve months.

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
March 31, 2002, the net notional value of such contracts was approximately $1.7 million in Canadian dollars, which approximates its fair market value.

Accounting for 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 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 133.

Principal Facilities

The following tables provide information concerning our principal facilities at March 31, 2002. We also own and operate several smaller treating,
processing and transmission facilities located in the same areas as our other facilities.

|          |                               |       |      |  |       |       |     | Average for the Quarter Ended March 31, 2002
|--------- | ----------------------------- | ----- | ---- |  | ----- | ----- | --- | --------------------------------------------
|
|
|Texas     |                               |       |      |  |       |       |     |                                             
|          | Gomez Treating(6)             |       | 1971 |  | 386   |       | 280 |                                             
|          | Midkiff/Benedum               |       | 1949 |  | 2,203 |       | 165 |                                             
|          | Mitchell Puckett Gathering(6) |       | 1972 |  | 93    |       | 120 |                                             
|Louisiana |                               |       |      |  |       |       |     |                                             
|          | Toca(7)(8)                    |       | 1958 |  |      |       | 160 |                                             
|Wyoming   |                               |       |      |  |       |       |     |                                             
|          | Coal Bed Methane Gathering    |       | 1990 |  | 1,253 |       | 223 |                                             
|          | Fort Union Gas Gathering      |       | 1999 |  | 106   |       | 635 |                                             
|          | Granger(7)(9)(10)             |       | 1987 |  | 523   |       | 235 |                                             
|          | Hilight Complex(7)            |       | 1969 |  | 626   |       | 124 |                                             
|          | Kitty/Amos Draw(7)            |       | 1969 |  | 314   |       | 17  |                                             
|          | Lincoln Road(10)              |       | 1988 |  | 149   |       | 50  |                                             
|          | Newcastle(7)                  |       | 1981 |  | 146   |       | 5   |                                             
|          | Red Desert(7)                 |       | 1979 |  | 111   |       | 42  |                                             
|          | Rendezvous Gas Services(14)   |       | 2001 |  |       |       | 170 |                                             
|          | Reno Junction(9)              |       | 1991 |  |      |       |    |                                             
|Oklahoma  |                               |       |      |  |       |       |     |                                             
|          | Chaney Dell                   |       | 1966 |  | 2,080 |       | 130 |                                             
|          | Westana                       |       | 1981 |  | 1,001 |       | 45  |                                             
|NewMexico |                               |       |      |  |       |       |     |                                             
|          | San Juan River(6)             |       | 1955 |  | 140   |       | 60  |                                             
|Utah      |                               |       |      |  |       |       |     |                                             
|          | Four Corners Gathering        |       | 1988 |  | 104   |       | 15  |                                             
|          |                               |       |      |  |       |       |     |                                             
|          |                               | Total |      |  |       | 9,235 |     | 2,476                                       
|          |                               |       |      |  |       |       |     |                                             



|             |       |      |  |     |     | Average for the Quarter Ended
March 31, 2002
|------------ | ----- | ---- |  | --- | --- | --------------------------------------------
|
|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 results of operations or financial position. We are seeking reimbursement from Amerada Hess under a contractual indemnity.
We amended our original complaint and requested a jury trial in this case. Both parties filed cross motions for summary judgment. On April 19, 2002, the trial court ruled on the parties' cross
motions for summary judgment in favor of Amerada Hess, indicating that Amerada Hess has no obligation to indemnify us in this matter. We are reviewing the trial court's ruling for the possibility of
appeal.

Texas Natural Resource Conservation Commission (TNRCC)Notification of Alleged Violations, Midkiff,
Texas.We have received notification of six alleged violations associated with our air emissions permit at the Midkiff Gas Plant in Texas. Five of the alleged
violations relate to reporting requirements under the permit and one alleged violation relates to the failure to operate within the time restrictions of the permit. We have responded to the TNRCC and
are taking corrective action. At this time, we are unable to quantify penalties or fines, if any, associated with these alleged violations.

Texas Natural Resource Conservation Commission (TNRCC)Notification of Alleged Violations, Gomez Treating Plant,
Texas.The Company has received notification of an alleged violation associated with compliance certifications for a Gomez Treating Plant owned by an unaffiliated
company which subsequently sold the Gomez Compressor Station to us in 1999. We have contested the alleged violation on the basis that we never purchased this treating facility and the facility had
been physically removed by the unaffiliated company in 1995. At this time, we are unable to quantify penalties or fines, if any associated with this alleged violation.

Other Litigation.We are involved in various other litigation and administrative proceedings arising
in the normal course of business. In the opinion of management, any liabilities that may result from these claims will not, individually or in the aggregate have a material adverse effect on our
financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 6. Exhibits and Reports on Form 8-K

| |  | 10.26 |  | Eighth Amendment dated February 25, 2002 to Loan Agreement dated April 29, 1999 by and among Western Gas Resources, Inc., and Bank of America, N.A., as agent, and the Lenders.                                                                               
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10.27 |  | Limited Waiver, Consent, Release and Amendment No. 6 dated March 1, 2002 to the Second Amended and Restated Master Shelf Agreement by and among Western Gas Resources, Inc., and The Prudential Insurance Company of America and Pruco Life
Insurance Company.
| |  | 10.28 |  | Ninth Amendment dated April 26, 2002 to Loan Agreement dated April 29, 1999 by and among Western Gas Resources, Inc., and Bank of America, N.A., as agent, and the Lenders.                                                                                   





SIGNATURES

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

|                   |  | WESTERN GAS RESOURCES, INC.(Registrant)
|------------------ |  | ---------------------------------------
|Date: May 14, 2002 |  | By:                                    
|Date: May 14, 2002 |  | By: