WESTERN GAS RESOURCES INC, 10-K, 1995-03-29

WESTERN GAS RESOURCES INC
10-K, 1995-03-29
NATURAL GAS TRANSMISSION

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)

[ X ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1994 or

[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
_________________ to _________________

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

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

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of exchange on which registered
----------------------------- ------------------------------------
Common Stock, $0.10 par value New York Stock Exchange

$2.28 Cumulative Preferred Stock,
$0.10 par value New York Stock Exchange

$2.625 Cumulative Convertible Preferred
Stock, $0.10 par value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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

The aggregate market value of voting common stock held by non-affiliates of the
registrant on March 1, 1995, was $237,958,374.

On March 1, 1995, there were 25,749,986 shares of the registrant's Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Report (Items 10, 11, 12 and 13) is
incorporated by reference from the registrant's proxy statement to be filed
pursuant to Regulation 14A with respect to the annual meeting of stockholders
scheduled to be held on May 24, 1995.

Indicate by check mark if disclosure of delinquent filers to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Reference is made to listing beginning on page 45 of all exhibits filed as a
part of this report.

Page 1 of 66
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Western Gas Resources, Inc.
Form 10-K
Table of Contents

<TABLE>
<CAPTION>
Part Item(s) Page
----
<S> <C> <C> <C>
I. 1 and 2. Business and Properties.................................................. 3
General................................................................ 3
Principal Facilities................................................... 4
Gas Gathering and Processing........................................... 5
Significant Acquisitions and Projects.................................. 6
Marketing.............................................................. 7
Producing Properties................................................... 9
Competition............................................................ 9
Environmental Matters.................................................. 9
Regulation............................................................. 10
Employees.............................................................. 11
3. Legal Proceedings........................................................ 11
4. Submission of Matters to a Vote of Security Holders...................... 11
II. 5. Market for Registrant's Common Equity and Related Stockholder Matters.... 12
6. Selected Financial Data.................................................. 13
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 14
8. Financial Statements and Supplementary Data.............................. 22
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 44
III. 10. Directors and Executive Officers of the Registrant....................... 44
11. Executive Compensation................................................... 44
12. Security Ownership of Certain Beneficial Owners and Management........... 44
13. Certain Relationships and Related Transactions........................... 44
IV. 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 45
</TABLE>

2
<PAGE>

PART I

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

GENERAL

Western Gas Resources, Inc. (the "Company") is an independent gas gatherer,
processor and marketer with operations located in major oil and gas-producing
basins in the Rocky Mountain, Gulf Coast and Southwestern regions of the United
States. The Company owns and operates natural gas gathering, processing and
storage facilities and markets and transports natural gas and natural gas
liquids ("NGLs"). The Company provides necessary services to the producers of
natural gas and NGLs by connecting producers' wells to the Company's gathering
system for delivery to its processing plants, processing the gas to remove NGLs
and by-products and marketing the gas and NGLs throughout the United States.
Most of the natural gas processed by the Company is associated gas from oil
wells. The Company also owns certain producing properties, primarily in
Louisiana and Texas.

Historically, the Company has derived over 90% of its revenues from the sale of
natural gas and NGLs. Set forth below are the Company's revenues by type of
operation (000s):

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1994 % 1993 % 1992 %
---------- ---------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Sale of residue gas............... $ 707,869 66.6 $563,068 60.4 $278,928 46.5
Sale of NGLs...................... 309,358 29.1 333,880 35.8 290,230 48.3
Processing and transportation
revenues......................... 35,017 3.3 25,622 2.7 22,124 3.7
Other, net........................ 11,245 1.0 9,768 1.1 8,834 1.5
---------- -------- -------- -------- -------- -----
$1,063,489 100.0 $932,338 100.0 $600,116 100.0
========== ======== ======== ======== ======== =====
</TABLE>

Since the Company's formation in 1977, its strategy has been to expand through
acquisitions and internal project development. These activities have
strengthened the Company's position in major producing basins and expanded its
access to multiple natural gas markets. The table below illustrates the
Company's growth from December 31, 1991 to December 31, 1994:

<TABLE>
<CAPTION>
Average for the Year Ended
Gas Gas ------------------------------------------
Gathering Throughput Gas Gas NGL
Systems Capacity Throughput Production Production
(Miles) (MMcf/D) (MMcf/D) (MMcf/D) (MGal/D)
---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1991..... 9,316 1,124 586 315 1,811
December 31, 1994..... 11,016 1,500 1,027 765 2,189
% change.............. 18.2 33.5 75.3 142.9 20.9
</TABLE>

The Company's principal offices are located at 12200 North Pecos Street, Denver,
Colorado 80234-3439, and its telephone number is (303) 452-5603. The Company
was incorporated in Delaware in 1989.

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PRINCIPAL FACILITIES

The following table provides information concerning the Company's principal
facilities. The Company also owns and operates several smaller treating and
processing facilities located in the same areas as its other facilities.

<TABLE>
<CAPTION>
Average for the year ended
December 31, 1994
Gas Gas ---------------------------------------------
Gathering Throughput Gas Gas NGL
Year Placed Systems Capacity Throughput Production Production
Facility (1) In Service Miles(2) (MMcf/D)(2) (MMcf/D)(3) (MMcf/D)(4) (MGal/D)(4)
---------------------------------- ---------- ----------- -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
SOUTHERN REGION:
Texas
Midkiff and Benedum................. 1955 1,924 135 121.1 78.2 785.3
Giddings Gathering System........... 1979 637 80 75.4 65.1 109.9
Edgewood(5)......................... 1964 85 65 32.5 14.9 77.6
Perkins............................. 1975 2,545 55 22.7 12.3 145.5
Walnut Bend......................... 1978 402 8 3.1 1.3 17.0
Pecos System(6)..................... 1973 443 85 105.1 99.8 -
Crockett System(6).................. 1973 136 - 38.5 38.0 -
Katy(7)............................. 1994 17 - - - -
MID-CONTINENT REGION:
Louisiana
Black Lake.......................... 1966 55 180 75.8 55.2 98.8
Toca(8)(9).......................... 1958 - 160 89.6 - 61.5
Oklahoma
Chaney Dell/Lamont.................. 1966 1,996 158 91.7 67.0 304.1
Westana(10)......................... 1986 243 37 64.0 58.6 56.6

ROCKY MOUNTAIN REGION:
Wyoming
Granger(9).......................... 1987 219 230 142.9 134.1 167.4
Red Desert.......................... 1979 108 40 32.3 29.3 46.4
Lincoln Road........................ 1988 144 50 46.7 43.3 43.8
Hilight Complex(9).................. 1969 613 80 20.3 14.1 91.9
Amos Draw........................... 1983 79 30 4.5 3.7 14.5
Kitty(9)............................ 1969 225 17 8.2 5.5 39.8
Newcastle(9)........................ 1981 142 5 2.7 1.7 19.8
Reno Junction(11)................... 1991 - - - - 28.0
New Mexico
San Juan River(5)................... 1955 122 60 24.6 24.6 .6
North Dakota
Williston(12)....................... 1981 381 - 11.9 8.9 32.3
Temple(5)........................... 1984 65 7 3.0 2.1 10.2
Teddy Roosevelt and Alexander
Gathering System(12)............. 1979 332 - 3.7 2.4 15.9
Utah
Four Corners........................ 1988 95 15 4.7 3.9 10.5
Montana
Baker(5)(9)......................... 1981 8 3 1.5 .9 11.6
------ ----- ------- ----- -------
Total............................ 11,016 1,500 1,026.5 764.9 2,189.0
====== ===== ======= ===== =======
</TABLE>

-----------------------------------
Footnotes on following page

4
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(1) The Company's interest in all facilities is 100% except for Midkiff and
Benedum (78%); Black Lake (69%); Lincoln Road (72%); Williston (50%);
Westana (Chester) (50%); Newcastle (50%) and Walnut Bend (67%). All
facilities are operated by the Company and all data include interests of
the Company, other joint interest owners and producers of gas volumes
dedicated to the facility.

(2) Gas gathering systems miles and gas throughput capacity are as of December
31, 1994.

(3) Aggregate wellhead natural gas volumes collected by a gathering system.

(4) Volumes of residue gas and NGLs are allocated to a facility when a well is
dedicated to that facility; volumes exclude NGLs fractionated for third
parties.

(5) Sour gas facility (capable of processing gas containing hydrogen sulfide).

(6) West Texas gathering and treating assets of Oasis Pipe Line Company
("Oasis") acquired effective December 1, 1994. Throughput and production
volume averages for the year ended December 31, 1994 are throughput and
production volumes for the one month period ended December 31, 1994.

(7) Hub and gas storage facility. Operations commenced in February 1994.

(8) Straddle plant (a plant located near a transmission pipeline which
processes gas dedicated to or gathered by the pipeline company or another
third-party).

(9) Fractionation facility (capable of fractionating raw NGLs).

(10) Gas throughput in excess of gas throughput capacity is unprocessed gas
transported directly to an unaffiliated pipeline.

(11) NGL production represents conversion of third-party feedstock to iso-
butane.

(12) Processing facility has been shut-in since August 1993. The gas dedicated
to these facilities is processed by a third-party under a contractual
arrangement.

Capital expenditures to connect new reserves and to acquire consolidating assets
are anticipated to be approximately $63.5 million for 1995 and capital
expenditures to maintain existing facilities are expected to approximate $16.5
million for 1995.

GAS GATHERING AND PROCESSING

The Company contracts with producers to gather raw natural gas from individual
wells located near its plants. Once a contract has been executed, the Company
connects wells to gathering lines through which the natural gas is delivered to
a processing plant. At the plant, the natural gas is compressed, unfractionated
NGLs are extracted, and the remaining dry residue gas is treated to meet
pipeline quality specifications. Six of the Company's processing plants can
further separate, or fractionate, the mixed NGL stream into ethane, propane,
butane and natural gasoline to obtain higher value for the NGLs and four of the
Company's plants are able to process and treat natural gas containing hydrogen
sulfide or other impurities which require removal prior to transportation. In
addition, the Company has one facility which converts normal butane into iso-
butane.

The Company continually acquires additional natural gas supplies to maintain or
increase throughput levels to offset natural production declines in dedicated
volumes. Such natural gas supplies are obtained by purchasing existing systems
from third parties or by connecting additional wells. The opportunity to
connect new wells to existing facilities is primarily affected by levels of
drilling activity near the Company's gathering systems. The Company believes it
has expanded into areas which present significant potential for new drilling or
purchases of existing systems. Historically, the Company has connected
additional reserves which more than offset production from reserves dedicated to
existing facilities. However, certain individual plants have experienced
declines in dedicated reserves. In 1994, including reserves associated with
Westana Gathering Company ("Westana"), a general partnership in which the
Company has a 50% ownership interest, the Company connected sufficient new
reserves to its gathering systems to replace approximately 85% of 1994
production, or 194% of 1994 production including the Company's 1994
acquisitions. On a Company-wide basis, dedicated reserves, including certain
proved undeveloped properties and revisions to previous estimates, totaled
approximately 2.1 Tcf at December 31, 1994.

Substantially all natural gas flowing through Company facilities is supplied
under long-term contracts providing for the dedication for purchase or
processing of such natural gas for periods ranging from 5 to 20 years. Under
the typical natural gas purchase contract, the Company is responsible for
arranging the transportation and marketing of the natural gas and NGLs after
processing. However, some contracts are structured as natural gas processing
arrangements in which gathering and processing services are performed for a fee
and the producer retains marketing responsibility for the natural gas.

In most of its gathering areas, the Company's policy is to structure natural gas
purchase contracts on a percentage-of-proceeds basis under which it is entitled
to a specified percentage of the net proceeds received from the resale of
residue gas and NGLs

5
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along with ancillary fees for treating, compression and marketing services.
Percentage-of-proceeds contracts provide for the Company and producers to share
proportionally in price changes. The Company's existing contracts generally
entitle it to retain the same percentage, typically between 20% to 40%, of the
net proceeds from the resale of residue gas and NGLs. For the year ended
December 31, 1994, percentage-of-proceeds contracts accounted for approximately
57% of natural gas throughput (exclusive of the Toca straddle plant).

Under its gas gathering and processing contracts, the Company collects fees
based on the volume of natural gas processed or receives a predetermined
percentage, ranging from 40% to 85%, of the NGLs produced. Natural gas
processed at certain facilities is subject to contracts that combine gathering
and compression fees with "keep whole" arrangements. In addition to the fees
collected, the Company retains the NGLs recovered at the processing facility and
keeps the producer whole by returning to the producer at the tailgate of the
plant an amount of residue gas equal on a Btu basis to the raw natural gas
received at the plant inlet. The fixed nature of the gathering and compression
fees reduces the Company's exposure to the margin volatility of residue gas and
NGLs typically experienced in pure "keep-whole" arrangements. For the year
ended December 31, 1994, gas gathering and processing contracts accounted for
41% of natural gas throughput and other fee-based contracts accounted for 2% of
natural gas throughput (exclusive of the Toca straddle plant).

SIGNIFICANT ACQUISITIONS AND PROJECTS

The Company's significant acquisitions and projects since January 1, 1992 are:

Katy Gas Storage Facility

The Company has completed the construction of the Katy Gas Storage Facility (the
"Katy Facility") located approximately 20 miles from Houston, Texas and it
commenced operations in February 1994. The complex utilizes a partially
depleted natural gas reservoir with 18 Bcf of working gas and a pipeline header
system, currently connected to eleven pipelines, which has the capability to
deliver up to 400 MMcf/D of natural gas from the reservoir. The Katy Facility
will be an electronic trading site through the NYMEX/Channel 4 on-line trading
and information system. This service is expected to be available in May 1995.
Lease acquisition and construction costs incurred through the commencement of
operations, including pad gas, approximate $106.1 million, excluding capitalized
pre-operating costs. See "Marketing" below.

Oasis

Effective December 1, 1994, the Company acquired the West Texas gathering and
treating assets of Oasis for approximately $26.0 million. The Oasis purchase
included 14 gathering systems in the Permian Basin comprising approximately 600
miles of pipeline and two treating facilities. In addition, the Company has
entered into a long-term agreement with Oasis for 100 MMcf per day of firm
transportation service on its intrastate pipeline. The Company will install a
200 MMcf per day pipeline interconnection between this pipeline and the Katy
Facility.

Mountain Gas

Effective January 1, 1993, the Company acquired the stock of Mountain Gas
Resources, Inc. ("Mountain Gas") from Morgan Stanley Leveraged Equity Fund II,
L.P. for total consideration of approximately $168.2 million, including the
payment of certain transaction costs and the assumption and repayment of $35
million of long-term debt of Mountain Gas.

Mountain Gas owns the Red Desert and Granger facilities, both located near the
Company's Lincoln Road gas processing plant and gathering system. The 22%
interest in the Granger facility previously not owned by Mountain Gas was
purchased by the Company in two separate transactions in November and December
1993 for an aggregate of $27.7 million. At the date of acquisition, the Red
Desert facility consisted of a cryogenic plant and the Granger plant consisted
of a refrigeration unit and a cryogenic unit. In December 1993, the Company
completed construction of an additional cryogenic processing plant at Granger,
at a total additional cost of approximately $4.8 million.

6
<PAGE>

Black Lake

Effective January 1, 1993, the Company purchased the Black Lake gas processing
plant and related reserves ("Black Lake") from Nerco Oil & Gas, Inc. for
approximately $136.2 million. The acquisition included a 68.9% working interest
in the Black Lake field in Louisiana and a gas processing plant.

To increase the efficiency of Black Lake's processing capabilities, the Company
installed a cryogenic processing plant at a cost of approximately $4.1 million.
The cryogenic processing plant, which became fully operational in October 1994,
is expected to decrease fuel usage by 3.6 MMcf per day and plant operating
expenses by $1.4 million per year, and provides flexibility to recover or reject
ethane. The Company also completed the drilling of an infill development well
to enhance production in the Black Lake field which was completed in October
1994 at a cost of approximately $691,000.

Westana Joint Venture

Effective August 1, 1993, the Company formed Westana Gathering Company
("Westana"), a general partnership, with Panhandle Eastern Pipe Line Corporation
("PEPL"). Westana provides gas gathering and processing services in the
Anadarko Basin in Oklahoma and markets natural gas and NGLs for producers
connected to its system. The Company is the principal operator with each
partner holding a 50% ownership interest.

The Company contributed its Chester gas processing plant and gathering system,
with a net book value of $13.8 million, to Westana. Westana also operates PEPL's
400 mile gathering system, which will be contributed to Westana after
abandonment approval by the FERC. The FERC issued a ruling on March 15, 1995
which the Company is evaluating. The Company also made additional contractual
partnership contributions of $8.3 million through December 31, 1994 for
necessary modifications to the gathering system. This contribution is to be
recouped by the Company through preferential partnership distributions.

Other

The Company continually monitors the economic performance of each operating
facility to see that it meets a desired cash flow objective. If an operating
facility is not generating desired cash flows or does not fit in with the
Company's strategic plans, the Company will explore various options such as
consolidation with other company owned facilities, dismantlement, asset swap or
outright sale. In 1994, the Company sold the Sligo plant, swapped the Pyote
treating facilities for gathering assets in Kansas, consolidated assets in the
Powder River Basin and sold the Walnut Bend gathering system. In 1995, the
Company expects to consolidate the Lamont gathering system with the Chaney Dell
system, salvage the Lamont and Walnut Bend processing plants, and sell non-
strategic assets acquired in the recent Oasis acquisition.

MARKETING

Natural Gas

The Company markets residue gas produced at its plants and purchased from third
parties to end-users, local distribution companies ("LDCs"), pipelines and other
marketing companies throughout the United States. The Company's success in
obtaining markets for residue gas has been an important factor in maintaining
production levels for its producers and throughput levels for its gas plants.

The Company continues to increase its marketing capabilities. Increased third-
party sales and sales attributable to the Katy Facility, Red Desert, Granger and
Black Lake systems have primarily accounted for the increase in average daily
gas sales from 442 MMcf/D for the year ended December 31, 1992 to 1,097 MMcf/D
for the year ended December 31, 1994. The Company has continued to increase
sales to end-users and to achieve greater market penetration close to its
facilities, while also expanding into new markets throughout the United States.

Most of the Company's current sales contracts are short-term, ranging from a few
days to one year. At December 31, 1994, the Company's commitment under long-
term contracts, several of which have an annual redetermination of prices and
several of which are rebid prior to expiration, was approximately 235 MMcf/D.

The Company intends to continue to expand its residue gas marketing and third-
party sales particularly to industrial and commercial end-users. Third-party
sales and residue gas storage, combined with the stable supply from Company
facilities,

7
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enable the Company to respond quickly to changing market conditions and to take
advantage of seasonal price variations and peak demand periods. This creates an
opportunity for the Company to obtain a higher price on average for its
delivered residue gas than the price obtained by other marketers or brokers.
The Company customarily stores residue gas in underground storage facilities to
assure an adequate supply for long-term sales contracts and for resale during
periods when prices are favorable. At December 31, 1994, the Company held
approximately 21.9 Bcf of residue gas inventory in underground storage at an
average cost of $2.16 per Mcf ($1.94 per MMBtu), primarily at the Katy Facility.
The Company typically hedges a portion of its residue gas volumes and
requirements under gas sales contracts using the futures market. At December 31,
1994, the Company had sales contracts in place for approximately 16.2 million
MMBtu of stored gas at prices ranging from approximately $1.90 per MMBtu to
approximately $2.30 per MMBtu for the 1994-1995 winter heating season.
Additionally, at December 31, 1994 the Company had sales contracts in place for
approximately 12.6 million MMBtu of stored gas at prices ranging from
approximately $1.85 per MMBtu to approximately $2.40 per MMBtu for the 1995-1996
winter heating season. The Company also hedges purchases related to these sales,
the value of which is, or will be, included in the carrying cost of the related
inventory. See Note 3 "Risk Management" to the Company's Consolidated Financial
Statements elsewhere in this Form 10-K.

In order to meet the peaking demand for residue gas in certain markets, the
Company designed and constructed the Katy Facility. The ability to withdraw gas
from the Katy Facility on short notice positions the Company to market residue
gas to LDCs and other customers that need a reliable yet variable supply of
residue gas. The Katy Facility allows the Company to bypass transportation
bottlenecks and enhances flexibility in its marketing operations. The complex
utilizes of a partially depleted natural gas reservoir with 18 Bcf of working
gas and a pipeline header system, currently connected to eleven pipelines, which
has the capability to deliver up to 400 MMcf per day of residue gas from the
reservoir.

In December 1993, the Company entered into a three-year winter-peaking gas
purchase and sales agreement with a major utility in East Texas which designates
the Katy Facility as the primary delivery point. Under the agreement, which was
amended in August 1994, the utility has the right to purchase, during each year
of the contract, up to approximately 50 MMcf per day in November and March and
approximately 140 MMcf per day in December, January and February, determined
daily, at the Houston Ship Channel Index Price plus a demand charge. The
agreement calls for a minimum demand charge to be paid to the Company for each
contract term, whether or not delivery is taken. This minimum demand charge is
calculated based upon five Bcf.

In February 1995, the Company's gas storage subsidiary entered into a long-term
Firm Storage and Transportation Agreement with a St. Louis-based LDC. Under the
agreement, the Company will lease approximately 3 Bcf of capacity in its Katy
Facility to the LDC. The gas will principally serve local distribution
requirements of the LDC's customers in central Missouri.

During the year ended December 31, 1994, the Company sold residue gas to
approximately 340 end-users, pipelines, LDCs and other customers. No single
customer accounted for more than 5% of consolidated revenues for the year ended
December 31, 1994.

NGL Marketing

The Company markets NGLs (ethane, propane, iso-butane, normal butane, natural
gasoline, and condensate) produced at its plants and purchased from third
parties in the Rocky Mountain, Mid-Continent and Gulf Coast regions. A majority
of the Company's production of NGLs moves to the Gulf Coast area, which is the
largest NGL market in the United States. Through the development of end-use
markets and distribution capabilities, the Company ensures that production from
the plants moves on a reliable basis, avoiding curtailment of production.

The volatility of NGL prices in recent years has caused the Company to move to
short-term contracts, with no prices set on a firm basis for more than a 30-day
period. Although some contracts do commit the Company for periods as long as a
year, prices are redetermined on a market-related basis. Storage space is leased
at major trading locations near Houston and in central Kansas in order to store
products so that they can be sold at higher prices on a seasonal basis. At
December 31, 1994, approximately 11.6 MGal of NGLs were in storage at an average
cost of $.30 per gallon. The Company generally intends that stored NGLs turn
over on an annual basis. Additionally, the Company has entered into futures
contracts totaling approximately 375,000 barrels of crude oil at an average
price of $18.10 per barrel to hedge a portion of its share of 1995 condensate
and crude oil production. The Company has, and will continue to enter into
futures contracts for certain purchase and sales transactions as they occur.

8
<PAGE>

For the year ended December 31, 1994, NGL sales averaged 2,970 MGal per day, an
increase from 2,400 MGal per day in 1992. Sales were made to approximately 160
different customers and no single customer accounted for more than 5% of the
Company's consolidated revenues for the year ended December 31, 1994. Revenues
are also derived from marketing fees charged to some producers for NGL marketing
services. At December 31, 1994, such fees were less than 1% of the Company's
consolidated revenues.

PRODUCING PROPERTIES

Revenues derived from the Company's producing properties comprised approximately
3.8% of revenues for the year ended December 31, 1994. The producing properties
are primarily working interests in a unit operated by the Company comprising the
Black Lake field in Louisiana, which provides production to the Black Lake
plant, and 20 gas properties producing from the Smackover formation of the East
Texas Basin, which provide production to the Edgewood plant. The Company also
has working interests in six fields in the Powder River Basin in northeastern
Wyoming, six wells in the Sandwash Basin in northwestern Colorado, three gas
wells in the Austin Chalk formation in southeast Texas and three gas wells in
the San Juan Basin in southwest Colorado.

COMPETITION

The Company competes with other companies in the gathering, processing,
marketing and transmission business both for supplies of natural gas and for
customers for its natural gas and NGLs. Competition for residue gas supplies is
primarily based on efficiency, reliability, availability of transportation and
ability to obtain a satisfactory price for the producers' residue gas.
Competition for customers is primarily based upon reliability and price of
deliverable residue gas and NGLs. For customers that have the capability of
using alternative fuels, such as oil and coal, the Company also competes based
primarily on price against companies capable of providing such alternative
fuels.

ENVIRONMENTAL MATTERS

The construction and operation of the Company's gathering lines, plants and
other facilities used for the gathering, transporting, processing, treating or
storing of residue gas and NGLs are subject to federal, state and local
environmental laws and regulations, including those that can impose obligations
to clean up hazardous substances at the Company's facilities or at facilities
to which the Company sends wastes for disposal. In most instances, the
applicable regulatory requirements relate to water and air pollution control or
solid waste management procedures. The Company employs seven environmental
engineers to monitor environmental compliance and potential liabilities at its
facilities. Prior to consummating any major acquisition, the Company's
environmental engineers perform audits on the facilities to be acquired. In
addition, on an ongoing basis, the environmental engineers perform systematic
environmental assessments of the Company's existing facilities. The Company
believes that it is in substantial compliance with applicable material
environmental laws and regulations. Environmental regulation can increase the
cost of planning, designing, constructing and operating the Company's
facilities. The Company believes that the costs for compliance with current
environmental laws and regulations have not had and will not have a material
effect on the Company's financial position or results of operation.

In 1990, the Congress enacted the Clean Air Act Amendments of 1990 (the "Clean
Air Act") which impose more stringent standards on emissions of certain
pollutants and require the permitting of certain existing air emissions sources.
Many of the regulations have not been promulgated and until their promulgation,
the Company cannot make a final assessment of the impact of the Clean Air Act.
However, based upon its preliminary review of the proposed regulations, the
Company does not anticipate that compliance with the Clean Air Act will require
any material capital expenditures, although it will increase permitting costs in
1995 and may increase certain operating costs on an on-going basis. The Company
does not believe that such cost increases will have a material effect on the
Company's financial position or results of operations.

The Company believes that it is reasonably likely that the trend in
environmental legislation and regulation will continue to be towards stricter
standards. The Company is unaware of future environmental standards that are
reasonably likely to be adopted that will have a material effect on the
Company's financial position or results of operations, but cannot rule out that
possibility.

9
<PAGE>

have not been significant in relation to the results of operations of the
Company and totaled approximately $1.4 million for the year ended December 31,
1994. For the year ended December 31, 1994, the Company paid an aggregate of
approximately $550,000 in air emissions fees to the states in which it operates.
Although the Company anticipates that such air emissions fees will increase over
time, the Company does not believe that such increases will have a material
effect on the Company's financial position or results of operations.

REGULATION

The purchase and sale of natural gas and the fees received for gathering and
processing by the Company have generally not been subject to regulation, and
therefore, except as constrained by competitive factors, the Company has
considerable pricing flexibility. Many aspects of the gathering, processing,
marketing and transportation of natural gas and NGLs by the Company, however,
are subject to federal, state and local laws and regulations which can have a
significant impact upon the Company's overall operations.

As a processor and marketer of natural gas, the Company depends on the
transportation and storage services offered by various interstate pipeline
companies for the delivery and sale of its own gas supplies as well as those it
processes and/or markets for others. Both the performance of transportation and
storage services by interstate pipelines, and the rates charged for such
services, are subject to the jurisdiction of the Federal Energy Regulatory
Commission ("FERC") under the Natural Gas Act of 1938 (the "NGA") and the
Natural Gas Policy Act of 1978 (the "NGPA"). The availability of interstate
transportation and storage service necessary to enable the Company to make
deliveries and/or sales of residue gas can at times be preempted by other system
users in accordance with FERC-approved methods for allocating the system
capacity of "open access" pipelines. Moreover, the rates charged by pipelines
for such services are often subject to negotiation between shippers and the
pipelines within certain FERC-established parameters and will periodically vary
depending upon individual system usage and other factors. An inability to
obtain transportation and/or storage services at competitive rates can hinder
the Company's processing and marketing operations and/or affect its sales
margins.

During the past ten years, the FERC has implemented a nondiscriminatory blanket
transportation program which initially authorized, and ultimately mandated,
interstate natural gas pipelines to perform "open access," self-implementing
(i.e., not generally requiring case-specific certificate authorization)
-----
transportation services. Order Nos. 636, et seq., which constitute the FERC's
-------
most recent issuances in this program, promulgated regulations that
substantially restructure the services provided by interstate pipelines by
"unbundling" (i.e., separating) and separately pricing pipeline gathering,
----
transportation, storage and sales activities in an effort to enable non-pipeline
merchants to compete with pipelines for gas purchasers on an equal basis. These
regulations have largely been implemented by all interstate transporters
utilized by the Company (as well as by the Company's own non-major interstate
pipeline located in Wyoming) in numerous individual pipeline restructuring and
rate proceedings. The conversion of pipelines from natural gas merchants to
primarily transporters of gas through implementation of the FERC's open access
transportation and restructuring programs has caused the pipelines to incur
significant producer take-or-pay costs and other transition costs resulting from
their abandonment of gas purchasing and sales activities. The FERC has allowed,
and indicated in Order Nos. 636, et seq. that it will continue to allow, the
------
recovery of some or all of these and related costs from current shippers of gas.
Pipeline flow-through of many of these costs is subject to the outcome of
administrative and appellate proceedings in individual pipeline rate and
restructuring cases, and Order No. 636, et seq. themselves are currently the
------
subject of numerous petitions for appellate review presently pending in the
United States Court of Appeals for the District of Columbia Circuit. The
outcome of these proceedings could affect the Company's operations and the costs
of transporting and selling gas.

Pursuant to Section 1(b) of the NGA, production and gathering activities are
exempt from the FERC's jurisdiction; however, judicial precedent has held that
where gathering is performed largely in connection with the delivery of gas in
interstate commerce, such gathering can be considered merely an extension of the
jurisdictional transportation of such gas and thus subject to NGA rate
regulation itself. Recently, primarily as a result of the aforementioned
unbundling of interstate pipeline gathering services required by Order No. 636,
et seq., many pipelines have sought FERC authorization to abandon gathering
------
operations and facilities previously held to be subject to the NGA. In response
to those requests, the FERC has established a general policy permitting the
abandonments but requiring a showing demonstrating that existing customers have
been offered, for a two-year period, continued service through the abandoned
facilities at the same rates and under the same terms as were previously offered
by the pipeline. The Company has been active in acquiring and/or operating
natural gas gathering facilities abandoned by interstate pipelines and, thus,
certain of its operations and acquisitions will likely be affected by this FERC
policy. The policy is currently being challenged at both agency and appellate
levels, but at this stage the outcome of such challenges is too speculative to
predict.

10
<PAGE>

EMPLOYEES

At December 31, 1994, the Company employed 838 full-time employees, none of whom
was a union member. The Company considers relations with employees to be
excellent.

ITEM 3. LEGAL PROCEEDINGS

Reference is made to Note 6 of the Company's Consolidated Financial Statements
in Item 8 of this Form 10-K.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the quarter
ended December 31, 1994.

11
<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

As of March 1, 1995, there were 25,749,986 shares of Common Stock outstanding
held by 461 holders of record. The Common Stock is traded on the New York Stock
Exchange under the symbol "WGR". The following table sets forth quarterly high
and low closing sales prices as reported by the NYSE Composite Tape for the
quarterly periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1993
First Quarter....................................... $34 3/4 $24 1/2
Second Quarter...................................... 36 29 5/8
Third Quarter....................................... 45 34 1/8
Fourth Quarter...................................... 44 7/8 28 3/8

1994
First Quarter....................................... 35 26 1/8
Second Quarter...................................... 30 26
Third Quarter....................................... 28 1/2 18 1/2
Fourth Quarter...................................... 22 1/8 18 1/8
</TABLE>

The Company paid annual dividends on the Common Stock aggregating $.20 per share
during the years ended December 31, 1994 and 1993. The Company has declared a
dividend of $.05 per share of common stock for the quarter ending March 31, 1995
to holders of record as of such date. Declarations of dividends on the Common
Stock are within the discretion of the Board of Directors and are dependent upon
various factors, including the earnings, cash flow, capital requirements and
financial condition of the Company. In addition, the Company's ability to pay
dividends is restricted by certain covenants in its credit facilities,
including a prohibition on declaring or paying dividends that exceed, in the
aggregate, the sum of $35 million plus 50% of the Company's consolidated
cumulative net income earned after March 31, 1994 plus 50% of the cumulative net
proceeds in excess of the Redemption Limit (as defined in the Company's loan
agreement) received from the sale of any equity securities sold after March 31,
1994. At December 31, 1994, this threshold amounted to $38.2 million.

12
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial and operating
data for the Company. Certain prior year amounts have been reclassified to
conform to the presentation used in 1994. The data for the three years ended
December 31, 1994 should be read in conjunction with the Company's Consolidated
Financial Statements included elsewhere in this document. The selected
consolidated financial data for the two years ended December 31, 1991 is derived
from the Company's historical Consolidated Financial Statements. See Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." (000s, except per share amounts and operating data):

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues...................................... $1,063,489 $ 932,338 $600,116 $358,242 $255,652
Gross profit.................................. 72,556 92,012 88,192 58,152 44,180
Income before taxes........................... 11,524 55,631 58,445 32,783 27,856
Provision for income taxes.................... 4,160 17,529 18,757 11,933 10,362
Net income.................................... 7,364 38,102 39,688 20,850 17,494
Earnings (loss) per share of common
stock....................................... (.19) 1.25 1.43 .94 .83

CASH FLOW DATA:

Net cash provided by operating activities..... 31,039 103,505 93,277 36,228 23,772
Capital expenditures.......................... 100,540 492,328 67,021 234,124 115,064

BALANCE SHEET DATA
(at period end):

Total assets.................................. 1,167,362 1,114,748 582,188 552,321 291,025
Long-term debt................................ 418,000 547,000 157,000 216,050 120,300
Stockholders' equity.......................... 436,683 314,387 287,021 221,389 98,629
Dividends declared per share of common
stock....................................... .20 .20 .20 .15 -

OPERATING DATA:

Average gas sales (MMcf/D).................... 1,097.0 755.1 441.8 309.6 220.3
Average NGL sales (MGal/D).................... 2,970.1 2,940.9 2,399.5 1096.6 630.2
Average gas volumes gathered (MMcf/D)......... 1,026.5 894.7 625.4 323.0 216.8
Plant capacity (MMcf/D)....................... 1,500.0 1,526.0 1,117.0 1,123.5 480.5
Average gas prices ($/Mcf).................... $ 1.77 $ 2.02 $ 1.72 $ 1.59 $ 1.78
Average NGL prices ($/Gal).................... $ .28 $ .31 $ .32 $ .36 $ .40
</TABLE>

13
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis relates to factors which have affected the
consolidated financial condition and results of operations of the Company for
the three years ended December 31, 1994. Certain prior year amounts have been
reclassified to conform to the presentation used in 1994. Reference should also
be made to the Company's Consolidated Financial Statements and related Notes
thereto and the Selected Financial Data included elsewhere in this document.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 (000S,
EXCEPT PER SHARE AMOUNTS AND OPERATING DATA).

<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------- Percent
1994 1993 Change
------------- -------- --------
<S> <C> <C> <C>
FINANCIAL RESULTS:
Revenues...................................... $1,063,489 $932,338 14.1
Gross profit.................................. 72,556 92,012 (21.1)
Net income.................................... 7,364 38,102 (80.7)
Earnings (loss) per share of common stock..... (.19) 1.25 -
Net cash provided by operating activities..... 31,039 103,505 (70.0)

OPERATING DATA:
Average gas sales (MMcf/D).................... 1,097.0 755.1 45.3
Average NGL sales (MGal/D).................... 2,970.1 2,940.9 1.0
Average gas prices ($/Mcf).................... $ 1.77 $ 2.02 (12.4)
Average NGL prices ($/Gal).................... $ .28 $ .31 (9.7)
</TABLE>

Net income decreased $30.7 million and net cash provided by operating activities
decreased $72.5 million for the year ended December 31, 1994 compared to the
same period in 1993. Overall, throughput and sales volumes at the Company's
facilities have remained comparable to historical levels. The Company's
decrease in net income and net cash provided by operating activities is
primarily attributable to a decline in NGL and residue gas prices and higher
interest, selling and administrative and depreciation costs associated with the
Company's 1993 acquisitions of Black Lake and Mountain Gas, along with the
completion of the Katy Facility construction. In addition, because of lower
demand and lower than expected prices, the Katy Facility did not generate
significant revenue. As a result, revenues from the Katy Facility in 1994 did
not fully offset related depreciation, interest and operating costs.

Revenues from the sale of residue gas increased approximately $144.8 million for
the year ended December 31, 1994 compared to the same period in 1993, as a
volume increase of approximately 345 MMcf per day was somewhat offset by a
decrease in average residue gas sales prices of $.25 per Mcf. Approximately 300
MMcf per day of the volume increase is attributable to an increase in the sale
of residue gas purchased from third parties, primarily resulting from the
acquisition of Citizens National Gas Company ("Citizens") assets in the third
quarter of 1993. The remaining volume increase is the result of increased
production volumes at the Company's facilities, primarily due to the Mountain
Gas and Black Lake acquisitions, new well connect activities and consolidations
with smaller gathering systems.

Revenues from the sale of NGLs decreased approximately $24.5 million for the
year ended December 31, 1994 compared to the same period in 1993, as a volume
increase of approximately 30 MGal per day was more than offset by a $.03 per
gallon decrease in the average NGL sales price. Approximately 22 MGal per day of
the volume increase is attributable to an increase in the sale of NGLs purchased
from third parties. The remaining volume increase is primarily attributable to
the acquisitions of Mountain Gas and Black Lake, new well connect activity and
consolidations with smaller gathering systems. This volume increase was
somewhat offset by unfavorable economics of ethane and propane extraction in the
first quarter of 1994 and by limited NGL volumes at the Granger facility,
primarily as a result of the December 1993 fire. The curtailment of production
during the third quarter of 1994 at Black Lake while plant improvements were
completed also contributed to lower volumes.

14
<PAGE>

Processing and transportation revenues increased $9.4 million for the year ended
December, 31, 1994 compared to the same period in 1993. The increase is due to
additional gathering revenue associated with the Company's Granger gathering
system acquired in the Mountain Gas acquisition in July 1993, increased
gathering revenue at the Company's Lincoln Road facility and the recognition of
demand fees associated with a winter-peaking gas purchase and sales contract at
the Katy Facility during 1994.

Other net revenue increased $1.5 million for the year ended December 31, 1994
compared to the same period in 1993. For the year ended December 31, 1994, the
Company accrued approximately $3.3 million as an amount to be recovered under
its business interruption insurance policy for business losses associated with
the December 1993 fire at the Company's Granger facility and approximately $1.4
million in rate refunds from a pipeline company. These 1994 recoveries were
somewhat offset by a $2.6 million gain recorded as a result of the termination
of interest rate swap agreements in 1993.

Historically, product purchases as a percentage of residue gas and NGL sales
from the Company's plant production have approximated 70%. Product purchases as
a percentage of residue gas and NGL sales from third-party purchases were
substantially higher in 1994 and approximated 95%. Total product purchases as a
percentage of residue gas and NGL sales increased approximately 2.5% to 84% for
the year ended December 31, 1994 compared to the same period in 1993. The
increase in the Company's combined percentage is primarily due to an increasing
proportion of 1994 residue gas sales revenues resulting from products purchased
from third parties.

Plant operating expense and oil and gas exploration and production costs
increased approximately $6.1 million and $2.2 million, respectively, for the
year ended December 31, 1994 compared to the same period in 1993. The increase
in plant operating expense was primarily due to the additional operating costs
associated with three gas processing facilities acquired from Mountain Gas and
Black Lake in July 1993 and the Katy Facility, which commenced operations in
February 1994. The oil and gas exploration and production cost increase
resulted primarily from costs associated with producing properties acquired in
the Black Lake acquisition.

Selling and administrative expense increased approximately $5.7 million for the
year ended December 31, 1994 compared to the same period in 1993, primarily due
to administrative expenses necessitated by the 1993 acquisitions, an overall
increase in insurance expenditures and a reduction in overhead capitalized to
the Company's construction projects.

Depreciation, depletion and amortization expense increased approximately $19.6
million for the year ended December 31, 1994 compared to the same period in
1993. This increase is primarily due to the acquisitions of Mountain Gas and
Black Lake in July 1993 and the Katy Facility, which commenced operations in
February 1994, and is partially offset by lower depreciation and depletion
expense resulting from the addition of recoverable reserves at Black Lake and
Edgewood during 1994.

Interest expense increased approximately $18.9 million for the year ended
December 31, 1994 compared to the same period in 1993, primarily due to
additional borrowings necessitated by the Mountain Gas and Black Lake
acquisitions, a reduction in the amount of interest capitalized to the Katy
Facility and an increase in the Company's variable borrowing rate.

15
<PAGE>

YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992 (000S,
EXCEPT PER SHARE AMOUNTS AND OPERATING DATA).

<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------- Percent
1993 1992 Change
------------ -------- --------
<S> <C> <C> <C>
FINANCIAL RESULTS:
Revenues...................................... $932,338 $600,116 55.4
Gross profit.................................. 92,012 88,192 4.3
Net income.................................... 38,102 39,688 (4.0)
Earnings per share of common stock............ 1.25 1.43 (12.6)
Net cash provided by operating activities..... 103,505 93,277 11.0

OPERATING DATA:
Average gas sales (MMcf/D).................... 755.1 441.8 70.9
Average NGL sales (MGal/D).................... 2,940.9 2,399.5 22.6
Average gas prices ($/Mcf).................... $ 2.02 $ 1.72 17.4
Average NGL prices ($/Gal).................... $ .31 $ .32 (3.1)
</TABLE>

Net income decreased $1.6 million and net cash provided by operating activities
increased $10.2 million for the year ended December 31, 1993 compared to the
same period in 1992.

Revenues from the sale of residue gas increased $284.1 million for the year
ended December 31, 1993 compared to the same period in 1992 due to an increase
in residue gas prices of $.30 per Mcf and an increase in sales volumes of 315
MMcf per day. Of this volume increase, 246 MMcf per day is attributable to an
increase in the sale of residue gas purchased from third parties, in part due to
the acquisition of Citizens. The remaining volume increase is the result of
increased production volumes at the Company's facilities, primarily due to the
Mountain Gas and Black Lake acquisitions as well as new well hookups at the
Midkiff/Benedum and Giddings facilities.

Revenues from the sale of NGLs increased $43.7 million for the year ended
December 31, 1993 compared to the same period in 1992 due to an increase in NGL
sales volumes of 545 MGal per day which was somewhat offset by a $.01 per
gallon decrease in the price of NGLs. Of the volume increase, 377 MGal per day
is attributable to an increase in the sale of NGLs purchased from third parties.
The remaining volume increase is the result of increased production volumes at
the Company's facilities, primarily due to the Mountain Gas and Black Lake
acquisitions as well as new well hookups at the Midkiff/Benedum and Giddings
facilities.

Historically, product purchases as a percentage of residue gas and NGL sales
from the Company's plant production have approximated 70%. Product purchases as
a percentage of residue gas and NGL sales from third-party purchases were
substantially higher in 1993 than the historical percentage and approximated
95%. The increase in the Company's combined percentage is primarily due to a
high proportion of 1993 sales volumes having come from third parties. As a
result, total product purchases as a percentage of residue gas and NGL sales
increased approximately 6.3% to 81.5% for the year ended December 31, 1993
compared to the same period in 1992.

Plant operating expense increased $7.4 million for the year ended December 31,
1993 compared to the same period in 1992 primarily due to the Mountain Gas and
Black Lake acquisitions and an increase in repair and maintenance charges
incurred at facilities acquired from UTP.

Selling and administrative expense increased $4.1 million as a result of higher
payroll and benefit charges and professional fees resulting from the Company's
growing operations and its preparation for the Katy Gas Storage Facility, a
litigation reserve established for a lawsuit and franchise taxes resulting from
the Company's expansion into states which do not charge income taxes, somewhat
offset by increased overhead capitalized to the Company's construction projects.
In 1993, overhead capitalized to the Company's construction projects increased
approximately $3.3 million when compared to the same period in 1992.

Depreciation, depletion and amortization expense increased $17.5 million for the
year ended December 31, 1993 compared to the same period in 1992, primarily due
to the Mountain Gas and Black Lake acquisitions. In February 1994, the Katy

16
<PAGE>

Facility commenced operations; depreciation, depletion and amortization expense
associated with the Katy Facility will be approximately $3.0 million per year.

Interest expense increased $2.5 million for the year ended December 31, 1993
compared to the same period in 1992 due to higher average long-term debt
outstanding. In 1993, interest incurred and capitalized during the construction
period of new projects increased approximately $2.8 million compared to the same
period in 1992.

In 1993, the corporate income tax rate was increased from 34% to 35%. This rate
increase resulted in an increase in deferred income taxes of approximately $2.1
million for the year ended December 31, 1993.

FORWARD LOOKING INFORMATION

The Company cannot accurately predict future hydrocarbon prices and in order to
minimize the impact of price fluctuations on the Company's operating results,
the Company has entered into futures contracts totaling approximately 70 MMcf
per day, or a majority of the Company's share of 1995 natural gas production at
an average price of approximately $2.02 per Mcf. Additionally, the Company has
entered into futures contracts totaling approximately 375,000 barrels of crude
oil at an average price of $18.10 per barrel to hedge a portion of its share of
1995 condensate and crude oil production. The Company has, and will continue to
enter into futures contracts for certain purchase and sales transactions as they
occur.

Throughput volumes at the Company's facilities are expected to increase
approximately 200 MMcf per day based primarily upon the added production to be
provided by the Company's recent Oasis acquisition and additional well
connections at the Company's facilities in the Green River Basin, Powder River
Basin and Permian Basin.

Average gas sales volumes are also expected to increase to approximately 1.3 Bcf
per day based primarily upon the Company's expanding marketing capabilities,
increased throughput volumes at the Company's processing facilities and as a
result of the Katy Facility.

OTHER

The oil and gas industry has experienced an increasing incidence of mergers,
acquisitions and combinations in recent years. The Company has evaluated, and
will continue to evaluate, any such opportunities, including smaller
consolidating acquisitions, that it identifies as offering an opportunity to
enhance the Company's operational and industry position.

LIQUIDITY AND CAPITAL RESOURCES

The Company's sources of liquidity and capital resources historically have been
net cash provided by operating activities, funds available under its financing
facilities and proceeds from offerings of equity securities. In the past, these
sources have been sufficient to meet the needs and finance the growth of the
Company's business. The Company can give no assurance that the historical
sources of liquidity and capital resources will be available for future
development and acquisition projects and may require the Company to investigate
alternative financing sources. Net cash provided by operating activities has
been primarily affected by product prices, the Company's success in increasing
the number and efficiency of its facilities and the volumes of natural gas
processed by such facilities, and the margin on third-party residue gas
purchased for resale. The Company's continued growth will be dependent upon
success in the areas of additions to dedicated plant reserves, acquisitions, new
project development and marketing.

For the year ended December 31, 1994, the Company's total sources of funds
aggregated $300.0 million and was comprised of net proceeds from the issuance
of the $2.625 Convertible Preferred Stock of $132.7 million, net proceeds from
short-term borrowings of $75.0 million, proceeds from the issuance of long-term
debt of $50.0 million, net cash provided by operating activities of $31.0
million, net proceeds received from the disposition of property and equipment of
$10.9 million and net proceeds received from the exercise of common stock
options of $413,000. During the same period, the Company's use of such funds
aggregated $295.9 million which were used primarily to make payments of $179.0
million under its revolving

<PAGE>

credit facility, to make capital investments of $100.5 million, to pay dividends
to holders of 7.25% Convertible Preferred Stock, $2.28 Cumulative Preferred
Stock and $2.625 Convertible Preferred Stock of $11.3 million and to pay
dividends to holders of Common Stock of $5.1 million.

The Company has Shelf Registrations available which provide for the sale of up
to $200 million of debt securities and preferred stock and up to four million
shares of common stock.

The Company called for the redemption of its 7.25% Cumulative Senior Perpetual
Convertible Preferred Stock (liquidation preference of $40 million) on October
31, 1994, at an aggregate redemption price of $42 million plus accrued
dividends. After two previous extensions, the Company and holder agreed to
extend the redemption date to May 31, 1995. The holder has the right on or
prior to the redemption date to convert the preferred stock into an aggregate of
2,090,000 shares of the Company's common stock. The Company is unable to
predict whether redemption or conversion will occur.

The Company has been successful overall in replacing production with new
reserves. However, volumes of natural gas dedicated to some of the Company's
plants have declined during recent years because additions to dedicated plant
reserves have not fully offset production. In 1994, including reserves
associated with Westana, the Company connected new reserves to its gathering
systems replacing approximately 85% of 1994 production, or 194% of 1994
production including the Company's 1994 acquisition. On a Company-wide
basis, dedicated reserves, including certain proved undeveloped properties and
revisions to previous estimates related to the Company's proved developed
properties, totaled approximately 2.1 Tcf at December 31, 1994.

An additional source of liquidity to the Company is volumes of residue gas and
NGLs in storage facilities. The Company stores volumes of residue gas and NGLs
primarily to assure an adequate supply for long-term sales contracts and for
resale during periods when prices are favorable. At December 31, 1994, the
Company held in storage approximately 11.6 million gallons of NGLs at an average
cost of $.30 per gallon and 21.9 Bcf of residue gas at an average cost of $2.16
per Mcf ($1.94 per MMBtu) primarily at the Katy Facility.

Hedging Activities

The Company enters into futures, swaps and option contracts to hedge against a
portion of the price risk associated with natural gas and NGLs. Gains and
losses on hedges of product inventory are included in the carrying amount of the
inventory and are ultimately recognized in residue and NGL purchases or sales
when the related inventory is sold. Gains and losses related to qualifying
hedges of firm commitments or anticipated transactions also are deferred and are
recognized in residue and NGL sales when the hedged transaction occurs. Margins
from the Company's forward fixed price hedges and physical sales for 1995 are
expected to more than offset the related $6.1 million of losses deferred at
December 31, 1994.

At December 31, 1994, 2,257 contracts (net) (10,000 Mcf per contract) for the
sale of residue gas in January 1995 through January 1996 at prices ranging from
$1.55 per Mcf to $2.38 per Mcf were outstanding. At December 31, 1993, 296 such
contracts were outstanding at prices ranging from $1.87 per Mcf to $2.56 per
Mcf. No such contracts for NGLs were outstanding at December 31, 1994 or
December 31, 1995. See also "Financing Facilities - Interest Rate Swap
Agreements" below.

Capital Investment Program

Between January 1, 1992 and December 31, 1994, the Company expended
approximately $660.3 million on new projects. For the three years ended December
31, 1994, the Company expended $101.0 million, $492.3 million and $67.0 million,
respectively, on acquisitions, the construction of the Katy Facility, connection
of new reserves, the acquisition of consolidating assets for existing systems
and for upgrades to existing and newly acquired facilities.

In order to maintain the volumes of natural gas dedicated to or processed by the
Company's existing facilities, future capital expenditures for gathering
systems needed to connect new reserves and to acquire consolidating assets are
anticipated to be approximately $63.5 million for 1995 and capital expenditures
to maintain existing facilities are expected to approximate $16.5 million for
1995. The availability of new reserves at existing facilities is somewhat
affected by the price of crude oil or natural gas (depending on whether the
natural gas is associated gas or gas well gas) which in turn stimulates new
drilling at higher price levels.

Depending on the timing of the Company's future projects, it may be required to
seek additional sources of capital. The Company's ability to secure such
capital is restricted by its credit facilities, although it may request
additional borrowing

18
<PAGE>

capacity from the banks, seek waivers from the banks to permit it to borrow
funds from third parties, seek replacement credit facilities from other lenders
or issue additional equity securities. While the Company believes that it would
be able to secure additional financing, if required, no assurance can be given
that it will be able to do so or as to the terms of any such financing.

Financing Facilities

REVOLVING CREDIT FACILITY. The Company's variable rate Revolving Credit
Facility, as restated on September 2, 1994, and subsequently amended, with a
syndicate of eight banks, provides for a maximum borrowing base of $325 million,
of which $168.0 million was outstanding at December 31, 1994. The commitment
decreases to $300 million on January 1, 1995. If the facility is not renewed
on January 1, 1997, any outstanding balance thereunder converts to a four-year
term loan during which such balance will be repaid in equal quarterly
installments. The Revolving Credit Facility bears interest, at the Company's
option, at certain spreads over the Eurodollar rate, the Federal Funds rate plus
.50% or at the agent bank's prime rate. The interest rate spreads are adjusted
based on the Company's debt to capitalization ratio. At December 31, 1994, the
spread was 1.0% for the Eurodollar rate, resulting in an interest rate of 7.17%.
Beginning with the quarter ended March 31, 1995, the spread will increase to
1.25%.

The Company pays a commitment fee on the unused commitment ranging from .15% to
.375% based on the debt to capitalization ratio. At December 31, 1994, the
Company's debt to capitalization ratio was in the range of .50 to 1.0 resulting
in a commitment fee rate of .30%. Beginning with the quarter ended March 31,
1995, the rate will increase to .375%.

TERM LOAN FACILITY. The Company also has a Term Loan Facility with four banks
for $50 million which bears interest at 9.87%. Payments on the Term Loan
Facility of $25 million, $12.5 million and $12.5 million are due in September
1995, 1996 and 1997, respectively. The $25 million payment due on the Term Note
in September 1995 has been classified as long-term debt as the Company intends
to fund this payment from amounts available under the
Revolving Credit Facility.

The agreement governing the Company's Revolving Credit and Term Loan Facilities
(the "Credit Facilities Agreement") is subject to certain mandatory prepayment
terms. If funded debt of the Company exceeds five times the sum of the
Company's last four quarters' cash flow (as defined in the agreement) less
preferred stock dividends, the overage must be repaid in no more than six
monthly payments commencing 90 days from notification. This mandatory
prepayment threshold will be reduced to 4.0 to 1.0 at September 1, 1995 and 3.50
to 1.0 at September 1, 1998. At December 31, 1994, the Company had
approximately $99.8 million of available borrowing capacity.

The Term Loan and Revolving Credit Facilities are unsecured. The Company is
required to maintain a current ratio of at least 1.0 to 1.0 (as defined in the
Credit Facilities Agreement), a tangible net worth at December 31, 1994 of at
least $403.2 million, a debt to capitalization ratio of no more than 60% through
October 31, 1995 and 55% thereafter and an EBITDA to interest ratio of not less
than 3.25 to 1.0 through October 31, 1995 and 3.75 to 1.0 thereafter. The
Company is prohibited from declaring or paying dividends that exceed the sum of
$35 million plus 50% of consolidated net income earned after March 31, 1994 plus
50% of the cumulative net proceeds in excess of the Redemption Limit (as defined
in the Credit Facilities Agreement) received from the sale of any equity
securities sold after March 31, 1994. At December 31, 1994, this threshold
amounted to approximately $38.2 million. The Company generally utilizes excess
daily funds to reduce any outstanding revolving credit balances to minimize
interest expense and intends to continue such practice. The $8.7 million cash
balance at December 31, 1994 is an overnight investment necessitated by the
timing of cash receipts.

MASTER SHELF AGREEMENT. In December 1991, the Company entered into a Master
Shelf Agreement (the "Master Shelf") with The Prudential Insurance Company of
America ("Prudential") pursuant to which Prudential agreed to quote, from time-
to-time, an interest rate at which Prudential or its nominee would be willing to
purchase up to $100 million of the Company's senior promissory notes (the
"Master Notes"). Any such Master Notes must mature in no more than 12 years,
with an average life not in excess of 10 years, and will be unsecured. On
October 27, 1992, the Company sold $25 million of 7.51% Master Notes due 2000
and $25 million of 7.99% Master Notes due 2003. Principal payments on the $50
million of Master Notes of $8.3 million will be due on October 27 of each year
from 1998 through 2003. On September 22, 1993, the Company sold $25 million of
6.77% Master Notes due in a single payment on September 22, 2003 and on December
27, 1993, the Company sold $25 million of 7.23% Master Notes due in a single
payment on December 27, 2003. The Master Shelf contains certain financial
covenants which conform with those contained in the Credit Facilities Agreement,
as restated. In July 1993, Prudential and the Company amended the Master Shelf
to provide for an additional $50 million of borrowing capacity (for

19
<PAGE>

a total borrowing capacity of $150 million) and to extend the term of the Master
Shelf to October 31, 1995. On October 27, 1994, the Company sold $25 million of
9.05% Master Notes due in a single payment on October 27, 2001 and $25 million
of 9.24% Senior Notes due in a single payment on October 27, 2004. At December
31, 1994, the Master Shelf Agreement, as amended, was fully utilized.

SENIOR NOTES. On April 28, 1993 the Company sold $50 million of 7.65% Senior
Notes due 2003 to a group of insurance companies led by Connecticut General Life
Insurance Company. Principal payments on the $50 million of Senior Notes of
$7.1 million will be due on April 30th of each year from 1997 through 2002, with
any remaining principal and interest outstanding due on April 30, 2003. The
Senior Notes contain certain financial covenants which conform with those
contained in the Credit Facilities Agreement, as restated.

ADDITIONAL BORROWINGS. The Company anticipates entering into an agreement with
Receivables Capital Corporation ("RCC"), as administered by Bank of America
National Trust and Savings Association ("BA"), to sell an undivided interest in
the Company's trade receivables for a maximum borrowing of $75 million bearing
interest at RCC's commercial paper rate plus .375%. Specific terms of this
agreement have not yet been negotiated; however, the Company anticipates
completion of this agreement in April 1995. On September 2, 1994, in advance of
completing the agreement with RCC, BA entered into a Master Note Agreement
("Short-Term Note") with the Company and advanced the Company $75 million
bearing interest at the Eurodollar rate plus .50% which resulted in an interest
rate of 6.625% at December 31, 1994. The $75 million received under the Short-
Term Note was used to reduce borrowings under the revolving credit facility and
has been included in short-term borrowings on the Company's Consolidated Balance
Sheet at December 31, 1994. The Company anticipates repaying the Short-Term Note
with proceeds from RCC.

COVENANT COMPLIANCE. At December 31, 1994, the Company was in compliance with
all covenants in its loan agreements.

INTEREST RATE SWAP AGREEMENTS. The Company has entered into various interest
rate swap agreements to manage exposure to changes in interest rates. The
transactions generally involve the exchange of fixed and floating interest
payment obligations or the exchange of foreign and U.S. currencies, without the
exchange of the underlying principal amounts. The net effect of interest rate
swap activity is reflected as an increase or decrease in interest expense. Any
gains on termination of interest rate swap agreements and the effects of foreign
currency positions that were marked to market are included in other income. At
December 31, 1994 and 1993, the total notional principal amount of outstanding
interest rate swap agreements was $50 million. In addition to the financial
risk that will vary during the life of these swap agreements in relation to the
maturity of the underlying debt and market interest rates, the Company is
subject to credit risk exposure from nonperformance of the counterparties to the
swap agreements. The Company does not anticipate nonperformance by the
counterparties.

The following table summarizes the results of the Company's interest rate swap
and foreign currency positions for the three years ended December 31, 1994
(000s):

<TABLE>
<CAPTION>
1994 1993 1992
------ -------- ------
<S> <C> <C> <C>
Net (increase) decrease to interest expense..... $(932) $ 1,769 $ 250
===== ======= =====

Gains on swap termination....................... $ - $ 2,590 $ 765
===== ======= =====

Losses on foreign currency positions............ $(361) $(1,175) $(119)
===== ======= =====
</TABLE>

The Company believes that the amounts available to be borrowed under the
Revolving Credit Facility together with cash provided from operations, will
provide it with sufficient financing to connect new reserves, maintain its
existing facilities and complete its current capital improvement projects. The
Company also believes that cash provided from operations will be sufficient to
meet its debt service and preferred stock dividend requirements and redemption
requirements, if any.

Environmental

20
<PAGE>

to water and air pollution control or solid waste management procedures. The
Company employs seven environmental engineers to monitor environmental
compliance and potential liabilities at its facilities. Prior to consummating
any major acquisition, the Company's environmental engineers perform audits on
the facilities to be acquired. In addition, on an ongoing basis, the
environmental engineers perform systematic environmental assessments of the
Company's existing facilities. The Company believes that it is in substantial
compliance with applicable material environmental laws and regulations.
Environmental regulation can increase the cost of planning, designing,
constructing and operating the Company's facilities. The Company believes that
the costs for compliance with current environmental laws and regulations have
not had and will not have a material effect on the Company's financial position
or results of operation.

The Company is in the process of voluntarily cleaning up non-hazardous
substances at facilities that it operates. In addition, the former owner of
certain facilities that the Company acquired in 1992 is conducting cleanups at
those facilities pursuant to contractual obligations. The Company's
expenditures for environmental evaluation and remediation at existing facilities
have not been significant in relation to the results of operations of the
Company and totaled approximately $1.4 million for the year ended December 31,
1994. For the year ended December 31, 1994, the Company paid an aggregate of
approximately $550,000 in air emissions fees to the states in which it operates.
Although the Company anticipates that such air emissions fees will increase over
time, the Company does not believe that such increases will have a material
effect on the Company's financial position or results of operations.

21
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Western Gas Resources, Inc.'s Consolidated Financial Statements as of
December 31, 1994 and 1993 and for the three years ended December 31, 1994:

Page
----
Report of Management................................................... 23
Report of Independent Accountants...................................... 24
Consolidated Balance Sheets............................................ 25
Consolidated Statements of Cash Flows.................................. 26
Consolidated Statements of Operations.................................. 27
Consolidated Statements of Changes in Stockholders' Equity............. 28
Notes to Consolidated Financial Statements............................. 29

22
<PAGE>

REPORT OF MANAGEMENT

The financial statements and other financial information included in this Annual
Report on Form 10-K are the responsibility of management. The financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate in the circumstances and include amounts that are based
on management's informed judgments and estimates.

Management relies on the Company's system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that transactions
are properly recorded and executed in accordance with management's
authorization. The concept of reasonable assurance is based on the recognition
that there are inherent limitations in all systems of internal accounting
control and that the cost of such systems should not exceed the benefits to be
derived. The internal accounting controls in place during the periods presented
are considered adequate to provide such assurance.

The Company's financial statements are audited by Price Waterhouse LLP,
independent accountants. Their report states that they have conducted their
audit in accordance with generally accepted auditing standards. These standards
include an evaluation of the system of internal accounting controls for the
purpose of establishing the scope of audit testing necessary to allow them to
render an independent professional opinion on the fairness of the Company's
financial statements.

The Audit Committee of the Board of Directors, composed solely of directors who
are not employees of the Company, reviews the Company's financial reporting and
accounting practices. The Audit Committee meets periodically with the
independent accountants and management to review the work of each and to ensure
that each is properly discharging its responsibilities.

Signature Title
--------- -----

/s/ BILL M. SANDERSON
---------------------
Bill M. Sanderson President, Chief Operating Officer and Director

/s/ WILLIAM J. KRYSIAK
----------------------
William J. Krysiak Vice President - Finance (Principal Financial
and Accounting Officer)

23
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------

To the Board of Directors and
Stockholders of Western Gas Resources, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of cash flows, of operations, and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Western Gas Resources, Inc. and its subsidiaries at December 31,
1994 and 1993, and the results of their cash flows and their operations for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Denver, Colorado
March 24, 1995

24
<PAGE>

WESTERN GAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(000s)

<TABLE>
<CAPTION>
December 31,
---------------------------
ASSETS 1994 1993
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 8,708 $ 4,666
Trade accounts receivable, net...................................................... 134,444 142,336
Product inventory................................................................... 51,139 20,850
Parts inventory..................................................................... 2,291 2,161
Other............................................................................... 1,367 1,544
---------- ----------
Total current assets............................................................... 197,949 171,557
---------- ----------
Property and equipment, at cost:
Gas gathering, processing, storage and transmission................................. 881,569 684,964
Oil and gas properties and equipment................................................ 140,601 134,638
Construction in progress............................................................ 40,076 148,918
---------- ----------
1,062,246 968,520
Less: Accumulated depreciation, depletion and amortization.......................... (179,537) (123,351)
---------- ----------
Total property and equipment, net.................................................. 882,709 845,169
---------- ----------
Other assets:
Gas purchase contracts (net of accumulated amortization of $14,872 and
$10,756, respectively)............................................................. 40,958 37,556
Other............................................................................... 45,746 60,466
---------- ----------
Total other assets................................................................. 86,704 98,022
---------- ----------
Total assets.......................................................................... $1,167,362 $1,114,748
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................................................... $ 145,244 $ 160,956
Short-term debt..................................................................... 75,000 -
Accrued expenses.................................................................... 13,448 17,667
Dividends payable................................................................... 3,895 2,080
Income taxes payable................................................................ 843 -
---------- ----------
Total current liabilities.......................................................... 238,430 180,703
Long-term debt........................................................................ 418,000 547,000
Deferred income taxes payable......................................................... 68,727 66,481
Other long-term liabilities........................................................... 5,522 6,177
---------- ----------
Total liabilities.................................................................. 730,679 800,361
---------- ----------
Commitments and contingent liabilities................................................ - -
Stockholders' equity:
Common stock, par value $.10; 100,000,000 shares authorized; 25,712,301 and
25,651,722 shares issued and outstanding, respectively............................. 2,574 2,565
Treasury stock, at cost, 25,016 and no shares in treasury, respectively............. (788) -
Preferred Stock; 10,000,000 shares authorized:
$2.625 cumulative convertible preferred stock, par value $.10; 2,760,000 and
no shares issued and outstanding, respectively ($138,000 aggregate
liquidation preference).......................................................... 276 -
$2.28 cumulative preferred stock, par value $.10; 1,400,000 shares issued
and outstanding ($35,000 aggregate liquidation preference)....................... 140 140
7.25% cumulative senior perpetual convertible preferred stock, par value $.10;
400,000 shares issued and outstanding ($40,000 aggregate liquidation
preference)...................................................................... 40 40
Additional paid-in capital.......................................................... 338,926 205,694
Notes receivable from key employees secured by common stock......................... (1,525) (1,985)
Retained earnings................................................................... 97,040 107,933
---------- ----------
Total stockholders' equity......................................................... 436,683 314,387
---------- ----------
Total liabilities and stockholders' equity............................................ $1,167,362 $1,114,748
========== ==========
</TABLE>

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

25
<PAGE>

WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(000s)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by operating activities
-------------------------------------------------------------------------
Net income.................................................................... $ 7,364 $ 38,102 $ 39,688
Add income items that do not affect working capital:
Depreciation, depletion and amortization.................................... 63,586 43,980 26,491
Deferred income taxes....................................................... 2,246 7,439 8,361
Other non-cash items........................................................ 452 77 1,436
--------- --------- ---------
73,648 89,598 75,976
--------- --------- ---------
Adjustments to working capital to arrive at net cash provided by
operating activities:
(Increase) decrease in trade accounts receivable............................ 7,892 (38,078) (2,227)
(Increase) decrease in product inventory.................................... (30,289) (2,540) 8,280
(Increase) decrease in parts inventory...................................... (130) (490) 359
(Increase) decrease in other current assets................................. 177 56 (278)
Increase in other assets and liabilities, net............................... (1,068) (6,456) (4,783)
Increase (decrease)in accounts payable...................................... (15,712) 68,813 14,939
Increase (decrease) in accrued expenses..................................... (4,322) (7,398) 1,011
Increase in income taxes payable............................................ 843 - -
--------- --------- ---------
Total adjustments.......................................................... (42,609) 13,907 17,301
--------- --------- ---------
Net cash provided by operating activities..................................... 31,039 103,505 93,277
--------- --------- ---------

Cash flows from investing activities:
Payments for business acquisitions.......................................... (24,685) (302,988) (11,299)
Payments for additions to property and equipment............................ (67,148) (150,216) (54,681)
Proceeds from dispositions of property and equipment........................ 10,897 741 18,547
Contributions to investments for capital expenditures....................... (1,189) (11,647) (1,041)
Gas purchase contracts acquired............................................. (7,518) (27,477) -
--------- --------- ---------
Net cash used in investing activities......................................... (89,643) (491,587) (48,474)
--------- --------- ---------

Cash flows from financing activities:
Net proceeds from issuance of preferred stock............................... 132,676 - 33,400
Net proceeds from exercise of common stock options.......................... 741 879 1,114
Notes receivable from key employees secured by common stock................. (328) (507) (580)
Proceeds from short-term borrowings......................................... 75,000 - -
Proceeds from issuance of long-term debt.................................... 50,000 100,000 50,000
Net borrowings (payments) under revolving credit facility................... (179,000) 290,000 (109,050)
Dividends paid to holders of common stock................................... (5,137) (5,118) (5,085)
Dividends paid to holders of preferred stock................................. (11,306) (5,666) (2,900)
--------- --------- ---------
Net cash provided by (used in) financing activities......................... 62,646 379,588 (33,101)
--------- --------- ---------
Net increase (decrease) in cash............................................... 4,042 (8,494) 11,702
Cash and cash equivalents at beginning of period.............................. 4,666 13,160 1,458
--------- --------- ---------
Cash and cash equivalents at end of period.................................... $ 8,708 $ 4,666 $ 13,160
========= ========= =========
</TABLE>

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

26
<PAGE>

WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(000s, except share and per share amounts)

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sale of residue gas.................................... $ 707,869 $ 563,068 $ 278,928
Sale of natural gas liquids............................ 309,358 333,880 290,230
Processing and transportation revenue.................. 35,017 25,622 22,124
Other, net............................................. 11,245 9,768 8,834
----------- ----------- -----------

Total revenues........................................ 1,063,489 932,338 600,116
----------- ----------- -----------
Costs and expenses:
Product purchases...................................... 853,398 730,676 427,906
Plant operating expense................................ 68,500 62,387 54,999
Oil and gas exploration and production costs........... 5,449 3,283 2,528
Selling and administrative expense..................... 29,116 23,409 19,298
Depreciation, depletion and amortization............... 63,586 43,980 26,491
Interest expense....................................... 31,916 12,972 10,449
----------- ----------- -----------

Total costs and expenses.............................. 1,051,965 876,707 541,671
----------- ----------- -----------
Income before taxes..................................... 11,524 55,631 58,445

Provision for income taxes:
Current................................................ 1,913 10,090 10,396
Deferred............................................... 2,247 7,439 8,361
----------- ----------- -----------

4,160 17,529 18,757
----------- ----------- -----------

Net income.............................................. $ 7,364 $ 38,102 $ 39,688
=========== =========== ===========

Weighted average shares of common stock outstanding..... 25,695,760 25,608,503 25,453,029
=========== =========== ===========

Earnings (loss) per share of common stock............... $ (.19) $ 1.25 $ 1.43
=========== =========== ===========
</TABLE>

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

27
<PAGE>

WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(000s, except share amounts)

<TABLE>
<CAPTION>
Shares of
7.25%
Cumulative Shares of
Senior Shares of $2.625
Perpetual $2.28 Cumulative
Shares Shares of Convertible Cumulative Convertible
of Common Common Stock Preferred Preferred Preferred Common Treasury
Stock in Treasury Stock Stock Stock Stock Stock
---------- ------------ ----------- ---------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991........ 25,350,530 - 400,000 - - $2,535 $ -
Net income, 1992.................... - - - - - - -
Stock options exercised............. 172,045 - - - - 17 -
Proceeds from issuance of $2.28
Cumulative Preferred Stock......... - - - 1,400,000 - - -
Dividends declared on common stock.. - - - - - - -
Dividends declared on 7.25%
Cumulative Senior Perpetual
Convertible Preferred Stock........ - - - - - - -
Dividends declared on $2.28
Cumulative Preferred Stock......... - - - - - - -
---------- -------- -------- ---------- ---------- ------- -------
Balance at December 31, 1992........ 25,522,575 - 400,000 1,400,000 - 2,552 -
Net income, 1993.................... - - - - - - -
Stock options exercised............. 129,147 - - - - 13 -
Dividends declared on common stock.. - - - - - - -
Dividends declared on 7.25%
Cumulative Senior Perpetual
Convertible Preferred Stock........ - - - - - - -
Dividends declared on $2.28
Cumulative Preferred Stock......... - - - - - - -
---------- -------- -------- ---------- ---------- ------- -------
Balance at December 31, 1993........ 25,651,722 - 400,000 1,400,000 - 2,565 -
Net income, 1994.................... - - - - - - -
Stock options exercised............. 85,595 - - - - 9 -
Treasury stock, at cost............. (25,016) 25,016 - - - - (788)
Proceeds from issuance of $2.625
Cumulative Convertible
Preferred Stock.................... - - - - 2,760,000 - -
Dividends declared on common stock.. - - - - - - -
Dividends declared on 7.25%
Cumulative Senior Perpetual
Convertible Preferred Stock........ - - - - - - -
Dividends declared on $2.28
Cumulative Preferred Stock......... - - - - - - -
Dividends declared on $2.625
Cumulative Convertible
Preferred Stock.................... - - - - - - -
---------- -------- -------- ---------- ---------- ------- -------
Balance at December 31, 1994........ 25,712,301 25,016 400,000 1,400,000 2,760,000 $2,574 $(788)
========== ======== ======== ========== ========== ======= =======

<CAPTION>
7.25%
Cumulative
Senior $2.625
Perpetual $2.28 Cumulative Notes Total
Convertible Cumulative Convertible Additional Receivable Stock-
Preferred Preferred Preferred Paid-In from Key Retained holders'
Stock Stock Stock Capital Employees Earnings Equity
----------- ----------- ----------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991........ $ 40 $ - $ - $169,987 $ (898) $ 49,725 $221,389
Net income, 1992.................... - - - - - 39,688 39,688
Stock options exercised............. - - - 1,097 (580) - 534
Proceeds from issuance of $2.28
Cumulative Preferred Stock......... - 140 - 33,636 - - 33,776
Dividends declared on common stock.. - - - - - (5,094) (5,094)
Dividends declared on 7.25%
Cumulative Senior Perpetual
Convertible Preferred Stock........ - - - - - (2,900) (2,900)
Dividends declared on $2.28
Cumulative Preferred Stock......... - - - - - (372) (372)
----- ------ ---- -------- -------- -------- --------
Balance at December 31, 1992........ 40 140 - 204,720 (1,478) 81,047 287,021
Net income, 1993.................... - - - - - 38,102 38,102
Stock options exercised............. - - - 974 (507) - 480
Dividends declared on common stock.. - - - - - (5,124) (5,124)
Dividends declared on 7.25%
Cumulative Senior Perpetual
Convertible Preferred Stock........ - - - - - (2,900) (2,900)
Dividends declared on $2.28
Cumulative Preferred Stock......... - - - - - (3,192) (3,192)
----- ------ ---- -------- -------- -------- --------
Balance at December 31, 1993........ 40 140 - 205,694 (1,985) 107,933 314,387
Net income, 1994.................... - - - - - 7,364 7,364
Stock options exercised............. - - - 831 (328) - 512
Treasury stock, at cost............. - - - - 788 - -
Proceeds from issuance of $2.625
Cumulative Convertible
Preferred Stock.................... - - 276 132,401 - - 132,677
Dividends declared on common stock.. - - - - - (5,140) (5,140)
Dividends declared on 7.25%
Cumulative Senior Perpetual
Convertible Preferred Stock........ - - - - - (2,900) (2,900)
Dividends declared on $2.28
Cumulative Preferred Stock......... - - - - - (3,192) (3,192)
Dividends declared on $2.625
Cumulative Convertible
Preferred Stock.................... - - - - - (7,025) (7,025)
----- ------ ---- -------- -------- -------- --------
Balance at December 31, 1994........ $ 40 $ 140 $276 $338,926 $(1,525) $ 97,040 $436,683
===== ====== ==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

28
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION, ACCOUNTING POLICIES AND OTHER MATTERS
------------------------------------------------------------

Western Gas Resources, Inc., a Delaware corporation, is an independent gas
gatherer, processor and marketer with operations in major oil and gas-producing
basins in the Rocky Mountain, Gulf Coast and Southwestern regions of the United
States. Western Gas Resources, Inc. owns and operates natural gas gathering,
processing and storage facilities and markets and transports natural gas and
natural gas liquids ("NGLs").

Western Gas Resources, Inc. was formed in October 1989 to acquire a majority
interest in Western Gas Processors, Ltd. (the "Partnership") and to assume the
duties of WGP Company, the general partner of the Partnership. The Partnership
had been a Colorado limited partnership formed in 1977 to engage in the
gathering and processing of natural gas. The reorganization was accomplished in
December 1989 through an exchange for common stock of partnership units held by
the former general partners of WGP Company (the "Principal Stockholders") and an
initial public offering of Western Gas Resources, Inc. common stock. On May 1,
1991, a further restructuring of the Partnership and Western Gas Resources, Inc.
(together with its predecessor, WGP Company, collectively, the "Company") was
approved by a vote of the security holders. The combinations were
reorganizations of entities under common control and have been accounted for at
historical cost in a manner similar to poolings of interests. The Company has
restated all historical financial information to reflect the restructuring.

In October 1991, the Company issued 400,000 shares of 7.25% cumulative perpetual
convertible preferred stock ("7.25% Convertible Preferred Stock"), with a
liquidation preference of $100 per share to an institutional investor.

In November 1991, the Company issued 4,115,000 shares of common stock at a
public offering price of $18.375 per share.

In November 1992, the Company issued 1,400,000 shares of $2.28 cumulative
preferred stock ("$2.28 Cumulative Preferred Stock"), with a liquidation
preference of $25 per share, at a public offering price of $25 per share.

In February 1994, the Company issued 2,760,000 shares of $2.625 cumulative
convertible preferred stock ("$2.625 Convertible Preferred Stock"), with a
liquidation preference of $50 per share, at a public offering price of $50 per
share.

SIGNIFICANT BUSINESS ACQUISITIONS AND DISPOSITIONS

Oasis

Effective December 1, 1994, the Company acquired the West Texas gathering and
treating assets of Oasis Pipe Line Company ("Oasis") for approximately $26.0
million. The Oasis purchase included 14 gathering systems in the Permian Basin
comprising approximately 600 miles of pipeline and two treating facilities. In
addition, the Company has entered into a long-term agreement with Oasis for 100
MMcf per day of firm transportation service on its intrastate pipeline. The
Company will install a 200 MMcf per day pipeline interconnection between this
pipeline and the Katy Facility.

Mountain Gas

29
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

In December 1993, a fire at the Granger facility's NGL tank farm required the
facility to be shut down for one week. The new cryogenic processing plant as
well as the smaller existing cryogenic unit were also damaged. Construction of
a new tank farm and repairs to the cryogenic units were completed and fully
operational in August 1994. Claims for physical damage to the Company's
facilities totaled approximately $6.7 million, of which $1.8 million had been
received through December 31, 1994. In addition, the Company has recorded $3.3
million as other revenue for losses covered under its business interruption
insurance policy for the year ended December 31, 1994. The Company believes
that insurance will cover, subject to certain deductibles, the remaining amounts
outstanding for physical damage, business interruption and third-party property,
and for bodily injury claims, if any. The Company does not expect uninsured
losses, if any, to be material.

Black Lake

Effective January 1, 1993, the Company purchased the Black Lake gas processing
plant and related reserves ("Black Lake") from Nerco Oil & Gas, Inc. ("Nerco")
for approximately $136.2 million. The acquisition included a 68.9% working
interest in the Black Lake field in Louisiana and a gas processing plant. The
purchase also included 50% of the stock of Black Lake Pipeline Company, which
owns a 240 mile liquids pipeline extending from Cotton Valley, Louisiana to Mont
Belvieu, Texas and transports NGLs for Black Lake and three unaffiliated gas
processing plants. In May 1994, the Company sold its 50% of the stock in Black
Lake Pipeline Company for approximately $5.4 million. The difference of
approximately $2.5 million between the recorded book value and the sales price
was treated as a purchase price adjustment.

Westana Joint Venture

Effective August 1, 1993, the Company formed Westana Gathering Company
("Westana"), a general partnership, with Panhandle Eastern Pipe Line Corporation
("PEPL"). Westana provides gas gathering and processing services in the
Anadarko Basin in Oklahoma and markets residue gas and NGLs for producers
connected to its system. The Company is the principal operator with each
partner holding a 50% ownership interest.

Midkiff/Benedum System

Effective October 1, 1992, the Company sold a 20% undivided interest in the
Midkiff and Benedum gas processing plants to the major producer in the area of
the plant for $22 million, resulting in an increase to net income of $2.9
million, or $.11 per share of common stock. At December 31, 1994 this
percentage approximated 22% and will increase or decrease based upon changes in
throughput volumes at the facilities.

ACCOUNTING POLICIES

The significant accounting policies followed by the Company and the Company's
wholly owned subsidiaries are presented here to assist the reader in evaluating
the financial information contained herein. The Company's accounting policies
are in accordance with generally accepted accounting principles.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
the Company's wholly owned subsidiaries. All material intercompany transactions
have been eliminated in consolidation. The Company's interest in certain
investments is accounted for by the equity method.

30
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

Revenue Recognition

Revenue for sales or services is recognized at the time the natural gas or NGLs
are sold or at the time the service is performed.

Reclassification

Certain prior years' amounts in the consolidated financial statements and
related notes have been reclassified to conform to the presentation used in
1994.

Earnings Per Share of Common Stock

Earnings per share of common stock is computed by dividing net income available
to shares of common stock by the weighted average number of shares of common
stock outstanding. Net income available to shares of common stock is net income
less dividends declared on the 7.25% Convertible Preferred Stock, $2.28
Cumulative Preferred Stock and the $2.625 Convertible Preferred Stock . The
computation of fully diluted earnings per share of common stock for the three
years ended December 31, 1994 was not dilutive; therefore, only primary earnings
per share of common stock is presented.

Inventories

Product inventory includes $47.5 million and $15.5 million of residue gas and
$3.5 million and $5.2 million of NGLs at December 31, 1994 and 1993,
respectively.

Prior to 1992, the cost of residue gas and NGL inventories was determined by the
weighted average cost and the first-in, first-out (FIFO) methods, respectively,
on a location by location basis. Effective January 1, 1992, the Company changed
its method of accounting for NGL inventories to the last-in, first-out (LIFO)
method. The effect of this change was not material to the Company's results of
operations for the year ended December 31, 1992. Residue inventory covered by
hedging contracts is accounted for on a specific identification basis.

Property and Equipment

Depreciation is provided using the straight-line method based on the estimated
useful life of each facility which ranges from three to 45 years. Useful lives
are determined based on the shorter of the life of the equipment or the reserves
serviced by the equipment. The cost of certain gas purchase contracts is
amortized using the units-of-production method.

Interest incurred during the construction period of new projects is capitalized
and amortized over the life of the associated assets. Such capitalized interest
was $1.5 million, $4.9 million and $2.1 million, respectively, for the three
years ended December 31, 1994.

Oil and Gas Properties and Equipment

The Company follows the successful efforts method of accounting for oil and gas
exploration and production activities. Acquisition costs, development costs and
successful exploration costs are capitalized. Exploratory dry hole costs, lease
rentals and geological and geophysical costs are charged to expense as incurred.
If the undiscounted future net revenue of all proved developed properties does
not exceed the net book value of such properties, a charge for impairment would
be made against income of the period affected. Upon surrender of undeveloped
properties, the original cost is charged against income. Producing properties
and related equipment are depleted and depreciated by the units-of-production
method based on estimated proved reserves for producing properties and proved
developed reserves for lease and well equipment.

31
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

Income Taxes

Deferred income taxes for the three years ended December 31, 1994 reflect the
impact of "temporary differences" between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws. These
temporary differences are determined in accordance with SFAS No. 109 and are
more inclusive in nature than "timing differences" as determined under
previously applicable accounting principles.

Hedging Activities

Interest Rate Swap Agreements

The Company has entered into various interest rate swap agreements to manage
exposure to changes in interest rates. The transactions generally involve the
exchange of fixed and floating interest payment obligations without the exchange
of the underlying principal amounts. In addition to the financial risk that will
vary during the life of these swap agreements in relation to the maturity of the
underlying debt and market interest rates, the Company is subject to credit risk
exposure from nonperformance of the counterparties to the swap agreements.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. The risk is
limited due to the large number of entities comprising the Company's customer
base and their dispersion across many different industries and geographies. At
December 31, 1994, the Company had no significant concentrations of credit risk.

Fair Value of Financial Instruments

The aggregate fair value of all of the Company's financial instruments
approximates the aggregate carrying value.

Cash and Cash Equivalents

Cash and cash equivalents includes all cash balances and highly liquid
investments with an original maturity of three months or less.

Supplementary Cash Flow Information

Interest paid was $32.8 million, $16.4 million and $12.5 million, respectively,
for the three years ended December 31, 1994.

Income taxes paid were $1.1 million, $10.2 million and $12.5 million,
respectively, for the three years ended December 31, 1994.

In February 1994, the President and Chief Operating Officer of the Company,
surrendered 25,016 shares of the Company's common stock, which were valued at
$31.50 per share based upon the February 22, 1994 closing price, as repayment of
a loan and all accrued interest of approximately $788,000.

32
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

In 1994, the Company exchanged its Pyote Treating Facility for the Jayhawk
gathering system in a transaction valued at approximately $800,000. In 1993,
the Company exchanged its Fairview Gas Processing Plant for various gas
gathering and processing equipment located in Montana and Kansas in a
transaction valued at approximately $3.7 million.

Payments for business acquisitions during the year ended December 31, 1993
include the following payments for working capital and other liabilities assumed
(000s):

<TABLE>
<S> <C>
Trade accounts receivable, net............................ $ 13,338
Product inventory......................................... 614
Other current assets...................................... 42
Other assets.............................................. 1,817
Accounts payable.......................................... (5,487)
Accrued expenses.......................................... (10,588)
--------
Total.................................................... $ (264)
========
</TABLE>

NOTE 2 - RELATED PARTIES
------------------------

The Company purchases a significant portion of production from Williston Gas
Company ("Williston") and Westana for resale to unrelated third parties. Such
purchases from Williston included in the Consolidated Statement of Operations
were $8.2 million, $8.6 million and $4.0 million, respectively, for the three
years ended December 31, 1994. Purchases from Westana totaled $12.2 million and
$5.3 million, respectively, for the two years ended December 31, 1994.

The Company performs various operational and administrative functions for
Williston and Westana and allocates the actual expenses incurred in performing
the services to each Company. Such charges for Williston totaled $1.4 million,
$2.4 million and $3.2 million, respectively, for the three years ended December
31, 1994. Charges to Westana totaled $239,000 and $933,000 for the two years
ended December 31, 1994.

In July 1990, the Company loaned Bill M. Sanderson, President, Chief Operating
Officer and a Director, approximately $748,000 to purchase 294,524 shares of
Common Stock in the Company. In February 1994, the loan and all accrued
interest was repaid in full by Mr. Sanderson through surrender of 25,016 shares
of the Company's Common Stock, which were valued at $31.50 per share based upon
the February 22, 1994 closing price.

The Company has entered into agreements committing the Company to loan to
certain key employees an amount sufficient to exercise their options as each
portion of their options vests under the Key Employees' Incentive Stock Option
Plan and the Employee Option Plan (See Note 7). The Company will forgive the
loan and accrued interest if the employee has been continuously employed by the
Company for periods specified under the agreements. As of December 31, 1994 and
1993 loans totaling $1.5 million and $1.2 million, respectively, were
outstanding to key employees under these programs. The loans are secured by the
common stock issuable upon exercise of the options and are accounted for as a
reduction of stockholders' equity. During 1994, the Board of Directors approved
the forgiveness of loans to a key employee totaling approximately $130,000 after
his resignation and prior to satisfaction of the continuous service requirements
of the loan agreement.

NOTE 3 - RISK MANAGEMENT
------------------------

Natural Gas and NGL Hedges

33
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

Gains and losses related to qualifying hedges of firm commitments or anticipated
transactions also are deferred and are recognized in residue and NGL purchases
or sales when the hedged transaction occurs. Margins from the Company's forward
fixed price hedges and physical sales for 1995 are expected to more than offset
the related $6.1 million of losses deferred at December 31, 1994.

At December 31, 1994, 2,257 contracts (net) (10,000 Mcf per contract) for the
sale of residue gas in January 1995 through January 1996 at prices ranging from
$1.55 per Mcf to $2.38 per Mcf were outstanding. At December 31, 1993, 296 such
contracts were outstanding at prices ranging from $1.87 per Mcf to $2.56 per
Mcf. No such contracts were outstanding for NGLs at December 31, 1994 or
December 31, 1993.

Interest Rate Swaps

The Company has entered into various interest rate swap agreements to manage
exposure to changes in interest rates. The transactions generally involve the
exchange of fixed and floating interest payment obligations or the exchange of
foreign and U.S. currencies, without the exchange of the underlying principal
amounts. The net effect of interest rate swap activity is reflected as an
increase or decrease in interest expense. Any gains on termination of interest
rate swap agreements and the effects of foreign currency positions that were
marked to market are included in other income. At December 31, 1994 and 1993,
the total notional principal amount of outstanding interest rate swap agreements
was $50 million. In addition to the financial risk that will vary during the
life of these swap agreements in relation to the maturity of the underlying debt
and market interest rates, the Company is subject to credit risk exposure from
nonperformance of the counterparties to the swap agreements. The Company does
not anticipate nonperformance by the counterparties.

The following table summarizes the results of the Company's interest rate swap
and foreign currency positions for the three years ended December 31, 1994
(000s):

<TABLE>
<CAPTION>
1994 1993 1992
------ -------- ------
<S> <C> <C> <C>
Net (increase) decrease to interest expense..... $(932) $ 1,769 $ 250
===== ======= =====

Gains on swap termination....................... $ - $ 2,590 $ 765
===== ======= =====

Losses on foreign currency positions............ $(361) $(1,175) $(119)
===== ======= =====
</TABLE>

NOTE 4 - DEBT
-------------

The following summarizes the Company's consolidated debt at the dates indicated
(000s):

<TABLE>
<CAPTION>
December 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Variable rate revolving credit facility..... $168,000 $345,000
Master shelf and senior notes............... 200,000 150,000
Bank term loan facility..................... 50,000 50,000
Line of credit.............................. - 2,000
-------- --------

Total long-term debt....................... 418,000 547,000
-------- --------

Short-term debt............................. 75,000 -
-------- --------

Total debt................................. $493,000 $547,000
======== ========
</TABLE>

34
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

FINANCING FACILITIES

The Company's agreement governing the Revolving Credit and Term Loan Facilities
(the "Credit Facilities Agreement") is subject to certain mandatory prepayment
terms. If funded debt of the Company exceeds five times the sum of the
Company's last four quarters' cash flow (as defined in the agreement) less
preferred stock dividends, the overage must be repaid in no more than six
monthly payments commencing 90 days from notification. This mandatory
prepayment threshold will be reduced to 4.0 to 1.0 at September 1, 1995 and 3.50
to 1.0 at September 1, 1998. At December 31, 1994, the Company had
approximately $99.8 million of available borrowing capacity.

35
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

1994, the Company sold $25 million of 9.05% Master Notes due in a single payment
on October 27, 2001 and $25 million of 9.24% Master Notes due in a single
payment on October 27, 2004. At December 31, 1994, the Master Shelf Agreement,
as amended, was fully utilized.

COVENANT COMPLIANCE. At December 31, 1994, the Company was in compliance with
all covenants in its loan agreements.

Approximate future maturities of long-term debt at the date indicated are as
follows (in 000s):

<TABLE>
<CAPTION>
December 31,
1994
------------
<S> <C>
1995........................................................ $ -
1996........................................................ 12,500
1997........................................................ 67,893
1998........................................................ 63,726
1999........................................................ 63,726
Thereafter.................................................. 210,155
--------

$418,000
========
</TABLE>

36
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE 5 - INCOME TAXES
---------------------

The provision for income taxes for the three years ended December 31, 1994 are
comprised of (000s):

Current:
Federal............................. $1,913 $10,090 $10,397
State............................... - - (1)
------ ------- -------

Total Current....................... 1,913 10,090 10,396
------ ------- -------

Deferred:
Federal............................. 2,113 6,411 7,305
State............................... 134 1,028 1,056
------ ------- -------

Total Deferred........................ 2,247 7,439 8,361
------ ------- -------

Total tax provision................. $4,160 $17,529 $18,757
====== ======= =======
</TABLE>

Temporary differences and carryforwards which give rise to the deferred tax
liability at December 31, 1994 and 1993 are as follows (000s):

<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Property and equipment........................................................... $ 91,559 $ 70,131
Deferred taxes attributable to differences between the book and tax basis of
acquired assets................................................................. 22,750 23,637
AMT benefit carryforward......................................................... (25,059) (23,642)
NOL carryforwards................................................................ (20,597) (3,779)
Other............................................................................ 74 134
-------- --------

Total deferred income taxes..................................................... $ 68,727 $ 66,481
======== ========
</TABLE>

The differences between the provision for income taxes at the statutory rate and
the actual provision for income taxes for the three years ended December 31,
1994 are summarized as follows (000s):

<TABLE>
<CAPTION>
1994 % 1993 % 1992 %
------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory rate..................... $4,033 35.0 $19,471 35.0 $19,872 34.0
State income taxes, net of federal
benefit......................................... 158 1.4 656 1.2 696 1.2
Increase in deferred income taxes to reflect
the change in the federal tax rate.............. - - 2,100 3.8 - -
Reduction of deferred income taxes to
reflect NOL and AMT benefit
carryforwards................................... - - (3,779) (6.8) (1,932) (3.3)
Other............................................ (31) (0.3) (919) (1.7) 121 0.2
------ ---- ------- ---- ------- ----

Total............................................ $4,160 36.1 $17,529 31.5 $18,757 32.1
====== ==== ======= ==== ======= ====

</TABLE>

37
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES
-----------------------------------------------

Mountain Gas

On January 26, 1995, Green River and Mountain Gas entered into an agreement with
Cabot Oil & Gas Production Corporation, as successor to Washington Energy
Exploration, Inc. ("Cabot") settling all claims (both known and unknown) between
the parties relating to events that occurred prior to January 1, 1995, including
claims raised in the case of Green River Gathering Company and Mountain Gas
----------------------------------------------
Resources, Inc. v. Washington Energy Exploration, Inc., Case No. 93CV2696,
------------------------------------------------------
District Court, Arapahoe County, Colorado. As part of the settlement, Mountain
and Cabot have entered into a long-term Gas Gathering Agreement.

On July 28, 1994, the Company and its wholly-owned subsidiary Mountain Gas filed
a complaint in United States District Court, Denver, Colorado, against Morgan
Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Leveraged Equity Fund
II, Inc., Morgan Stanley & Co., Incorporated and certain former directors and
officers of Mountain Gas seeking monetary damages. The complaint alleges
certain acts and omissions that violated federal and state securities laws by
the defendants in connection with the Company's July 1993 purchase of the stock
of Mountain Gas from Morgan Stanley Leveraged Equity Fund II, L.P. The acts and
omissions set forth in the complaint relate primarily to defendants' failure to
disclose adequately the nature and scope of the dispute between Mountain Gas and
Washington Energy. In addition, the Company and Mountain Gas have raised fraud,
misrepresentation and breach of contract claims against certain of the
defendants.

Katy Condemnation

Commencing in March 1993 and continuing through July 1993, Western Gas Resources
Storage, Inc. ("Storage"), a wholly-owned subsidiary of the Company, filed a
total of 165 condemnation actions in the County Court at Law No. 1 and No. 2 of
Fort Bend County, Texas, to obtain certain storage rights and rights-of-way
relating to its Katy Gas Storage Facility and the related underground reservoir
("Katy"). The County Court appointed panels of Special Commissioners which
awarded compensation to the owners whose rights were condemned. Condemnation
awards are a capital cost of the Katy project.

A majority of the land and mineral owners involved in the condemnation
proceedings appealed to County Court, seeking a declaration that Storage did not
possess the right to condemn or, in the alternative, that they should be awarded
more compensation than previously awarded by the Special Commissioners. In all
but one of those appeals, the right to condemn issue has been resolved in favor
of Storage, although factual issues in individual cases remain open as to
whether that right was exercised properly.

In August 1994, in the only appeals in which the compensation issue has been
determined, a jury awarded a landowner adjacent to the 82 acre site where the
compression facilities are located a total of $214,000 and another jury awarded
a landowner within 1,000 feet of the 82 acre site a total of $38,000, for
storage rights and damages to property not taken. The Court also ruled in those
appeals that Storage had properly exercised the right to condemn. The Special
Commissioners had previously awarded these landowners a total of approximately
$2,000 and $600, respectively. The Company does not believe that these jury
verdicts are representative of what will occur in subsequent trials, although
there is no assurance of this. In addition, the Company believes that several
reversible errors were committed at trial and appeals of the jury verdicts are
now pending in the Texas Court of Appeals.

The Company is involved in various other litigation and administrative
proceedings arising in the normal course of business. In the opinion of
management, any liabilities that may result from these claims, as well as the
specific claims discussed above, will not, individually or in the aggregate,
have a material adverse effect on the Company's financial position or results of
operations.

38
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

NOTE 7 - EMPLOYEE BENEFIT PLANS
-------------------------------

A discretionary profit sharing plan exists for all Company employees meeting
certain service requirements. The Company makes annual contributions to the plan
as determined by the Board of Directors. Contributions are made to trust funds
administered by an independent investment manager. Contributions were $1.3
million, $2.2 million and $2.0 million, respectively, for the three years ended
December 31, 1994.

The Board of Directors of the Company has adopted a Key Employees' Incentive
Stock Option Plan and a Non-Employee Director Stock Option Plan that authorize
the granting of options to purchase 250,000 and 20,000 shares of the Company's
common stock, respectively. The Board of Directors has granted options to
purchase 240,000 shares of common stock to certain officers and 20,000 shares of
common stock to non-employee directors of the Company, at exercise prices
ranging from $10.71 to $34.00. Each of these options became exercisable as to
25% of the shares covered by it on the later of January 1, 1992 or one year from
the date of grant, subject to the continuation of the optionee's relationship
with the Company, and became exercisable as to an additional 25% of the covered
shares on the latter of each subsequent January 1 through 1995 or on each
subsequent date of grant anniversary, subject to the same condition. The Company
has entered into agreements committing the Company to loan certain key employees
an amount sufficient to exercise their options as each portion of their options
vests. The Company will forgive the associated loan and accrued interest if the
employee has been continuously employed by the Company for four years after the
date of each loan increment.

In April 1987, the Partnership adopted an employee option plan that authorizes
granting options to employees to purchase 430,000 common units in the
Partnership. Pursuant to the Restructuring, the Company assumed the
Partnership's obligation under the employee option plan. The plan was amended
upon the Restructuring to allow each holder of existing options to exercise such
options and acquire one share of common stock for each common unit they were
originally entitled to purchase. The exercise price and all other terms and
conditions for the exercise of such options issued under the amended plan were
the same as under the plan, except that the Restructuring accelerated the time
after which certain options may be exercised. In February 1994, the Board of
Directors retroactively approved, adopted and ratified approximately 53,000
options which were granted to employees in excess of the 430,000 options
originally authorized. No additional options may be granted under this plan.
Through December 31, 1994 and 1993, the Board of Directors has granted options
under the plan to purchase shares of common stock at $5.40 per share to
approximately 355 employees. As of December 31, 1994 and 1993, approximately
445,000 and 415,000 options were vested and approximately 375,000 and 325,000
options for shares of common stock had been exercised, respectively. Options
may be exercised only at the rate of 20% of the shares of common stock subject
to such option for each year of continuous service by the optionee commencing
from the later of July 2, 1987 or the optionee's employment commencement date.
The Company has entered into agreements committing the Company to loan to
certain key employees an amount sufficient to exercise their options, provided
that the Company will not loan in excess of 25% of the total amount available to
the employee in any one year. The Company will forgive any associated loan and
accrued interest on July 2, 1997, if the employee is then employed by the
Company. As of December 31, 1994 and 1993, loans related to 190,373 and 162,998
shares of common stock, totaling $1.5 million and $1.2 million, were extended
under these terms.

The 1993 Stock Option Plan (the "1993 Plan") became effective on May 24, 1993
after approval by the Company's stockholders. The 1993 Plan is intended to be
an incentive stock option plan in accordance with the provisions of Section 422
of the Internal Revenue Code of 1986, as amended. The Company has reserved
1,000,000 shares of Common Stock for issuance upon exercise of options under the
1993 Plan. The 1993 Plan will terminate on the earlier of March 28, 2003 or the
date on which all options granted under the 1993 Plan have been exercised in
full.

The Board of Directors of the Company determines and designates from time to
time those employees of the Company to whom options are to be granted. If any
option terminates or expires prior to being exercised, the shares relating to
such option shall be released and may be subject to reissuance pursuant to a new
option. The Board of Directors has the right to, among other things, fix the
price, terms and conditions for the grant or exercise of any option. The
purchase price of the stock under each option shall be the fair market value of
the stock at the time such option is granted.

39
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

Options granted will vest 20% each year or the anniversary of the date of grant
commencing with the first anniversary. The employee must exercise the option
within five years of the date each portion vests. If an employee's employment
with the Company terminates, the employee may, within the 60 day period
immediately following such termination of employment, but in no event later than
the expiration date specified in the Option Agreement, exercise any options that
have vested as of the date of such termination. If employment terminates by
reason of death or disability, the employee (in the event of disability) or the
person or persons to whom rights under the option shall pass by will or by the
applicable laws of decent and distribution (in the event of death) shall be
entitled to exercise 100% of the options granted regardless of the employee's
years of service; provided however, that no such option may be exercised after
180 days from the date of death or termination of employment with the Company as
a result of disability. Through December 31, 1994 and 1993, the Board of
Directors has granted approximately 710,000 and 384,000 options, respectively,
at exercise prices ranging from $18.625 to $35.50 per share of common stock to
approximately 455 employees. Of the options granted under this plan in 1994,
267,000 options were granted to officers of the Company in December 1994 at an
exercise price of $18.625 per share. At December 31, 1994 approximately 64,025
options were vested. No options have been exercised under the 1993 plan.

NOTE 8 - SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING
-------------------------------------------------
ACTIVITIES (UNAUDITED):
-----------------------
Costs

The following tables set forth capitalized costs at December 31, 1994 and 1993
and costs incurred for oil and gas producing activities for the two years ended
December 31, 1994 (000s):

<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Capitalized costs:
Proved properties................................ $136,861 $130,783
Unproved properties.............................. 7,448 3,855
-------- --------

Total............................................. 144,309 134,638
Less accumulated depletion....................... (35,346) (17,877)
-------- --------

Net capitalized costs............................. $108,963 $116,761
======== ========

Costs incurred:
Acquisition of properties
Proved........................................... $ 2,523 $ 95,518
Unproved......................................... 1,617 2,428
Development costs................................. 3,555 1,106
Exploration costs................................. 2,465 320
-------- --------

Total costs incurred.............................. $ 10,160 $ 99,372
======== ========
</TABLE>

40
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

Results of Operations

The results of operations for oil and gas producing activities, excluding
corporate overhead and interest costs, for the two years ended December 31, 1994
are as follows (000s):

<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Revenues from sale of oil and gas:
Sales............................................. $ 3,402 $ 4,112
Transfers......................................... 37,335 27,567
-------- --------

Total........................................... 40,737 31,679
Production costs................................... (4,960) (2,963)
Exploration costs.................................. (489) (320)
Depreciation, depletion and amortization........... (17,469) (10,857)
Income tax expense................................. (2,960) (3,182)
-------- --------

Results of operations.............................. $ 14,859 $ 14,357
======== ========
</TABLE>

Reserve Quantity Information

Reserve estimates are subject to numerous uncertainties inherent in the
estimation of quantities of proved reserves and in the projection of future
rates of production and the timing of development expenditures. The accuracy of
such estimates is a function of the quality of available data and of engineering
and geological interpretation and judgement. Results of subsequent drilling,
testing and production may cause either upward or downward revisions of previous
estimates. Further, the volumes considered to be commercially recoverable
fluctuate with changes in prices and operating costs. Reserve estimates, by
their nature, are generally less precise than other financial statement
disclosures.

The following table sets forth information for the two years ended December 31,
1994 with respect to changes in the Company's proved reserves, all of which are
in the United States. The Company has no significant undeveloped reserves.

<TABLE>
<CAPTION>
Natural Crude
Gas Oil
(MMcf) (MBbls)
-------- -------
<S> <C> <C>
Proved reserves:
December 31, 1992.................................. 39,475 381
Revisions of previous estimates.................... 11,084 (42)
Purchases of reserves in place*.................... 100,886 261
Production......................................... (15,854) (107)
------- ----

December 31, 1993.................................. 135,591 493
Revisions of previous estimates.................... 19,562 35
Purchases of reserves in place..................... 977 121
Production......................................... (21,589) (171)
------- ----

December 31, 1994.................................. 134,541 478
======= ====
</TABLE>

(*) Primarily represents acquisition of Black Lake oil and gas properties on
September 27, 1993, from Nerco (See Note 1).

41
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

Standardized Measures of Discounted Future Net Cash Flows

Estimated discounted future net cash flows and changes therein were determined
in accordance with Statement of Financial Accounting Standards No. 69. Certain
information concerning the assumptions used in computing the valuation of proved
reserves and their inherent limitations are discussed below. The Company
believes such information is essential for a proper understanding and assessment
of the data presented.

Future cash inflows are computed by applying year-end prices of oil and gas
relating to the Company's proven reserves to the year-end quantities of those
reserves. Future price changes are considered only to the extent provided by
contractual arrangements, including futures contracts, in existence at year-end.

The assumptions used to compute estimated future net revenues do not necessarily
reflect the Company's expectations of actual revenues or costs, nor their
present worth. In addition, variations from the expected production rate also
could result directly or indirectly from factors outside of the Company's
control, such as unintentional delays in development, changes in prices or
regulatory controls. The reserve valuation further assumes that all reserves
will be disposed of by production. However, if reserves are sold in place,
additional economic considerations could also affect the amount of cash
eventually realized.

Future development and production costs are computed by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions.

Future income tax expenses are computed by applying the appropriate year-end
statutory tax rates, with consideration of future tax rates already legislated,
to the future pretax net cash flows relating to the Company's proved oil and gas
reserves. Permanent differences in oil and gas related tax credits and
allowances are recognized.

An annual discount rate of 10% was used to reflect the timing of the future net
cash flows relating to proved oil and gas reserves.

Information with respect to the Company's estimated discounted future cash flows
from its oil and gas properties for the two years ended December 31, 1994 is as
follows (000s):

<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Future cash inflows...................................................... $239,188 $261,497
Future production costs.................................................. (50,214) (36,978)
Future development costs................................................. (9,230) (12,623)
Future income tax expense................................................ (11,081) (17,957)
-------- --------
Future net cash flows.................................................... 168,663 193,939
10% annual discount for estimated timing of cash flows................... (67,230) (62,489)
-------- --------
Standardized measure of discounted future net cash flows relating to
proved oil and gas reserves............................................. $101,433 $131,450
======== ========
</TABLE>

42
<PAGE>

WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

Principal changes in the Company's estimated discounted future net cash flows
for the two years ended December 31, 1994 are as follows (000s):

<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
January 1.................................................................... $131,450 $ 40,604
Sales and transfers of oil and gas produced, net of production costs........ (35,777) (28,716)
Net changes in prices and production costs related to future production..... (33,909) 2,318
Development costs incurred during the period................................ 3,555 1,106
Changes in estimated future development costs............................... (162) (12,623)
Revisions of previous quantity estimates.................................... 14,830 17,819
Purchases of reserves in place.............................................. 3,882 118,894
Accretion of discount....................................................... 13,145 4,060
Net change in income taxes.................................................. 6,876 (11,119)
Other....................................................................... (2,457) (893)
-------- --------

December 31.................................................................. $101,433 $131,450
======== ========
</TABLE>

NOTE 9 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
-----------------------------------------------------

The following summarizes certain quarterly results of operations (000s, except
per share amounts):

<TABLE>
<CAPTION>
Earnings
(Loss) Per
Share of
Operating Gross Net Common
Revenues Profit* Income Stock
---------- ------- ------- ----------
<S> <C> <C> <C> <C>
1994 quarter ended:
March 31................... $ 275,704 $16,562 $ 1,011 $(.05)
June 30.................... 244,470 14,851 181 (.12)
September 30............... 259,669 19,585 2,706 (.02)
December 31................ 283,646 21,558 3,466 -
---------- ------- ------- -----

$1,063,489 $72,556 $ 7,364 $(.19)
========== ======= ======= =====
1993 quarter ended:
March 31................... $ 193,478 $23,022 $10,116 $ .34
June 30.................... 173,846 19,987 8,464 .27
September 30............... 273,359 23,843 9,734 .32
December 31................ 291,655 25,160 9,788 .32
---------- ------- ------- -----

$ 932,338 $92,012 $38,102 $1.25
========== ======= ======= =====

</TABLE>

* Excludes selling and administrative, interest and income tax expenses.

As a result of the reclassification of labor overhead from selling and
administrative expense to plant operating expense in accordance with the
percentage established by COPAS guidelines, gross profit varies from the amounts
reported on prior Forms 10-Q and Form 10-K.

43
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to instruction G(3) to Form 10-K, Items 10, 11, 12 and 13 are omitted
because the Company will file a definitive proxy statement (the "Proxy
Statement") pursuant to Regulation 14A under the Securities Exchange Act of 1934
not later than 120 days after the close of the fiscal year. The information
required by such Items will be included in the definitive proxy statement to be
so filed for the Company's annual meeting of stockholders scheduled for May 24,
1995 and is hereby incorporated by reference.

44
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

(1) Financial Statements:

Reference is made to the listing on page 22 for a list of all financial
statements filed as a part of this report.

(2) Financial Statement Schedules:

None required

(3) Exhibits:

3.1 Certificate of Incorporation of Western Gas Resources, Inc. (Filed as
exhibit 3.1 to Western Gas Resources, Inc.'s Registration Statement on
Form S-1, Registration No. 33-31604 and incorporated herein by
reference).

3.2 Certificate of Amendment to the Certificate of Incorporation of Western
Gas Resources, Inc. (Filed as exhibit 3.2 to Western Gas Resources,
Inc.'s Registration Statement on Form S-1, Registration No. 33-31604
and incorporated herein by reference).

3.3 Bylaws of Western Gas Resources, Inc. (Filed as exhibit 3.3 to
Western Gas Resources, Inc.'s Registration Statement on Form S-1,
Registration No. 33-31604 and incorporated herein by reference).

3.4 Assistant Secretary's Certificate regarding amendment to bylaws of
Western Gas Resources, Inc. (Filed as exhibit 3.4 to Western Gas
Resources, Inc.'s Registration Statement on Form S-4, Registration No.
33-39588 dated March 27, 1991 and incorporated herein by reference).

3.5 Certificate of Designation of 7.25% Cumulative Senior Perpetual
Convertible Preferred Stock of the Company (Filed as exhibit 3.5 to
Western Gas Resources, Inc.'s Registration Statement on Form S-1,
Registration No. 33-43077 dated November 14, 1991 and incorporated
herein by reference).

3.6 Certificate of Designation of $2.28 Cumulative Preferred Stock of the
Company. (Filed as exhibit 3.6 to Western Gas Resources, Inc.'s
Registration Statement of Form S-1, Registration No. 33-53786 dated
November 12, 1992 and incorporated herein by reference).

3.7 Amendments of the By-Laws of Western Gas Resources, Inc. as adopted
by the Board of Directors on December 13, 1993 (Filed as exhibit 3.7 to
Western Gas Resources, Inc.'s Form 10-K for the year ended December 31,
1993 and incorporated herein by reference).

3.8 Certificate of Designation of the $2.625 Cumulative Convertible
Preferred Stock of the Company (Filed under cover of Form 8-K dated
February 24, 1994 and incorporated herein by reference).

4.1 Subscription Agreements between the respective Founders and Western Gas
Resources, Inc. regarding such Founders' initial subscription for
shares of common stock (Filed as exhibit 10.31 to Western Gas
Resources, Inc.'s Registration Statement on Form S-4, Registration No.
33-39588 dated March 27, 1991 and incorporated herein by reference).

4.2 Amendment No. 1 to Registration Rights Agreement as of May 1, 1991
between Western Gas Resources, Inc., Bill Sanderson, WGP, Inc., Dean
Phillips, Inc., Heetco, Inc. NV, Sauvage Gas Company and Sauvage Gas
Service, Inc. (Filed as exhibit 4.2 to Western Gas Resources, Inc.'s
Form 10-Q for the quarter ended June 30, 1991 and incorporated herein
by reference).

45
<PAGE>

10.1 Restated Profit-Sharing Plan and Trust Agreement of Western Gas
Resources, Inc. (Filed as exhibit 10.8 to Western Gas Resources, Inc.'s
Registration Statement on Form S-4, Registration No. 33-39588 dated
March 27, 1991 and incorporated herein by reference).

10.2 Employees Common Units Option Plan of Western Gas Processors, Ltd.
(Filed as exhibit 10.9 to Western Gas Resources, Inc.'s Registration
Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991
and incorporated herein by reference).

10.3 Amendment to Employees Common Units Option Plan of Western Gas
Processors, Ltd. (Filed as exhibit 10.10 to Western Gas Resources,
Inc.'s Registration Statement on Form S-4, Registration No. 33-39588
dated March 27, 1991 and incorporated herein by reference).

10.4 Western Gas Resources, Inc. Non-Employee Director Stock Option Plan
(Filed as exhibit 10.12 Western Gas Resources, Inc.'s Registration
Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991
and incorporated herein by reference).

10.5 Western Gas Resources, Inc. Key Employees' Incentive Stock Option Plan
(Filed as exhibit 10.13 to Western Gas Resources, Inc.'s Registration
Statement on Form S-4, Registration No. 33-39588 dated March 27, 1991
and incorporated herein by reference).

10.6 Registration Rights Agreement among Western Gas Resources, Inc., WGP,
Inc., Heetco, Inc., NV, Dean Phillips, Inc., Sauvage Gas Company and
Sauvage Gas Service, Inc. (Filed as exhibit 10.14 to Western Gas
Resources, Inc.'s Registration Statement on Form S-4, Registration No.
33-39588 dated March 27, 1991 and incorporated herein by reference).

10.7 Second Amendment and First Restatement of Western Gas Processors, Ltd.
Employees' Common Units Option Plan (Filed as exhibit 10.6 to Western
Gas Resources, Inc.'s Registration Statement on Form S-1, Registration
No. 33-43077 dated November 14, 1991 and incorporated herein by
reference).

10.8 Agreement to provide loans to exercise key employees' common stock
options (Filed as exhibit 10.26 to Western Gas Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference).

10.9 Agreement to provide loans to exercise employees' common stock options
(Filed as exhibit 10.27 to Western Gas Resources, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference).

10.10 Agreement and Plan of Restructuring among the Company, the Partnership
and the Founders (Filed as exhibit 10.10 to Western Gas Resources,
Inc.'s Registration Statement on Form S-1, Registration No. 33-43077
dated November 14, 1991 and incorporated herein by reference).

10.11 Stock Purchase Agreement dated October 23, 1991 between the Company and
The 1818 Fund, L.P. (Filed as exhibit 10.19 to Western Gas Resources,
Inc.'s Registration Statement on Form S-1, Registration No. 33-43077
dated November 14, 1991 and incorporated herein by reference).

10.12 Registration Rights Agreement dated October 23, 1991 between the
Company and The 1818 Fund, L.P. (Filed as exhibit 10.20 to Western Gas
Resources, Inc.'s Registration Statement on Form S-1, Registration No.
33-43077 dated November 14, 1991 and incorporated herein by reference).

10.13 Letter Agreement dated June 10, 1992 amending the Stock Purchase
Agreement dated October 23, 1991 between the Company and the 1818 Fund,
L.P. (Filed as exhibit 10.36 to Western Gas Resources, Inc.'s Form 10-Q
for the quarter ended June 30, 1992 and incorporated herein by
reference).

46
<PAGE>

10.14 $100,000,000 Senior Notes Master Shelf Agreement dated as of December
19, 1991 by and between the Company and the Prudential Insurance
Company of America (Filed as exhibit 10.23 to Western Gas Resources,
Inc.'s Registration Statement on Form S-1, Registration No. 33-53786
dated November 12, 1992 and incorporated herein by reference).

10.15 Letter Amendment No. 1 dated October 22, 1992 to $100,000,000 Senior
Notes Master Shelf Agreement (Filed as exhibit 10.40 to Western Gas
Resources, Inc's Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference).

10.16 Stock Purchase Agreement (without exhibits) dated March 30, 1993 by and
between the Company and The Morgan Stanley Leveraged Equity Fund II,
L.P. (Filed as exhibit 10.45 to Western Gas Resources Inc.'s Form 10-Q
for the six months ended June 30, 1993 and incorporated herein by
reference).

10.17 Amendment No. 1 (without exhibits) to Stock Purchase Agreement dated as
of March 30, 1993 by and between the Company and The Morgan Stanley
Leveraged Equity Fund II, L.P. (Filed as exhibit 10.46 to Western Gas
Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and
incorporated herein by reference).

10.18 $150,000,000 Amended and Restated Master Shelf Agreement (without
exhibits) effective as of July 22, 1993 by and between the Company and
Prudential Insurance Company of America (Filed as exhibit 10.47 to
Western Gas Resources Inc.'s Form 10-Q for the six months ended June
30, 1993 and incorporated herein by reference).

10.19 Note Purchase Agreement (without exhibits) dated as of April 1, 1993 by
and between the Company and the Purchasers for $50,000,000, 7.65%
Senior Notes Due April 30, 2003 (Filed as exhibit 10.48 to Western Gas
Resources Inc.'s Form 10-Q for the six months ended June 30, 1993 and
incorporated herein by reference).

10.20 General Partnership Agreement (without exhibits), dated August 10, 1993
for Westana Gathering Company by and between Western Gas Resources -
Oklahoma, Inc. (a subsidiary of the Company) and Panhandle Gathering
Company (Filed as exhibit 10.50 to Western Gas Resources Inc.'s Form
10-Q for the six months ended June 30, 1993 and incorporated herein by
reference).

10.21 Amendment to General Partnership Agreement dated August 10, 1993 by and
between Western Gas Resources - Oklahoma, Inc. (a subsidiary of the
Company) and Panhandle Gathering Company (Filed as exhibit 10.51 to
Western Gas Resources Inc.'s Form 10-Q for the six months ended June
30, 1993 and incorporated herein by reference).

10.22 Operating and Maintenance Agreement (without exhibits) dated August 10,
1993 by and between Western Gas Resources - Oklahoma, Inc. (a
subsidiary of the Company) and Panhandle Gathering Company (Filed as
exhibit 10.52 to Western Gas Resources Inc.'s Form 10-Q for the six
months ended June 30, 1993 and incorporated herein by reference).

10.23 Amendment to Operating and Maintenance Agreement dated August 10, 1993
by and between Western Gas Resources - Oklahoma, Inc. (a subsidiary of
the Company) and Panhandle Gathering Company (Filed as exhibit 10.53 to
Western Gas Resources Inc.'s Form 10-Q for the six months ended June
30, 1993 and incorporated herein by reference).

10.24 Pipeline Operating Agreement (without exhibits) dated August 10, 1993
by and between Westana Gathering Company and Panhandle Eastern Pipe
Line Company (Filed as exhibit 10.56 to Western Gas Resources Inc.'s
Form 10-Q for the six months ended June 30, 1993 and incorporated
herein by reference).

10.25 Letter Amendment No. 1 to the Amended and Restated Master Shelf
Agreement effective as of June 30, 1993 by and between the Company and
Prudential Insurance Company of America (Filed as exhibit 10.59 to
Western Gas Resources Inc.'s Form 10-Q for the nine months ended
September 30, 1993 and incorporated herein by reference).

47
<PAGE>

10.26 Asset Purchase Agreement (without exhibits) dated July 18, 1993 by and
between the Company and Nerco Oil & Gas, Inc. (Filed as exhibit 10.60
to Western Gas Resources Inc.'s Form 10-Q for the nine months ended
September 30, 1993 and incorporated herein by reference).

10.27 Amendment No. 1 to Note Purchase Agreement dated as of August 31, 1993
by and among the Company and the Purchasers (Filed as exhibit 10.61 to
Western Gas Resources Inc.'s Form 10-Q for the nine months ended
September 30, 1993 and incorporated herein by reference).

10.28 First Amendment to Stock Purchase Agreement, amending the Stock
Purchase Agreement dated October 23, 1991 between Western Gas
Resources, Inc. and the 1818 Fund, L.P. (Filed as exhibit 10.62 to
Western Gas Resources, Inc.'s Form 10-K for the year ended December 31,
1993 and incorporated herein by reference).

10.29 First Restated Loan Agreement (Revolver) (without exhibits) as of
September 2, 1994 among Western Gas Resources, Inc. and NationsBank of
Texas, N.A. as Agent and Certain Banks as Lenders. (Filed as exhibit
10.65 to Western Gas Resources, Inc.'s Form 10-Q for the nine months
ended September 30, 1994 and incorporated herein by reference).

10.30 Second Amendment to Third Restated Loan Agreement (Term) as of
September 2, 1994 among Western Gas Resources, Inc. and NationsBank of
Texas, N.A. as Agent and Certain Banks as Lenders. (Filed as exhibit
10.66 to Western Gas Resources, Inc.'s Form 10-Q for the nine months
ended September 30, 1994 and incorporated herein by reference).

10.31 Letter Amendment No. 2 to the Amended and Restated Master Shelf
Agreement effective as of August 31, 1994 by and between Western Gas
Resources, Inc. and Prudential Insurance Company of America. (Filed as
exhibit 10.67 to Western Gas Resources, Inc.'s Form 10-Q for the nine
months ended September 30, 1994 and incorporated herein by reference).

10.32 Amendment No. 2 to Note Purchase Agreement dated as of August 31, 1994
by and among Western Gas Resources, Inc. and the Purchasers. (Filed as
exhibit 10.68 to Western Gas Resources, Inc.'s Form 10-Q for the nine
months ended September 30, 1994 and incorporated herein by reference).

10.33 Master Note dated September 2, 1994 between Western Gas Resources, Inc.
and Bank of America National Trust and Savings Association. (Filed as
exhibit 10.69 to Western Gas Resources, Inc.'s Form 10-Q for the nine
months ended September 30, 1994 and incorporated herein by reference).

10.34 First Amendment to First Restated Loan Agreement (Revolver) as of
December 2, 1994 by and among Western Gas Resources, Inc. and
NationsBank of Texas, N.A. as Agent and Certain Banks as Lenders (See
page 51).

10.35 Third Amendment to Third Restated Loan Agreement (Term) as of
December 2, 1994 by and among Western Gas Resources, Inc. and
NationsBank of Texas, N.A. as Agent and Certain Banks as Lenders (See
page 58).

11.1 Statement regarding computation of per share earnings (See page 64).

21.1 List of Subsidiaries of Western Gas Resources, Inc. (See page 65).

23.1 Consent of Price Waterhouse LLP, independent accountants (See pages 49
and 66).

(b) Reports on Form 8-K:

None.

48
<PAGE>

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No.33-66516 and
No. 33-54741) and in the Registration Statement on Form S-8 (No. 33-67834) of
Western Gas Resources, Inc. of our report dated March 24, 1995 appearing on page
24 of this Form 10-K.

PRICE WATERHOUSE LLP

Denver, Colorado
March 28, 1995

49
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado on March 23, 1995.

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

By: /s/BRION G. WISE
---------------------------
Brion G. Wise
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

/s/BRION G. WISE Chairman of the Board, Chief March 23, 1995
----------------- Executive Officer and Director
Brion G. Wise

/s/BILL M. SANDERSON President, Chief Operating Officer March 23, 1995
-------------------- and Director
Bill M. Sanderson

/s/WALTER L. STONEHOCKER Vice Chairman of the Board and March 23, 1995
------------------------ Director
Walter L. Stonehocker

Director March 23, 1995
------------------------
Richard B. Robinson

/s/DEAN PHILLIPS Director March 23, 1995
------------------------
Dean Phillips

Director March 23, 1995
------------------------
Ward Sauvage

/s/JAMES A. SENTY Director March 23, 1995
---------------------
James A. Senty

/s/JOSEPH E. REID Director March 23, 1995
----------------------
Joseph E. Reid

/s/WALTER W. GRIST Director March 23, 1995
------------------------
Walter W. Grist

/s/WILLIAM J. KRYSIAK Vice President - Finance March 23, 1995
--------------------- (Principal Financial and
William J. Krysiak Accounting Officer)

<PAGE>

FIRST AMENDMENT TO FIRST RESTATED LOAN AGREEMENT (REVOLVER)

THIS FIRST AMENDMENT TO FIRST RESTATED LOAN AGREEMENT (REVOLVER) (herein
called the "Amendment") made as of the 2nd day of December, 1994, by and among
Western Gas Resources, Inc., a Delaware corporation ("Borrower"), NationsBank of
Texas, N.A., a national banking association, as Agent ("Agent"), and NationsBank
of Texas, N.A., Bank of Montreal, CIBC Inc., Societe Generale, Southwest Agency,
The First National Bank of Boston, Colorado National Bank, Bank of America
National Trust and Savings Association and Credit Lyonnais Cayman Island Branch,
(herein, collectively referred to as "Lenders").

W I T N E S S E T H:

WHEREAS, Borrower, Agent and Lenders have entered into that certain First
Restated Loan Agreement (Revolver) dated as of September 2, 1994, (the "Original
Agreement") for the purpose and consideration therein expressed, whereby Lenders
became obligated to make loans to Borrower as therein provided; and

WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement
as expressly set forth herein;

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement and in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:

ARTICLE I.

Definitions and References
--------------------------

Section 1.1. Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.

Section 1.2. Other Defined Terms. Unless the context otherwise requires,
-------------------
the following terms when used in this Amendment shall have the meanings assigned
to them in this Section 1.2.

"Loan Agreement" shall mean the Original Agreement as amended hereby.

ARTICLE II.

Amendments
----------

Section 2.1. Amendment to Defined Terms.
--------------------------

(a) The last sentence of the definition of "Debt to Capitalization Ratio"
contained in Section 1.1 of the Original Agreement is hereby amended in its
entirety to read as follows:

"As used in this definition, "Adjusted Funded Debt of Borrower" means, at
the time of determination, the sum of (1) Funded Debt (excluding the
Indebtedness described in Section 6.2(b)(ix)) plus (2) Excess Working
Capital Deficit."

(b) The last sentence of the definition of Eurodollar Spread found in
Section 1.1 of the Original Agreement is hereby amended in its entirety to read
as follows:

51 Exhibit 10.34
<PAGE>

"Each of the above listed Eurodollar Spreads will be reduced (an `interest
rate reduction') by one-eighth of one percent (.125%) upon the issuance (in
one or more transactions) by Borrower of either Funded Debt which has a
maturity in excess of six years or capital stock, which issuance results in
aggregate proceeds (net of expenses) to Borrower of at least $100,000,000
(a `triggering event'), provided, however, that in the event, the 7.25%
Cumulative Senior Perpetual Convertible Preferred Stock of Borrower is
redeemed, an interest rate reduction shall not become effective until such
time as both (a) a triggering event has occurred and (b) Borrower has
received not less than an amount equal to the Redemption Amount in proceeds
(net of expenses) from the sale or sales of its common or preferred stock
made after the Redemption Date (in this section referred to as "New Equity
Proceeds"). Within ten (10) business days after Borrower provides Agent
with notice of the occurrence of a triggering event and such supporting
documents or other information as Agent may reasonably request and provided
that Agent concurs with Borrower that a triggering event has occurred and,
if applicable, that New Equity Proceeds in the amount of the Redemption
Amount have been received by Borrower, Agent shall notify Borrower and
Lenders of the effective date of the reduction of such Eurodollar Spreads
which shall be the date on which Borrower provided Agent with such notice."

(c) The following definition of "Redemption Amount" is hereby added to
Section 1.1 of the Original Agreement immediately following the definition of
"Rate Election":

"Redemption Amount" means the aggregate amount of all sums paid by
-----------------
Borrower to the holder of the 7.25% Cumulative Senior Perpetual Convertible
Preferred Stock of Borrower in connection with the redemption of such stock."

(d) The following definition of "Redemption Date" is hereby added to
Section 1.1 of the Original Agreement immediately following the definition of
"Redemption Amount":

"Redemption Date" means the date on which any portion of the 7.25%
---------------
Cumulative Senior Perpetual Convertible Preferred Stock of Borrower is
redeemed."

Section 2.2. Amendment to Covenant Regarding Limitation on Dividends and
-----------------------------------------------------------
Distributions.
-------------

Section 6.2(a) of the Original Agreement is hereby amended in its entirety
to read as follows:

"(a) Limitation on Dividends and Distributions. Except for payments by
-----------------------------------------
Borrower to its stockholders which are permitted under the following
sentences of this subsection and do not otherwise violate any provisions of
this Agreement and except for dividends paid to Borrower by its Subsidiaries
or to MIGC by MGTC, none of Borrower and its Subsidiaries will declare or pay
any dividends on, or make any other distribution in respect of, any class of
its capital stock or any partnership or other interest in it, other than the
distribution of common stock pursuant to the conversion or exchange of
Preferred Stock, nor will any of Borrower and its Subsidiaries directly or
indirectly make any capital contribution to or purchase, redeem, acquire or
retire any shares of the capital stock of or partnership interest in any of
Borrower and its Subsidiaries (whether such interests are now or hereafter
issued, outstanding or created), other than pursuant to the redemption of the
7.25% Cumulative Senior Perpetual Convertible Preferred Stock of Borrower, or
cause or permit any reduction or retirement of the capital stock of or
partnership interest in any of Borrower and its Subsidiaries. Borrower may
make any of the payments, distributions, capital contributions or purchases
described above in this Section 6.2(a), so long as (I) no Default or Event of
Default has occurred and is continuing at the time such dividends are
declared and paid and (ii) such repurchases and dividends declared or paid by
Borrower since March 31, 1994, other than the Redemption Amount, together
with all investments Borrower has made in accordance with the provisions of
Section 6.2(f)(v), do not, in the aggregate, exceed the sum of (A)
$35,000,000; plus (B) fifty percent (50.0%) of Borrower's Consolidated
----
cumulative net income earned after March 31, 1994 if such figure is positive
(zero percent, if negative); plus (C) fifty percent (50.0%) of the cumulative
----
net proceeds, in excess of the Redemption Amount, received by Borrower and
its Subsidiaries at any time after March 31, 1994 from the sale of any equity
securities issued by Borrower or any of its Subsidiaries."

Section 2.3. Amendment to Covenant Regarding Tangible Net Worth.
--------------------------------------------------

The definition of "Tangible Net Worth Minimum" contained in the last
sentence of Section 6.2(j) of the Original Agreement is hereby amended in its
entirety to read as follows:

52
<PAGE>

"As used in this subsection the term "Tangible Net Worth Minimum" means the
sum of (I) $400,000,000 less the Redemption Amount; plus (ii) fifty percent
----
(50.0%) of Borrower's Consolidated cumulative net income earned after March
31, 1994, if such figure is positive (zero percent, if negative); plus (iii)
----
seventy-five percent (75.0%) of the cumulative net proceeds received by
Borrower at any time after March 31, 1994 from the sale of any equity
securities issued by Borrower or any of its Subsidiaries."

Section 2.4. Amendment to Events of Default and Remedies.
-------------------------------------------

Section 8.1(k) of the Original Agreement is hereby amended in its entirety
to read as follows:

"Any event occurs which would require Borrower to redeem for cash the
Preferred Stock, the Additional Preferred Stock or any subordinated notes
which may have been issued in exchange for the Preferred Stock or which gives
the holders of the Preferred Stock, the Additional Preferred Stock or any
subordinated notes which may have been issued in exchange for the Preferred
Stock the right to demand such redemption (excluding any event which would
require Borrower to redeem, or which gives the holder the right to demand
that the Borrower redeem, the 7.25% Cumulative Senior Perpetual Convertible
Preferred Stock of Borrower as permitted under Section 6.2(a)); or "

ARTICLE III.

Conditions of Effectiveness
---------------------------

Section 3.1. Effective Date. This Amendment shall become effective as of
--------------
the date first above written when, and only when, (I) Agent shall have received,
at Agent's office, a counterpart of this Amendment executed and delivered by
Borrower and Majority Lenders and (ii) Agent shall have additionally received
each of the following, each document (unless otherwise indicated) being dated
the date of receipt thereof by Agent, duly authorized, executed and delivered,
and in form and substance satisfactory to Agent:

(a) a certificate of the Secretary of Borrower dated the date of this
Amendment certifying that: (A) the resolutions adopted by the Board of
Directors of Borrower attached as Exhibit 1 to the Omnibus Certificate of
Borrower dated September 2, 1994 (the "Original Certificate") have not been
amended or revoked, and continue in full force and effect, (B) the incumbency
and authorization of the officers of Borrower authorized to sign Loan
Documents, with signature specimens of such officers, contained in the
Original Certificate has not been amended and continues in full force and
effect, (C) copies of the certified charter documents of Borrower (including
by-laws), attached as Exhibits H and O to the Original Certificate have not
been amended or revoked since the date of the Original Certificate, and
continue in full force and effect, (D) no Default that has not been expressly
waived by Lenders exists on and as of the date hereof and (E) all of the
representations and warranties set forth in Article IV hereof and Article V
of the Original Agreement are true and correct at and as of their respective
times of effectiveness and

(b) such supporting documents as Agent may reasonably request.

Section 3.2. Amendment Fee. Borrower shall pay to Agent on the date
-------------
hereof, for distribution to each Lender, an amendment fee equal to five-one
hundredths of one percent (0.05%) of the Commitment (as of the date hereof) of
such Lender. In the event (a) any part of the 7.25% Cumulative Senior Perpetual
Convertible Preferred Stock of Borrower is redeemed rather than converted and
(b) Borrower does not receive before the 30th day following the Redemption Date,
at least an amount equal to the Redemption Amount in proceeds (net of expenses
incurred) from the sale or sales of its common or preferred stock made after the
Redemption Date, Borrower shall pay to Agent on the 31st day following the
Redemption Date, for distribution to each Lender, an additional amendment fee
equal to five-one hundredths of one percent (0.05%) of the Commitment (as of the
date hereof) of such Lender.

53
<PAGE>

ARTICLE IV.

Representations and Warranties
------------------------------

Section 4.1. Representations and Warranties of Borrower. In order to
------------------------------------------
induce each Lender to enter into this Amendment, Borrower represents and
warrants to each Lender that:

(a) The representations and warranties contained in each subsection of
Section 5.1 of the Original Agreement are true and correct at and as of the
time of the effectiveness hereof.

(b) Borrower is duly authorized to execute and deliver this Amendment
and is and will continue to be duly authorized to borrow monies and to
perform its obligations under the Loan Agreement. Borrower has duly taken
all corporate action necessary to authorize the execution and delivery of
this Amendment and to authorize the performance of the obligations of
Borrower hereunder and thereunder.

(c) The execution and delivery by Borrower of this Amendment, the
performance by Borrower of its obligations hereunder and the consummation of
the transactions contemplated hereby do not and will not conflict with any
provision of law, statute, rule or regulation or of the articles of
incorporation and bylaws of Borrower, or of any material agreement, judgment,
license, order or permit applicable to or binding upon Borrower, or result in
the creation of any lien, charge or encumbrance upon any assets or properties
of Borrower. Except for those which have been obtained, no consent,
approval, authorization or order of any court or governmental authority or
third-party is required in connection with the execution and delivery by
Borrower of this Amendment or to consummate the transactions contemplated
hereby.

(d) When duly executed and delivered, this Amendment and the Loan
Agreement will be a legal and binding obligation of Borrower, enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of creditors'
rights and by equitable principles of general application.

(e) The audited annual Consolidated financial statements of Borrower
dated as of December 31, 1993 and the unaudited quarterly Consolidated
financial statements of Borrower dated as of June 30, 1994 fairly present
Borrower's Consolidated financial position at such dates and the Consolidated
results of Borrower's operations and changes in Borrower's Consolidated cash
flow for the respective periods thereof. Copies of such financial statements
have heretofore been delivered to each Lender. Since June 30, 1994, no
material adverse change has occurred in the financial condition or businesses
or in the Consolidated financial condition or businesses of Borrower.

ARTICLE V.

Miscellaneous
-------------

Section 5.1. Ratification of Agreements. The Original Agreement as hereby
--------------------------
amended and each other Loan Document affected hereby are ratified and confirmed
in all respects. Any reference to the Loan Agreement in any Loan Document shall
be deemed to be a reference to the Original Agreement as hereby amended. The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
Agent or Lenders under the Loan Agreement or any other Loan Document nor
constitute a waiver of any provision of the Loan Agreement or any other Loan
Document.

Section 5.2. Survival of Agreements. All representations, warranties,
----------------------
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans, and shall further survive until
all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by Borrower or any Related
Person hereunder or under the Loan Agreement to any Lender shall be deemed to
constitute representations and warranties by, and/or agreements and covenants
of, Borrower under this Amendment and under the Loan Agreement.

Section 5.3. Loan Documents. This Amendment is a Loan Document, and all
--------------
provisions in the Loan Agreement pertaining to Loan Documents apply hereto.

54
<PAGE>

Section 5.4. Governing Law. This Amendment shall be governed by and
-------------
construed in accordance with the laws of the State of Texas and any applicable
laws of the United States of America in all respects, including construction,
validity and performance.

Section 5.5. Counterparts. This Amendment may be separately executed in
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above by their duly authorized officers.

WESTERN GAS RESOURCES, INC.

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

NATIONSBANK OF TEXAS, N.A., as Agent,
Issuing Bank and Lender

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

BANK OF MONTREAL

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

THE FIRST NATIONAL BANK OF BOSTON

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

55
<PAGE>

CREDIT LYONNAIS CAYMAN ISLAND BRANCH

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

CIBC INC.

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

COLORADO NATIONAL BANK

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

SOCIETE GENERALE, SOUTHWEST AGENCY

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

56
<PAGE>

CONFIRMATION, ACKNOWLEDGMENT AND CONSENT OF GUARANTORS

Each of the undersigned (collectively "Guarantors") hereby (I) acknowledges
and consents to the foregoing First Amendment to First Restated Loan Agreement
(Revolver); (ii) confirms the Restated Guaranty dated as of September 2, 1994
executed by such Guarantor in favor of Agent and the Lenders pursuant to the
Original Agreement; and (iii) agrees that each of such Guarantor's obligations
and covenants with respect to such Restated Guaranty shall remain in full force
and effect after the execution of such Amendment.

William J. Krysiak, Vice President-Finance of Western Gas Resources
Oklahoma, Inc., Western Gas Resources Texas, Inc., Western Gas Resources
Storage, Inc., Mountain Gas Resources, Inc., MGTC, Inc. and MIGC, Inc., is
executing this Confirmation, Acknowledgment and Consent of Guarantors in his
capacity of officer of each such corporation.

Dated as of the 2nd day of December, 1994.

WESTERN GAS RESOURCES OKLAHOMA, INC.
WESTERN GAS RESOURCES TEXAS, INC.
WESTERN GAS RESOURCES STORAGE, INC.
MOUNTAIN GAS RESOURCES, INC.
MGTC, INC.
MIGC, INC.

By: /s/ SIGNATURE
-------------------------------------
William J. Krysiak, Vice President-
Finance

<PAGE>

THIRD AMENDMENT TO THIRD RESTATED LOAN AGREEMENT (TERM)

THIS THIRD AMENDMENT TO THIRD RESTATED LOAN AGREEMENT (TERM) (herein called
the "Amendment") made as of the 2nd day of December 1994, by and among Western
Gas Resources, Inc., a Delaware corporation ("Borrower"), NationsBank of Texas,
N.A., a national banking association, as Agent ("Agent"), and NationsBank of
Texas, N.A., Bankers Trust Company, Bank of Montreal and CIBC Inc. (herein,
collectively referred to as "Lenders"),

W I T N E S S E T H:

WHEREAS, Borrower, Agent and Lenders have entered into that certain Third
Restated Loan Agreement (Term) dated as of August 31, 1993, as amended by that
certain First Amendment to Third Restated Loan Agreement (Term) dated as of
December 31, 1993, and that certain Second Amendment to Third Restated Loan
Agreement (Term) dated as of September 2, 1994, among Borrower, Agent and
Lenders (as amended to the date hereof, the "Original Agreement") for the
purpose and consideration therein expressed, whereby Lenders made loans to
Borrower as therein provided; and

WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement
as expressly set forth herein;

ARTICLE I.

Definitions and References
--------------------------

"Loan Agreement" shall mean the Original Agreement as amended hereby.

ARTICLE II.

Amendments
----------

Section 2.1. Amendment to Defined Terms.
--------------------------

(a) The last sentence of the definition of "Debt to Capitalization Ratio"
contained in Section 1.1 of the Original Agreement is hereby amended in its
entirety to read as follows:

"As used in this definition, "Adjusted Funded Debt of Borrower" means, at
the time of determination, the sum of (1) Funded Debt (excluding the
Indebtedness described in Section 5.2(b)(ix)) plus (2) Excess Working
Capital Deficit."

(b) The following definition of "Redemption Amount" is hereby added to
Section 1.1 of the Original Agreement immediately following the definition of
"Prepayment Calculation Date":

(c) The following definition of "Redemption Date" is hereby added to
Section 1.1 of the Original Agreement immediately following the definition of
"Redemption Amount":

Exhibit 10.35
<PAGE>

"Redemption Date" means the date on which any portion of the 7.25%
---------------
Cumulative Senior Perpetual Convertible Preferred Stock of Borrower is
redeemed."

Section 2.2. Amendment to Covenant Regarding Limitation on Dividends and
-----------------------------------------------------------
Distributions.
-------------

Section 5.2(a) of the Original Agreement is hereby amended in its entirety
to read as follows:

"(a) Limitation on Dividends and Distributions. Except for payments by
-----------------------------------------
Borrower to its stockholders which are permitted under the following
sentences of this subsection and do not otherwise violate any provisions of
this Agreement and except for dividends paid to Borrower by its Subsidiaries
or to MIGC by MGTC, none of Borrower and its Subsidiaries will declare or pay
any dividends on, or make any other distribution in respect of, any class of
its capital stock or any partnership or other interest in it, other than the
distribution of common stock pursuant to the conversion or exchange of
Preferred Stock, nor will any of Borrower and its Subsidiaries directly or
indirectly make any capital contribution to or purchase, redeem, acquire or
retire any shares of the capital stock of or partnership interest in any of
Borrower and its Subsidiaries (whether such interests are now or hereafter
issued, outstanding or created), other than pursuant to the redemption of the
7.25% Cumulative Senior Perpetual Convertible Preferred Stock of Borrower, or
cause or permit any reduction or retirement of the capital stock of or
partnership interest in any of Borrower and its Subsidiaries. Borrower may
make any of the payments, distributions, capital contributions or purchases
described above in this Section 5.2(a), so long as (I) no Default or Event of
Default has occurred and is continuing at the time such dividends are
declared and paid and (ii) such repurchases and dividends declared or paid by
Borrower since March 31, 1994, other than the Redemption Amount, together
with all investments Borrower has made in accordance with the provisions of
Section 5.2(f)(v), do not, in the aggregate, exceed the sum of (A)
$35,000,000; plus (B) fifty percent (50.0%) of Borrower's Consolidated
----
cumulative net income earned after March 31, 1994 if such figure is positive
(zero percent, if negative); plus (C) fifty percent (50.0%) of the cumulative
----
net proceeds, in excess of the Redemption Amount, received by Borrower and
its Subsidiaries at any time after March 31, 1994 from the sale of any equity
securities issued by Borrower or any of its Subsidiaries."

Section 2.3. Amendment to Covenant Regarding Tangible Net Worth.
--------------------------------------------------

The definition of "Tangible Net Worth Minimum" contained in the last
sentence of Section 5.2(j) of the Original Agreement is hereby amended in its
entirety to read as follows:

Section 2.4. Amendment to Events of Default and Remedies.
-------------------------------------------

Section 7.1(k) of the Original Agreement is hereby amended in its entirety
to read as follows:

59
<PAGE>

ARTICLE III.

Conditions of Effectiveness
---------------------------

Section 3.1. Effective Date. This Amendment shall become effective as of
--------------
the date first above written when, and only when, (I) Agent shall have received,
at Agent's office, a counterpart of this Amendment executed and delivered by
Borrower and each Majority Lenders, and (ii) Agent shall have additionally
received each of the following, each document (unless otherwise indicated) being
dated the date of receipt thereof by Agent, duly authorized, executed and
delivered, and in form and substance satisfactory to Agent:

(b) such supporting documents as Agent may reasonably request.

Section 3.2. Amendment Fee. Borrower shall pay to Agent on the date
-------------
hereof, for distribution to each Lender, an amendment fee equal to five-one
hundredths of one percent (0.05%) of the outstanding principal balance of such
Lender's Loans (as of the date hereof). In the event (a) the 7.25% Cumulative
Senior Perpetual Convertible Preferred Stock of Borrower is redeemed rather than
converted and (b) Borrower does not receive before the 30th day following the
Redemption Date, at least an amount equal to the Redemption Amount in proceeds
(net of expenses incurred) from the sale or sales of its common or preferred
stock made after the Redemption Date, Borrower shall pay to Agent on the 31st
day following the Redemption Date, for distribution to each Lender, an
additional amendment fee equal to five-one hundredths of one percent (0.05%) of
the outstanding principal balance of such Lender's Loans (as of the date
hereof).

ARTICLE IV.

Representations and Warranties
------------------------------

(a) The representations and warranties contained in each subsection of
Section 4.1 of the Original Agreement are true and correct at and as of the
time of the effectiveness hereof.

60
<PAGE>

ARTICLE V.

Miscellaneous
-------------

Section 5.3. Loan Documents. This Amendment is a Loan Document, and all
--------------
provisions in the Loan Agreement pertaining to Loan Documents apply hereto.

61
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above by their duly authorized officers.

WESTERN GAS RESOURCES, INC.

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

NATIONSBANK OF TEXAS, N.A.

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

BANKERS TRUST COMPANY

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

BANK OF MONTREAL

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

CIBC INC.

By: /s/ SIGNATURE
-------------------------------------
Name:
Title:

62
<PAGE>

CONFIRMATION, ACKNOWLEDGMENT AND CONSENT OF GUARANTORS

Each of the undersigned (collectively "Guarantors") hereby (I) acknowledges
and consents to the foregoing Third Amendment to Third Restated Loan Agreement
(Term); (ii) confirms the Restated Guaranty dated as of August 31, 1993 executed
by such Guarantor in favor of Agent and the Lenders pursuant to the Original
Agreement; and (iii) agrees that each of such Guarantor's obligations and
covenants with respect to each such Restated Guaranty shall remain in full force
and effect after the execution of such Amendment.

Dated as of the 2nd day of December, 1994.

WESTERN GAS RESOURCES OKLAHOMA, INC.
WESTERN GAS RESOURCES TEXAS, INC.
WESTERN GAS RESOURCES STORAGE, INC.
MOUNTAIN GAS RESOURCES, INC.
MGTC, INC.
MIGC, INC.

By: /s/ SIGNATURE
-------------------------------------
William J. Krysiak, Vice President-
Finance

<PAGE>

WESTERN GAS RESOURCES, INC.
COMPUTATION OF PER SHARE EARNINGS
DECEMBER 31, 1994

<TABLE>
<CAPTION>
Weighted
Average
Shares Of Earnings
Common Per Share
Stock Net Of Common
Outstanding Income Stock
------------- ----------- ---------
<S> <C> <C> <C>
Net income......................................................... $ 7,364,000
Weighted average shares of common stock outstanding................ 25,695,760

Less preferred stock dividends:

7.25% cumulative senior perpetual convertible preferred stock..... (2,900,000)
$2.28 cumulative preferred stock.................................. (3,193,752)
$2.625 cumulative convertible preferred stock..................... (6,118,000)
----------- -----------
25,695,760 $(4,847,752)
=========== ===========
Basic earnings per share of common stock........................... $(0.19)
======
Assume exercise of common stock equivalents:
Weighted average shares of common stock outstanding............... 25,695,760

(Anti-dilutive common stock equivalents are not used
in this calculation)

$5.40 employee stock options....................................... 58,915
Key employee stock options......................................... 4,368
Director stock options............................................. 6,031
----------- -----------
25,765,074 $(4,847,752)
=========== ===========
Primary earnings per share of common stock......................... $(0.19)
======
Assume no conversion of anti-dilutive convertible
preferred stock

Assume exercise of common stock equivalents:
Weighted average shares of common stock outstanding............... 25,695,760

(Anti-dilutive common stock equivalents are not used
in this calculation)

$5.40 employee stock options....................................... 53,753
Director stock options............................................. 3,591
----------- -----------
25,753,104 $(4,847,752)
=========== ===========
Fully diluted earnings per share of common stock................... $(0.19)
======
</TABLE>

Exhibit 11.1

<PAGE>

SUBSIDIARIES OF WESTERN GAS RESOURCES, INC.

NAME OF SUBSIDIARY RELATIONSHIP
------------------ ------------
1) MIGC, Inc. Wholly-owned subsidiary of Western
Gas Resources, Inc.

2) MGTC, Inc. Wholly-owned subsidiary of MIGC, Inc.

3) Western Gas Resources - Texas, Inc. Wholly-owned subsidiary of Western
Gas Resources, Inc.

4) Williston Gas Company 50%-owned joint venture of Western
Gas Resources, Inc.

5) Western Gas Resources Storage, Inc. Wholly-owned subsidiary of Western
Gas Resources, Inc.

6) Centre Court Travel Wholly-owned subsidiary of Western
Gas Resources, Inc.

7) Rising Star Pipeline Corporation Wholly-owned subsidiary of Western
Gas Resources, Inc.

8) Setting Sun Pipeline Corporation Wholly-owned subsidiary of Western
Gas Resources, Inc.

9) Western Gas Resources - Wholly-owned subsidiary of Western
Louisiana, Inc. Gas Resources, Inc.

10) Western Gas Resources - Oklahoma, Wholly-owned subsidiary of Western
Inc. Gas Resources, Inc.

11) Westana Gathering Company A general partnership with Western
Gas Resources, Inc. as general
partner

12) Mountain Gas Resources, Inc. Wholly-owned subsidiary of Western
Gas Resources, Inc.

13) Mountain Gas Transportation, Inc. Wholly-owned subsidiary of Mountain
Gas Resources, Inc.

14) Green River Gathering Company A general partnership between
Western Gas Resources, Inc. and
Mountain Gas Resources, Inc.

15) Western Gas Resources Power Wholly-owned subsidiary of Western
Marketing, Inc. Gas Resources, Inc.

Exhibit 21.1

<PAGE>

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 33-66516 and
No. 33-54741) and in the Registration Statement on From S-8 (No. 33-67834) of
Western Gas Resources, Inc. of our report dated March 24, 1995 appearing on page
24 of this Form 10-K.

PRICE WATERHOUSE LLP

Denver, Colorado
March 28, 1995

Exhibit 23.1

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 8,708
<SECURITIES> 0
<RECEIVABLES> 134,444
<ALLOWANCES> 0
<INVENTORY> 53,430
<CURRENT-ASSETS> 197,949
<PP&E> 1,062,246
<DEPRECIATION> (179,537)
<TOTAL-ASSETS> 1,167,362
<CURRENT-LIABILITIES> 238,430
<BONDS> 418,000
<COMMON> 2,574
0
456
<OTHER-SE> 433,653
<TOTAL-LIABILITY-AND-EQUITY> 1,167,362
<SALES> 1,052,244
<TOTAL-REVENUES> 1,063,489
<CGS> 853,398
<TOTAL-COSTS> 853,398
<OTHER-EXPENSES> 166,651
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,916
<INCOME-PRETAX> 11,524
<INCOME-TAX> 4,160
<INCOME-CONTINUING> 7,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,364
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)

</TABLE>