10-Q

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Table of Contents

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

OR

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

FOR THE TRANSITION PERIOD FROM                TO               

Commission file number 1-10389

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

Delaware (State or other jurisdiction of incorporation or organization)	84-1127613 (I.R.S. Employer Identification No.)
12200 N. Pecos Street, Denver, Colorado (Address of principal executive offices)	80234-3439 (Zip Code)

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

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

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

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

Western Gas Resources, Inc.
Form 10-Q

Table of Contents

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

PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

WESTERN GAS RESOURCES, INC.

CONSOLIDATED BALANCE SHEET

(Dollars in thousands, except share data)

			September 30, 2001			December 31, 2000
			(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	18,297		$	12,927
	Trade accounts receivable, net			188,790			546,791
	Product inventory			59,796			44,822
	Parts inventory			3,060			3,489
	Assets from price risk management activities			87,972			—
	Assets held for sale			5,199			25,001
	Other			590			2,654
		Total current assets		363,704			635,684
Property and equipment:
	Gas gathering, processing, storage and transportation			888,191			856,982
	Oil and gas properties and equipment (successful efforts method)			181,353			139,084
	Construction in progress			91,825			58,319
				1,161,369			1,054,385
Less: Accumulated depreciation, depletion and amortization				(349,604	)		(306,651	)
		Total property and equipment, net		811,765			747,734
Other assets:
	Gas purchase contracts (net of accumulated amortization of $34,833 and $33,357, respectively)			33,323			34,798
	Assets from price risk management activities			16,672			—
	Other			12,695			13,206
		Total other assets		62,690			48,004
Total assets			$	1,238,159		$	1,431,422
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	236,230		$	581,563
	Accrued expenses			39,740			25,094
	Liabilities from price risk management activities			33,160			—
	Dividends payable			4,218			4,205
		Total current liabilities		313,348			610,862
Long-term debt				305,000			358,700
Liabilities from price risk management activities				—			—
Other long-term liabilities				2,427			2,646
Deferred income taxes payable, net				121,046			67,680
Total liabilities				741,821			1,039,888
Stockholders' equity:
	Preferred Stock; 10,000,000 shares authorized:
		$2.28 cumulative preferred stock, par value $.10; 1,400,000 shares issued ($35,000,000 aggregate liquidation preference)		140			140
		$2.625 cumulative convertible preferred stock, par value $.10; 2,760,000 issued ($138,000,000 aggregate liquidation preference)		276			276
	Common stock, par value $.10; 100,000,000 shares authorized; 32,663,530 and 32,361,131 shares issued, respectively			3,290			3,265
	Treasury stock, at cost; 25,016 common shares and 44,290 shares of $2.28 cumulative preferred stock			(1,907	)		(1,778	)
	Additional paid-in capital			404,909			400,157
	Retained earnings (deficit)			60,354			(11,820	)
	Accumulated other comprehensive income			30,160			2,178
	Notes receivable from key employees secured by common stock			(884	)		(884	)
		Total stockholders' equity		496,338			391,534
Total liabilities and stockholders' equity			$	1,238,159		$	1,431,422

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

WESTERN GAS RESOURCES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

		Nine Months Ended September 30,
		2001			2000
Reconciliation of net income to net cash provided by operating activities:
Net income		$	84,816		$	38,043
Add income items that do not affect cash:
	Depreciation, depletion and amortization		47,018			41,733
	Gain on the sale of property and equipment		(10,653	)		(9,436	)
	Distributions (less than) in excess of equity income, net		912			(858	)
	Foreign currency translation adjustments		(1,698	)		(470	)
	Deferred income taxes		36,326			22,320
	Other non-cash items, net		(24,212	)		2,611
			132,509			93,943
Adjustments to working capital to arrive at net cash provided by operating activities:
	(Increase) decrease in trade accounts receivable		353,634			(192,511	)
	Increase in product inventory		(14,974	)		(14,768	)
	Decrease in parts inventory		429			1,449
	Decrease in other current assets		2,064			7,005
	Decrease in other assets and liabilities, net		(126	)		—
	Increase (decrease) in accounts payable		(345,333	)		169,955
	Increase (decrease) in accrued expenses		16,336			(8,720	)
Net cash provided by operating activities			144,539			56,353
Cash flows from investing activities:
	Purchases of property and equipment		(114,683	)		(72,970	)
	Proceeds from the dispositions of property and equipment		38,075			26,462
	Contributions to equity investees		(783	)		13
Net cash used in investing activities			(77,391	)		(46,495	)
Cash flows from financing activities:
	Net proceeds from exercise of common stock options		4,777			2,039
	Repurchase of $2.28 Cumulative Preferred Stock		(129	)		—
	Proceeds from issuance of long-term debt		—			—
	Debt issue costs paid		(97	)		(7	)
	Payments on revolving credit facility		(355,000	)		(922,286	)
	Borrowings under revolving credit facility		301,300			949,836
	Prepayment of American General notes		—			(27,000	)
	Dividends paid		(12,629	)		(12,660	)
Net cash provided by financing activities			(61,778	)		(10,078	)
Net increase (decrease) in cash and cash equivalents			5,370			(220	)
Cash and cash equivalents at beginning of period			12,927			14,062
Cash and cash equivalents at end of period		$	18,297		$	13,842

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

WESTERN GAS RESOURCES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share and per share amounts)

			Three Months Ended September 30,						Nine Months Ended September 30,
			2001			2000			2001			2000
Revenues:
	Sale of residue gas		$	542,131		$	739,431		$	2,343,533		$	1,659,104
	Sale of natural gas liquids			94,865			155,136			338,834			412,743
	Processing, transportation and storage revenue			10,418			12,956			41,042			36,251
	Non-cash change in fair value of derivatives			21,112			—			23,288
	Other, net			2,359			2,313			8,488			8,706
		Total revenues		670,885			909,836			2,755,185			2,116,804
Costs and expenses:
	Product purchases			594,452			833,266			2,465,602			1,911,136
	Plant operating expense			18,875			18,515			54,152			50,877
	Oil and gas exploration and production expense			2,614			5,038			21,317			10,975
	Depreciation, depletion and amortization			17,257			14,201			47,018			41,733
	(Gain)/loss on fixed assets			570			(3,802	)		(10,653	)		(9,436	)
	Selling and administrative expense			7,715			8,500			23,739			23,989
	Interest expense			6,132			8,889			18,953			24,916
		Total costs and expenses		647,615			884,607			2,620,128			2,054,190
Income before income taxes				23,270			25,229			135,057			62,614
Provision for income taxes:
	Current			68			—			13,915			537
	Deferred			8,429			9,058			36,326			22,320
		Total provision for income taxes		8,497			9,058			50,241			22,857
Income before extraordinary items				14,773			16,171			84,816			39,757
Extraordinary charge for early extinguishment of debt, net of tax benefit of $700,000				—			(1,714	)		—			(1,714	)
Net income				14,773			14,457			84,816			38,043
Preferred stock requirements				(2,584	)		(2,610	)		(7,753	)		(7,829	)
Income attributable to common stock			$	12,189		$	11,847		$	77,063		$	30,214
Income per share of common stock			$	.37		$	.37		$	2.37		$	.94
Weighted average shares of common stock outstanding				32,657,637			32,263,430			32,547,397			32,208,697
Income per share of common stock—assuming dilution			$	.36		$	.36		$	2.23		$	.92
Weighted average shares of common stock outstanding—assuming dilution				33,572,836			32,945,023			36,992,899			32,745,413

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

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

				Shares of $2.28 Cumulative Preferred Stock	Shares of $2.28 Cumulative Preferred Stock in Treasury	$2.625 Cumulative Convertible Preferred Stock	Shares of Common Stock	Shares of Common Stock in Treasury	$2.28 Cumulative Preferred Stock		$2.625 Cumulative Convertible Preferred Stock		Common Stock		Treasury Stock			Additional Paid-In Capital		Retained (Deficit) Earnings			Accumulated Other Comprehensive Income Net of Tax			Notes Receivable from Key Employees			Total Stockholders' Equity
Balance at December 31, 2000				1,400,000	39,190	2,760,000	32,361,131	25,016		140		276		3,265		(1,778	)		400,157		(11,820	)		2,178			(884	)		391,534
Comprehensive income:
	Net income, nine months ended September 30, 2001			—	—	—	—	—		—		—		—		—			—		84,816			—			—			84,816
		Cumulative effect of change in accounting principle—January 1, 2001		—	—	—	—	—		—		—		—		—			—		—			(22,527	)		—			(22,527	)
		Reclassification adjustment for settled contracts		—	—	—	—	—		—		—		—		—			—		—			19,370			—			19,370
		Changes in fair value of outstanding hedging positions		—	—	—	—	—		—		—		—		—			—		—			15,286			—			15,286
		Fair value of new hedge positions		—	—	—	—	—		—		—		—		—			—		—			17,551			—			17,551
			Ending accumulated derivative gain	—	—	—	—	—		—		—		—		—			—		—			29,680			—			29,680
	Translation adjustments			—	—	—	—	—		—		—		—		—			—		—			(1,698	)		—			(1,698	)
	Total comprehensive income, net of tax																													112,798
Stock options exercised				—	—	—	302,399	—		—		—		25		—			4,752		—			—			—			4,777
Tax benefit related to stock options				—	—	—	—	—		—		—		—		—			—		—			—			—			—
Loans forgiven				—	—	—	—	—		—		—		—		—			—		—			—			—			—
Dividends declared on common stock				—	—	—	—	—		—		—		—		—			—		(4,890	)		—			—			(4,890	)
Dividends declared on $2.28 cumulative preferred stock				—	—	—	—	—		—		—		—		—			—		(2,319	)		—			—			(2,319	)
Dividends declared on $2.625 cumulative convertible preferred stock				—	—	—	—	—		—		—		—		—			—		(5,433	)		—			—			(5,433	)
Repurchase of $2.28 cumulative preferred stock				—	5,100	—	—	—		—		—		—		(129	)		—		—			—			—			(129	)
Balance at September 30, 2001				1,400,000	44,290	2,760,000	32,652,057	25,016	$	140	$	276	$	3,290	$	(1,907	)	$	404,909	$	60,354		$	30,160		$	(884	)	$	496,338

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

WESTERN GAS RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

GENERAL

    The interim consolidated financial statements presented herein should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2000. The interim consolidated financial statements as of September 30, 2001 and for the three and nine-month periods ended September 30, 2001 and 2000 included herein are unaudited but reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the results for such periods. The results of operations for the three and nine months ended September 30, 2001 are not necessarily indicative of the results of operations expected for the year ended December 31, 2001.

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

EARNINGS PER SHARE OF COMMON STOCK

    Earnings per share of common stock is computed by dividing income attributable to common stock by the weighted average shares of common stock outstanding. In addition, earnings per share of common stock—assuming dilution is computed by dividing income attributable to common stock by the weighted average shares of common stock outstanding as adjusted for potential common shares. Income attributable to common stock is income less preferred stock dividends. We declared preferred stock dividends of $2.6 million and $7.8 million, respectively, for each of the three and nine-month periods ended September 30, 2001 and 2000. Common stock options and our $2.625 cumulative convertible preferred stock, which are potential common shares, had a dilutive effect on earnings and increased the weighted average number of shares of common stock outstanding by 915,199 and 681,593 for the three-month periods ended September 30, 2001 and 2000, respectively, and by 4,445,502 and 536,716 for the nine months ended September 30, 2001 and 2000, respectively. The numerators and the denominators for these periods were adjusted to reflect these potential shares in calculating fully diluted earnings per share.

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

OTHER INFORMATION

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

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

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

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

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

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

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

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

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

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

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

ADOPTION OF STOCKHOLDER RIGHTS PLAN

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

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

SUPPLEMENTARY CASH FLOW INFORMATION

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

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

SEGMENT REPORTING

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

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

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

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

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

    The Transportation segment reflects the operations of our MIGC and MGTC pipelines. The majority of the revenue presented in this segment is derived from transportation of residue gas.

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

	Gas Gathering and Processing		Exploration and Production		Marketing			Transmission			Corporate			Eliminating Entries			Total
Quarter ended September 30, 2001
Revenues from unaffiliated customers	$	26,878	$	970	$	611,152		$	1,167		$	11		$	—		$	640,178
Interest income		—		2		—			—			3,806			(3,195	)		613
Other, net		—		—		31,759			—			(1,665	)		—			30,094
Intersegment sales		130,817		17,213		18,245			4,279			14			(170,568	)		—
Total revenues		157,695		18,185		661,156			5,446			2,166			(173,763	)		670,885
Product purchases		115,362		1,621		641,736			(439	)		45			(163,873	)		594,452
Plant operating expense		16,661		65		(119	)		2,861			170			(763	)		18,875
Oil and gas exploration and production expense		—		10,259		—			—			—			(7,645	)		2,614
Gross profit	$	25,672	$	6,240	$	19,539		$	3,024		$	1,951		$	(1,482	)	$	54,944
Depreciation, depletion and amortization		9,915		5,829		41			419			1,053			—			17,257
Interest expense																		6,132
Loss on sale of assets																		570
Selling and administrative expense																		7,715
Income before income taxes																	$	23,270
Identifiable assets	$	585,158	$	171,596	$	80		$	47,565		$	62,154		$	—		$	866,553

	Gas Gathering and Processing		Exploration and Production			Marketing			Transmission			Corporate		Eliminating Entries			Total
Quarter ended September 30, 2000
Revenues from unaffiliated customers	$	26,338	$	783		$	903,127		$	1,844		$	28	$	—		$	932,120
Interest income		34		—			—			—			7,340		(7,158	)		216
Other, net		3		(38	)		(23,845	)		—			1,341		39			(22,500	)
Intersegment sales		200,016		21,440			43,823			3,775			14		(269,068	)		—
Total revenues		226,391		22,185			923,105			5,619			8,723		(276,187	)		909,836
Product purchases		174,832		1,217			922,802			(236	)		25		(265,374	)		833,266
Plant operating expense		16,145		104			28			2,356			278		(396	)		18,515
Oil and gas exploration and production expense		—		7,466			—			—			—		(2,428	)		5,038
Gross profit	$	35,414	$	13,398		$	275		$	3,499		$	8,420	$	(7,989	)	$	53,017
Depreciation, depletion and amortization		9,682		2,709			41			397			1,372		—			14,201
Interest expense																		8,889
Gain on sale of assets																		(3,802	)
Selling and administrative expense																		8,500
Income before income taxes																	$	25,229
Identifiable assets	$	542,703	$	116,432		$	62		$	46,909		$	39,971	$	—		$	746,077

	Gas Gathering and Processing		Exploration and Production			Marketing		Transmission			Corporate		Eliminating Entries			Total
Nine months ended September 30, 2001
Revenues from unaffiliated customers	$	57,078	$	1,798		$	2,669,805	$	6,151		$	314	$	—		$	2,735,146
Interest income		1		3			—		—			12,265		(11,014	)		1,255
Other, net		4		(1	)		17,991		2			788		—			18,784
Intersegment sales		668,620		98,780			38,856		12,937			41		(819,234	)		—
Total revenues		725,703		100,580			2,726,652		19,090			13,408		(830,248	)		2,755,185
Product purchases		571,105		6,230			2,689,416		(439	)		180		(800,890	)		2,465,602
Plant operating expense		48,933		163			—		6,693			96		(1,733	)		54,152
Oil and gas exploration and production expense		—		37,904			—		—			—		(16,587	)		21,317
Gross profit	$	105,665	$	56,283		$	37,236	$	12,836		$	13,132	$	(11,038	)	$	214,114
Depreciation, depletion and amortization		28,876		12,741			121		1,253			4,027		—			47,018
Interest expense																	18,953
Gain on sale of assets																	(10,653	)
Selling and administrative expense																	23,739
Income before income taxes																$	135,057
Identifiable assets	$	585,159	$	171,596		$	80	$	47,565		$	62,154	$	—		$	866,554

	Gas Gathering and Processing		Exploration and Production		Marketing			Transmission			Corporate			Eliminating Entries			Total
Nine months ended September 30, 2000
Revenues from unaffiliated customers	$	44,512	$	2,913	$	2,091,842		$	6,099		$	89		$	—		$	2,145,455
Interest income		68		2		27			—			19,597			(19,179	)		515
Other, net		1,675		3		(32,756	)		—			1,873			39			(29,166	)
Intersegment sales		520,359		49,347		83,104			12,494			31			(665,335	)		—
Total revenues		566,614		52,265		2,124,217			18,593			21,590			(684,475	)		2,116,804
Product purchases		421,085		2,749		2,142,760			(236	)		(65	)		(655,157	)		1,911,136
Plant operating expense		44,623		412		28			6,620			206			(1,012	)		50,877
Oil and gas exploration and production expense		31		20,068		—			—			—			(9,124	)		10,975
Gross profit	$	100,875	$	29,036	$	(571	)	$	12,209		$	21,449		$	(19,182	)	$	143,816
Depreciation, depletion and amortization		27,244		9,091		121			1,230			4,047			—			41,733
Interest expense																		24,916
Gain on sale of assets																		(9,436	)
Selling and administrative expense																		23,989
Income before income taxes																	$	62,614
Identifiable assets	$	542,703	$	116,432	$	62		$	46,909		$	39,971		$	—		$	746,077

LEGAL PROCEEDINGS

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    The following discussion and analysis relates to factors which have affected our consolidated financial condition and results of operations for the three and nine months ended September 30, 2001 and 2000. Prior year amounts have been reclassified as appropriate to conform to the presentation used in 2001. You should also refer to our interim consolidated financial statements and notes thereto included elsewhere in this document. This section, as well as other sections in this Form 10-Q, contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology, such as "may," "intend," "will," "expect," "anticipate," "estimate," or "continue" or the negative thereof or other variations thereon or comparable terminology. In addition to the important factors referred to herein, numerous factors affecting the gas processing industry generally and in the specific markets for gas and NGLs in which we operate could cause actual results to differ materially from those in such forward-looking statements.

Results of Operations

Three and nine months ended September 30, 2001 compared to the three and nine months ended September 30, 2000 (Dollars in thousands, except per share amounts and operating data).

	Three Months Ended September 30,						Nine Months Ended September 30,
					Percent Change						Percent Change
	2001		2000				2001		2000
Financial results:
Revenues	$	670,885	$	909,836	(26	)	$	2,755,185	$	2,116,804	30
Gross profit		37,117		42,618	(13	)		177,749		111,519	59
Net income		14,773		14,457	2			86,816		38,043	123
Income per share of common stock		.37		.37	—			2.37		.94	152
Income per share of common stock—assuming dilution		.36		.36	—			2.23		.92	142
Net cash provided by operating activities	$	17,725	$	34,317	(48	)	$	144,539	$	56,353	156
Operating data:
Average gas sales (MMcf/D)		2,130		1,970	8			1,880		1,810	4
Average NGL sales (MGal/D)		2,335		3,170	(26	)		2,315		3,040	(24	)
Average gas prices ($/Mcf)	$	2.77	$	4.08	(32	)	$	4.57	$	3.34	37
Average NGL prices ($/Gal)	$	.44	$	.53	(17	)	$	.53	$	.50	6

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

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

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

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

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

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

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

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

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

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

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

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

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

Other Information

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

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

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

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

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

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

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

Business Strategy

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

    Our sources of liquidity and capital resources historically have been net cash provided by operating activities, funds available under our financing facilities and proceeds from offerings of debt and equity securities. In the past, these sources have been sufficient to meet our needs and finance the growth of our business. We can give no assurance that the historical sources of liquidity and capital resources will be available for future development and acquisition projects, and we may be required to seek alternative financing sources. Product prices, sales of inventory, the volumes of natural gas processed by

our facilities, the volume of natural gas produced from our producing properties, the margin on third-party product purchased for resale, as well as the timely collection of our receivables will all affect future net cash provided by operating activities. Additionally, our future growth will be dependent upon obtaining additions to dedicated plant reserves, acquisitions, new project development, marketing, efficient operation of our facilities and our ability to obtain financing at favorable terms.

    We believe that the amounts available to be borrowed under the Revolving Credit Facility, together with net cash provided by operating activities will provide us with sufficient funds to connect new reserves, maintain our existing facilities, complete our current capital expenditure program and make any scheduled debt principal payments and redeem a portion of our $2.28 cumulative preferred stock. Depending on the timing and the amount of our future projects, we may be required to seek additional sources of capital. Our ability to secure such capital is restricted by our financing facilities, although we may request additional borrowing capacity from our lenders, seek waivers from our lenders to permit us to borrow funds from third parties, seek replacement financing facilities from other lenders, use stock as a currency for acquisitions, sell existing assets or a combination of alternatives. While we believe that we would be able to secure additional financing, if required, we can provide no assurance that we will be able to do so or as to the terms of any additional financing. We also believe that cash provided by operating activities and amounts available under the Revolving Credit Facility will be sufficient to meet our debt service and preferred stock dividend requirements for the remainder of 2001 and for 2002.

    During the past several years some of our plants have experienced declines in dedicated reserves, overall we have been successful in connecting additional reserves to more than offset the natural declines. Higher gas prices, improved technology, e.g. 3-D seismic and horizontal drilling, and increased pipeline capacity from the Rocky Mountain region have stimulated drilling in many of our operating areas. The overall level of drilling will depend upon, among other factors, the prices for oil and gas, the drilling budgets of third-party producers, the energy policy and regulation by governmental agencies and the availability of foreign oil and gas, none of which is within our control. There is no assurance that we will continue to be successful in replacing the dedicated reserves processed at our facilities.

    We have effective shelf registration statements filed with the Securities and Exchange Commission for an aggregate of $200 million of debt securities and preferred stock, along with the shares of common stock, if any, into which those securities are convertible, and $62 million of debt securities, preferred stock or common stock.

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

Sources of funds:
	Borrowings under the Revolving Credit Facility		$	301,300
	Proceeds from the dispositions of property and equipment			38,075
	Net cash provided by operating activities			144,539
	Proceeds from exercise of common stock options			4,777
		Total sources of funds	$	488,691
Uses of funds:
	Payments related to long-term debt (including debt issue costs)		$	355,000
	Capital expenditures			114,683
	Dividends paid			12,629
	Other			1,009
		Total uses of funds	$	483,321

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

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

Preferred Stock Repurchase and Redemption Program

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

Capital Investment Program

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financing Facilities

    Revolving Credit Facility.  The Revolving Credit Facility is with a syndicate of banks and provides for a maximum borrowing commitment of $250 million consisting of an $83 million 364-day Revolving Credit Facility, or Tranche A, and a $167 million Revolving Credit Facility, or Tranche B, which matures on April 30, 2004. At September 30, 2001, no amounts were outstanding under this facility. The Revolving Credit Facility bears interest at certain spreads over the Eurodollar rate, or the greater of the Federal Funds rate or the agent bank's prime rate. We have the option to determine which rate will be used. We also pay a facility fee on the commitment. The interest rate spreads and facility fee are adjusted based on our debt to capitalization ratio and range from .75% to 2.00%. At September 30, 2001, the interest rate payable on any borrowings under this facility would have been 3.6%. We are required to maintain a total debt to capitalization ratio of not more than 55%, and a senior debt to capitalization ratio of not more than 40% through December 31, 2001 and of not more than 35% thereafter. The agreement also requires a quarterly test of the ratio of EBITDA (excluding some non-recurring items) for the last four quarters, to interest and dividends on preferred stock for the same period. The ratio must exceed 1.80 to 1.0 through September 30, 2001 and increases periodically to 3.25 to 1.0 by December 31, 2002. This facility is guaranteed and secured via a pledge of the stock of some of our subsidiaries.

    Master Shelf Agreement.  In December 1991, we entered into a Master Shelf Agreement with The Prudential Insurance Company of America. Amounts outstanding under the Master Shelf Agreement at September 30, 2001 are as indicated in the following table (dollars in thousands):

Issue Date	Amount		Interest Rate		Final Maturity	Principal Payments Due
October 27, 1992	$	25,000	7.99	%	October 27, 2003	$8,333 on each of October 27, 2001 through 2003
December 27, 1993		25,000	7.23	%	December 27, 2003	single payment at maturity
October 27, 1994		25,000	9.05	%	October 27, 2001	single payment at maturity
October 27, 1994		25,000	9.24	%	October 27, 2004	single payment at maturity
July 28, 1995		50,000	7.61	%	July 28, 2007	$10,000 on each of July 28, 2003 through 2007
	$	150,000

    Under our agreement with Prudential, we are required to maintain a current ratio, as defined therein, of at least .9 to 1.0, a minimum tangible net worth equal to the sum of $300 million plus 50% of consolidated net earnings earned from January 1, 1999 plus 75% of the net proceeds of any equity offerings after January 1, 1999, a total debt to capitalization ratio of not more than 60% through December 31, 2001 and of not more than 55% thereafter and a senior debt to capitalization ratio of not more than 40% through March 2002 and not more than 35% thereafter. This agreement also requires an EBITDA to interest ratio of not less than 3.25 to 1.0 increasing to a ratio of not less than 3.75 to 1.0 by March 31, 2002 and an EBITDA to interest on senior debt ratio of not less than 5.00 to 1.0 increasing to a ratio of not less than 5.50 to 1.0 by March 31, 2002. EBITDA in these calculations excludes certain non-recurring items. In addition, this agreement contains a calculation limiting dividends under which approximately $87.5 million was available at September 30, 2001. We are currently paying an annual fee of 0.50% on the amounts outstanding on the Master Shelf Agreement. This fee will continue until we receive an implied investment grade rating on our senior secured debt from Moody's Investors Service or Standard & Poor's. Borrowings under the Master Shelf Agreement are guaranteed and secured via a pledge of the stock of some of our subsidiaries.

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

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Management Activities

    Our commodity price risk management program has two primary objectives. The first goal is to preserve and enhance the value of our equity volumes of gas and NGLs with regard to the impact of commodity price movements on cash flow, net income and earnings per share in relation to those anticipated by our operating budget. The second goal is to manage price risk related to our gas, crude oil and NGL marketing activities to protect profit margins. This risk relates to hedging fixed price purchase and sale commitments, preserving the value of storage inventories, reducing exposure to physical market price volatility and providing risk management services to a variety of customers.

    We utilize a combination of fixed price forward contracts, exchange-traded futures and options, as well as fixed index swaps, basis swaps and options traded in the over-the-counter, or OTC, market to accomplish these objectives. These instruments allow us to preserve value and protect margins because corresponding losses or gains in the value of the financial instruments offset gains or losses in the physical market.

    We use futures, swaps and options to reduce price risk and basis risk. Basis is the difference in price between the physical commodity being hedged and the price of the futures contract used for hedging. Basis risk is the risk that an adverse change in the futures market will not be completely offset by an equal and opposite change in the cash price of the commodity being hedged. Basis risk exists in natural gas primarily due to the geographic price differentials between cash market locations and futures contract delivery locations.

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

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

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

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

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

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

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

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

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

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

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

Principal Facilities

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

						Average for the Nine Months Ended September 30, 2001
				Gas Gathering System Miles(2)	Gas Throughput Capacity (MMcf/D)(3)
Plant Facilities(1)			Year Placed In Service			Gas Throughput (MMcf/D)(4)	Gas Production (MMcf/D)(5)	NGL Production (MGal/D)(5)
Texas
	Gomez Treating		1971	385	280	101	92	—
	Midkiff/Benedum		1949	2,173	165	147	96	888
	Mitchell Puckett Gathering		1972	90	120	76	49	—
Louisiana
	Toca(7)(8)		1958	—	160	135	129	108
Wyoming
	Coal Bed Methane Gathering		1990	444	223	268	247	—
	Fort Union Gas Gathering		2000	106	450	289	289	—
	Granger(7)(9)(10)(14)		1987	482	235	154	131	286
	Hilight Complex(7)		1969	626	80	63	57	72
	Kitty/Amos Draw(7)		1969	314	17	9	6	37
	Lincoln Road(10)		1988	149	50	18	16	31
	Newcastle(7)		1981	146	5	3	2	19
	Red Desert(7)		1979	111	42	15	13	27
	Reno Junction(9)		1991	—	—	—	—	95
Oklahoma
	Chaney Dell		1966	2,054	130	71	56	221
	Westana		1981	871	45	63	58	23
New Mexico
	San Juan River(6)		1955	140	60	24	20	17
Utah
	Four Corners Gathering		1988	104	15	2	2	6
		Total		8,195	2,077	1,438	1,263	1,830

				Average for the Nine Months Ended September 30, 2001
Transportation Facilities(1)		Year Placed In Service	Transportation Miles(2)	Pipeline Capacity (MMcf/D)(2)	Gas Throughput (MMcf/D)(4)
MIGC(11)(13)		1970	245	130	183
MGTC(12)		1963	252	18	8
	Total		497	148	191

(1)

Our interest in all facilities is 100% except for Midkiff/Benedum (73%), Newcastle (50%) and Fort Union Gas Gathering (13%). We operate all facilities and all data includes our interests and the interests of other joint interest owners and producers of gas volumes dedicated to the facility. Unless otherwise indicated, all facilities shown in the table are gathering and processing facilities.

(2)

Gas gathering system miles, interconnect and transportation miles, and pipeline capacity are as of September 30, 2001.

(3)

Gas throughput capacity is as of September 30, 2001 and represents capacity in accordance with design specifications unless other constraints exist, including permitting or field compression limits.

(4)

Aggregate wellhead natural gas volumes collected by a gathering system or volumes transported by a pipeline.

(5)

Volumes of gas and NGLs are allocated to a facility when a well is connected to that facility; volumes exclude NGLs fractionated for third parties.

(6)

Sour gas facility (capable of processing or treating gas containing hydrogen sulfide and/or carbon dioxide).

(7)

Fractionation facility (capable of fractionating raw NGLs into end-use products).

(8)

Straddle plant, or a plant located near a transportation pipeline that processes gas dedicated to or gathered by a pipeline company or another third party.

(9)

NGL production includes conversion of third-party feedstock to iso-butane.

(10)

We are currently processing all gas gathered through the Lincoln Road gathering system at our Granger facility.

(11)

MIGC is an interstate pipeline located in Wyoming and is regulated by the Federal Energy Regulatory Commission.

(12)

MGTC is a public utility located in Wyoming and is regulated by the Wyoming Public Service Commission.

(13)

Pipeline capacity represents capacity at the Powder River junction only and does not include northern delivery points.

(14)

A 50% interest in the Bird Canyon gathering system servicing the Granger facility was sold in October 2001. Also in October 2001, the remaining 50% interest in this system was contributed to a newly formed joint venture, Rendezvous Gas Services, L.L.C.

PART II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

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

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

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

    None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits:

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

(b)

Reports on Form 8-K:

    A report was filed on October 17, 2001 announcing the appointment of Mr. Peter A. Dea to the position of President, Chief Executive Officer and Director effective November 1, 2001 and the promotion of William J. Krysiak to the position of Chief Financial Officer effective October 15, 2001.

SIGNATURES

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

	WESTERN GAS RESOURCES, INC. (Registrant)
Date: November 12, 2001	By:	/s/ PETER A. DEA Peter A. Dea Chief Executive Officer and President
Date: November 12, 2001	By:	/s/ WILLIAM J. KRYSIAK William J. Krysiak Chief Financial Officer (Principal Financial and Accounting Officer)

EX-3.3

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AMENDED AND RESTATED BYLAWS
OF
WESTERN GAS RESOURCES, INC.

ARTICLE I.
OFFICES

    Section 1. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware.

    Section 2. The corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II.
MEETINGS OF STOCKHOLDERS

    Section 1. All meetings of the stockholders for the election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.

    Section 2. (a) Annual meetings of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which stockholders shall elect a class of Directors and transact such other business as may properly be brought before the meeting.

    (b) At each meeting of stockholders, the Chairman of the Board, or, in the absence of the Chairman of the Board, the President, shall act as chairman. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls. The chairman of the meeting shall announce at each such meeting the date and time of the opening and closing of the voting polls for each matter upon which the stockholders will vote at such meeting.

    (c) No business may be transacted at an annual meeting of stockholders, other than business that is either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (ii) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (iii) otherwise properly brought before the annual meeting by any stockholder of the corporation (A) who is a stockholder of record on the date of the giving of the notice provided for in this By-law and on the record date for the determination of stockholders entitled to vote at such annual meeting and (B) who complies with the notice procedures set forth in this bylaw.

    In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the corporation.

    To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the corporation not less than ninety (90) days nor more than one

hundred-twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within twenty-five (25) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.

    To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a clear and concise statement of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class and series and number of shares of each class and series of capital stock of the corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

    In addition, notwithstanding anything in this bylaw to the contrary, a stockholder intending to nominate one or more persons for election as a director at an annual or special meeting of stockholders must comply with Article III, Section 4 of these bylaws for such nominations to be properly brought before such meeting.

    No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this bylaw; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this bylaw shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be conducted at the meeting.

    No business shall be conducted at a special meeting of stockholders except for such business as shall have been brought before the meeting pursuant to the corporation's notice of meeting.

    (d) Either the Board of Directors or, in the absence of an appointment of inspectors by the Board, the Chairman of the Board or the President shall, in advance of each meeting of the stockholders, appoint one or more inspectors to act at such meeting and make a written report thereof. In connection with any such appointment, one or more persons may, in the discretion of the body or person making such appointment, be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at any meeting of stockholders, the chairman of such meeting shall appoint one or more inspectors to act at such meeting. Each such inspector shall perform such duties as are required by law and as shall be specified by the Board, the chairman of the board, the president or the chairman of the meeting. Each such inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Inspectors need not be stockholders. No director or nominee for the office or director shall be appointed such an inspector.

    Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting.

    Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before each annual meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

    Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chairman of the Board or by the President of the corporation or by the Board of Directors or by written order of a majority of the directors and shall be called by the President or the Secretary at the request in writing of stockholders owning twenty-five percent in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purposes of the proposed meeting. The Chairman of the Board or the President of the corporation or directors so calling, or the stockholders so requesting, any such meeting shall fix the time and any place, either within or without the State of Delaware, as the place for holding such meeting.

    Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting.

    Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

    Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

    Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question (other than the election of directors) brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Directors shall be elected by plurality vote.

    Section 10. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period.

ARTICLE III.
DIRECTORS

    Section 1. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by law or by the certificate of incorporation or these bylaws directed or required to be exercised or done by the stockholders.

    Section 2. Except as otherwise provided in any resolution or resolutions adopted by the Board of Directors pursuant to the provisions of Article IV of the certificate of incorporation relating to the rights of holders of any class or series of stock having a preference over the common stock as to dividends or upon liquidation, the number of directors of the corporation shall be ten (10). Each class of directors of the corporation shall consist, as nearly as may be possible of one-third of the total number of directors constituting the entire Board of Directors. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly as equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director.

    Section 3. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by the directors then in office, or by a sole remaining director, and the directors so chosen shall hold office until the expiration of the terms of the directorships whose vacancy is being filled and until their successors are duly elected and qualified, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute.

    Section 4. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the corporation, subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances. Nominations of persons for election to the board of directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) by any stockholder of the corporation (A) who is a stockholder of record on the date of the giving of the notice provided for in this bylaw and on the record date for the determination of stockholders entitled to vote at such meeting and (B) who complies with the notice procedures set forth in this bylaw.

    In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the corporation.

    To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the corporation (a) in the case of an annual meeting, not less than ninety (90) days nor more than one hundred-twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within twenty-five (25) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the seventh (7th) day following the day on

which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.

    To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation and employment of the person, (iii) the class and series and number of shares of each class and series of capital stock of the corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (or in any law or statute replacing such section), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class and series and number of shares of each class and series of capital stock of the corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and that such stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act (or in any law or statute replacing such section) and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

    No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this bylaw. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded and not placed upon the ballot.

    Section 5. The Board of Directors may adopt and from time to time amend and repeal such rules and regulations not inconsistent with the applicable provisions of law, the certificate of incorporation or these bylaws for the conduct of its meetings and the management of the affairs of the corporation as the Board may deem proper.

MEETINGS OF THE BOARD OF DIRECTORS

    Section 6. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware.

    Section 7. An annual meeting of the Board of Directors shall be held immediately following and at the same place as the annual meeting of stockholders and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at such time and place, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.

    Section 8. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board.

    Section 9. A special meeting of the Board of Directors may be called by the Chairman of the Board of Directors or by the President of the corporation and shall be called by the Secretary on the

written request of any two directors. The Chairman or President so calling, or the directors so requesting, any such meeting shall fix the time and any place, either within or without the State of Delaware, as the place for holding such meeting. In the event that the Board of Directors elects a Chief Operating Officer different from the President in accordance with these Bylaws, the Chief Operating Officer shall have the same powers, as aforesaid, to call a meeting as the President of the corporation.

    Section 10. A majority of the Board of Directors shall constitute a quorum for the transaction of business of any meeting of the Board of Directors, and the act of a majority of the full sitting Board of Directors shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

    Section 11. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if one hundred percent of the members of the Board or one hundred percent of the members of the committee, as the case may be, consent thereto in writing and such writing is filed with the minutes of the proceedings of the Board or committee, as the case may be.

    Section 12. The members of the Board of Directors or any committee thereof may participate in a meeting of the Board or committee utilizing conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting.

COMMITTEES OF DIRECTORS

    Section 13. There shall be an Executive Committee of the Board of Directors of the Corporation consisting of at least two (2) but not more than four (4) members of the Board of Directors, elected to such committee by the Board on an annual basis. The Executive Committee shall have and may exercise, between meetings of the Board of Directors, all the power and authority of the board in the management of the business affairs of the corporation; provided, however, that the Executive Committee shall not have the power or authority to do any of the following:

(a)

amend the certificate of incorporation of the corporation;



(b)

adopt an agreement of merger or consolidation involving the corporation;



(c)

recommend to the stockholders the sale, lease or exchange of all or substantially all of the property and assets of the corporation;



(d)

recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution;



(e)

adopt, amend or repeal any bylaw;



(f)

fill vacancies on the Board of Directors or on any committee of the Board, including the Executive Committee;



(g)

amend or repeal any resolution of the Board of Directors;



(h)

declare a dividend; or



(i)

authorize the issuance of stock of the corporation.

    Section 14. The Executive Committee shall, subject to the provisions of law and any other provision of these bylaws, have the authority and power to cause the corporation to do the following:

(a)

To deal in real and personal property of the corporation; to create and/or contribute property of the corporation to any entity or business organization formed by the corporation, either alone or with third parties; to pay rom the corporation's funds any and all expenses and fees; to obtain and maintain insurance coverage concerning the property of the corporation.



(b)

To execute and deliver on behalf of the corporation all leases, bills of sales, assignments, deeds, unitization agreements, contracts, farm-outs and other instruments of transfer; all checks, drafts and other orders for the payment of corporation funds; all contracts or instruments concerning the acquisition, construction, management, operation or disposition of corporate assets; all bonds, promissory notes, mortgages, deeds of trust, security agreements and other similar documents; and all other instruments, documents, contracts or agreements of any kind or character relating to the affairs of the corporation; and to delegate in writing to the officers of the corporation the authority to sign such instruments, notes, deeds, contracts, agreements and documents.



(c)

To exercise all rights, powers and authority as is necessary or prudent in the operation and maintenance of the business of the corporation.



(d)

To directly, or by delegation of authority to the officers of the corporation, appoint, employ, remove, suspend and discharge any of the following:



(1)

Managers, assistants, independent contractors, geologists, geophysicists, land men, employees and agents as from time to time may be deemed advisable and to determine the duties and fix and change the salaries and other terms of employment of such persons.



(2)

Qualified technical personnel temporarily employed or to be employed on specific problems incident to the operation of the corporation and its businesses.



(3)

Attorneys, architects, engineers, accountants, contractors, consultants, advertising agencies, sales representatives and all such other agents or independent contractors as such officers shall deem necessary or advisable for the furtherance of the corporation's purposes and operations.

    Notwithstanding the above, in no event shall the Executive Committee have the authority to approve: (i) with respect to gas purchase and sale agreements, any agreement that provides for the sale or purchase in any single year of gas in excess of Thirty-Five Million Dollars ($35,000,000); (ii) with respect to the purchase of operating supplies, capital expenditures or general and administrative expenditures, any single expenditure or group of related expenditures in excess of Ten Million Dollars ($10,000,000); or (iii) any business transaction with an affiliate of the corporation, without the approval of the Board of Directors. The term "affiliate" as used herein shall mean a person or entity, of any kind or nature, controlling, controlled by or under common control with the corporation and shall include, without limitation, any subsidiaries of the corporation and any person or entity owning, directly or indirectly, five percent or more of the capital stock of the corporation.

    Section 15. There shall be an Audit Committee of the Board of Directors of the corporation consisting of at least two members of the Board of Directors elected to such committee by the board on an annual basis. The initial members of the Audit Committee shall be the two directors named in the certificate of incorporation who are not officers or employees of the corporation or of any party to a subscription agreement with the corporation. The members of the audit committee elected hereafter shall be eligible to serve thereon under the rules of the New York Stock Exchange as in effect from time to time.

    Section 16. The Board of Directors may designate one or more additional committees, each committee to consist of two or more directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.

    Section 17. Regular meetings of the Executive Committee or any other committee of the Board of Directors, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the members thereof. Special meetings of the Executive Committee or any other committee of the Board shall be called at the request of any member thereof. Any special meeting of the Executive Committee or any other committee of the Board shall be a legal meeting, without any notice thereof having been given, if all of the members thereof shall be present or if notice thereof shall have been given to each member on the day prior to the day on which the meeting is to be held. The Executive Committee or any other committee may adopt such rules and regulations not inconsistent with the provisions of law, the certificate of incorporation or these bylaws for the conduct of its meetings as such committee may deem proper. The majority of the Executive Committee or any other committee of the Board shall constitute a quorum for the transaction of business at any meeting, and the vote of the majority of the members thereof present at any meeting at which a quorum is present shall be the act of such committee. The Executive Committee or any other committee of the Board of Directors shall keep written minutes of its proceedings and shall report on such proceedings to the Board.

COMPENSATION OF DIRECTORS

    Section 18. The Board of Directors shall have the authority to adopt resolutions fixing the compensation to be paid to directors for service as a director of the corporation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as a director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

ARTICLE IV.
NOTICES

    Section 1. Whenever, under statutory provisions or pursuant to the certificate of incorporation or these bylaws, notice is required to be given to any director or stockholder, it shall not be construed to require personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by prepaid telegram.

    Section 2. Whenever any notice is required to be given under statutory provisions or pursuant to the certificate of incorporation or these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

ARTICLE V.
OFFICERS

    Section 1. The officers of the corporation shall be a Chairman of the Board, a President, one or more Vice Presidents, any one or more of which may be designated Executive Vice President or Senior Vice President, a Secretary and a Treasurer. The Board of Directors may appoint such other officers and agents, including a Vice Chairman of the Board of Directors, a Chief Operating Officer, a Chief Executive Officer different from the President, Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers, in each case as the Board of Directors shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined by the Board. The Chairman of the Board and the Vice Chairman of the Board (if provision is made therefor by the Board of Directors) shall be elected from among the directors. With the foregoing exceptions, none of the other officers need to be a director, and none of the officers need be a stockholder of the corporation.

    Section 2. The officers of the corporation shall be elected annually by the Board of Directors at its first regular meeting held after the annual meeting of stockholders or as soon thereafter as conveniently possible. Each officer shall hold office until his successor shall have been chosen and shall have qualified or until his death or the effective date of his resignation or removal, or until he shall cease to be a director in the case of the Chairman or the Vice Chairman.

    Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.

    Section 4. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors or pursuant to its direction; and no officer shall be prevented from receiving such salary by reason of his also being a director.

    Section 5. Except as may be otherwise provided by the Board of Directors or in these bylaws, each officer of the corporation shall hold office until the first meeting of directors after the next annual meeting of stockholders following his election or appointment and until his successor is chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy shall be filled by the Board of Directors.

THE CHAIRMAN OF THE BOARD

    Section 6. (a) The Chairman of the Board shall preside at all meetings of the Board of Directors or of the stockholders of the corporation. The Chairman shall formulate and submit to the Board of Directors or the Executive Committee matters of general policy for the corporation and shall perform such other duties and powers as usually appertain to the office or as may be prescribed by the Board of Directors or the Executive Committee. The Chairman of the Board shall report as to the operations of the corporation to the Board of Directors and, with the chief executive officer of the corporation designated as such by the Board of Directors, to the stockholders at or prior to each annual meeting of the stockholders, and he shall from time to time report to the Board of Directors matters within his knowledge which the interest of the corporation may require to be so reported.

    (b) The Board of Directors may, in its discretion, elect a Vice Chairman of the Board of Directors of the corporation, and the Vice Chairman shall perform such other duties and have such other powers as may be prescribed herein or by the Board of Directors. In the absence of the Chairman of the Board of Directors or in the event of his inability or refusal to act, the Vice Chairman shall perform the duties of the Chairman, and when so acting, the Vice Chairman of the Board of

Directors shall have all the powers of and be subject to all of the restrictions upon the Chairman of the Board of Directors.

THE PRESIDENT

    Section 7. (a) The President shall, in the absence of the election by the Board of Directors of a Chief Executive Officer, be the chief executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control the business and affairs of the corporation. In the absence of the Chairman of the Board, the Vice Chairman of the Board (if one is elected by the Board of Directors) or the Chief Executive Officer (if one is so elected), the President shall preside at all meetings of the Board of Directors of the stockholders. He may also preside at any such meeting attended by the Chairman if he is so designated by the Chairman. He shall have the power to appoint and remove subordinate officers, agents and employees, except those elected or appointed by the Board of Directors. The President shall keep the Board of Directors and the Executive Committee fully informed and shall consult them concerning the business of the corporation. He may sign with the Secretary or any other officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of the corporation and any deeds, bonds, mortgages, contracts, checks, notes, drafts, or other instruments that the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated by these bylaws or by the Board of Directors to some other officer or agent of the corporation, or shall be required by law to be otherwise executed. He shall vote, or give a proxy to any other officer of the corporation to vote, all shares of stock of any other corporation standing in the name of the corporation and in general he shall perform all other duties normally incident to the office of President and such other duties as may be prescribed by the Board of Directors or the Executive Committee from time to time.

    (b) The Board of Directors may, in its discretion, elect a Chief Executive Officer of the corporation, and the Chief Executive Officer, rather than the President, shall be the chief executive officer of the corporation and, subject to the control of the Board of Directors, shall in general perform such other duties and have such other powers as may be prescribed herein or by the Board of Directors. The Board of Directors, in connection with the election of a Chief Executive Officer, may assign none, some or all of the President's duties to the Chief Executive Officer, all of the foregoing as the Board of Directors may prescribe from time to time.

    (c) The Board of Directors may, in its discretion, elect a Chief Operating Officer of the corporation, and the Chief Operating Officer, subject to the control of the Board of Directors, shall in general perform such duties and have such other powers as may be prescribed herein or by the Board of Directors.

    (d) The Board of Directors may, in its discretion, provide for the relative authority of each of the Chairman of the Board of Directors, the Chief Executive Officer, the President and the Chief Operating Officer, all as the Board of Directors may prescribe from time to time.

THE SENIOR VICE PRESIDENT,
VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS

    Section 8. In the absence of the president or in the event of his inability or refusal to act, the senior vice president (or in the event there be more than one senior vice president, the senior vice presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The senior vice presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

    Section 9. The vice president or any assistant vice president, or if there be more than one, the vice presidents and assistant vice presidents in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall in the absence of any senior vice president or in the event of the inability or refusal to act of any senior vice president, perform the duties and exercise the powers of such senior vice president and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

THE SECRETARY AND ASSISTANT SECRETARIES

    Section 10. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the stockholders and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the president or the chairman of the board, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature.

    Section 11. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

THE TREASURER AND ASSISTANT TREASURERS

    Section 12. The treasurer shall have custody of the corporate funds and securities of the corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors.

    Section 13. The treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation.

    Section 14. If required by the Board of Directors, the treasurer shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation.

    Section 15. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

ARTICLE VI.
CERTIFICATES OF STOCK

    Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed in the name of the corporation, by the chairman of the board, the president or a vice president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary, certifying the number of shares owned by him in the corporation.

    Section 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, any signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

LOST CERTIFICATES

    Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

TRANSFERS OF STOCK

    Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

FIXING RECORD DATE

    Section 5. In order that the corporation may determine the stockholders entitled to notice of and to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of and to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

REGISTERED STOCKHOLDERS

    Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of

any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VII.
GENERAL PROVISIONS INDEMNIFICATION OF OFFICERS AND DIRECTORS

    Section 1. (a) The corporation shall indemnify any officer or director who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contenders or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

    (b) The corporation shall indemnify any officer or director who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

    (c) To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsection (a) or (b), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys, fees) actually and reasonably incurred by him in connection therewith.

    (d) Any indemnification under subsection (a) or (b) (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b). Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders.

    (e) Expenses (including attorneys' fees incurred in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the corporation in advance of the final

disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section.

    (f)  The indemnification and advancement of expenses provided by or granted pursuant to this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

    (g) The corporation shall have power to purchase and maintain insurance on behalf of any officer or director who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions or this section.

    (h) For purposes of this section, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any officer or director who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

INTERESTED DIRECTORS AND OFFICERS; QUORUM

    Section 2. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.

DIVIDENDS

    Section 3. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, may be declared by the Board of Directors at any regular or special

meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation.

    Section 4. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

CHECKS

    Section 5. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as authorized by these bylaws or the Board of Directors may from time to time designate.

FISCAL YEAR

    Section 6. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

SEAL

    Section 7. The corporate seal shall have inscribed thereon the name of the corporation and shall be in such form as may be approved from time to time by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed, imprinted or in any manner reproduced.

ARTICLE VIII.
AMENDMENTS

    These bylaws may be altered, amended or repealed or new bylaws may be adopted by the stockholders or by the Board of Directors at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting.

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AMENDED AND RESTATED BYLAWS OF WESTERN GAS RESOURCES, INC.

EX-10.7

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AGREEMENT

    This Agreement (hereinafter "Agreement") is made effective as of the 1st day of November, 2001 by and between Western Gas Resources, Inc., a Delaware corporation (hereinafter the "Company") and Lanny F. Outlaw (hereinafter "Consultant").

WITNESSETH:

    WHEREAS, the Company desires to retain Consultant on a contractual basis with regard to certain technical and business matters of the Company as further detailed in this Agreement; and

    WHEREAS, Consultant has agreed to continue with the Company under the terms and conditions of this Agreement.

    NOW THEREFORE, for good and valuable consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

ARTICLE I
Consultant Services

    1.  Duties and Responsibilities.  Consultant agrees to devote his time, attention and effort to the business of Western Gas Resources, Inc., as are reasonably necessary for the performance of certain duties and responsibilities as follows:

    a.  Business Strategy and Budget Process. To the extent requested by the Chief Executive Officer ("CEO"), Consultant shall actively work with the Company's management team in the development and formulation of the overall business strategy, annual budget, and five-year business plan.

    b.  Business Relations and Government Affairs. At the request of the CEO, Consultant shall actively participate in fostering and maintaining good business relations with executive level business leaders in the industry and government officials for the purpose of seeking and attaining business information and opportunities for growth and expansion of the business of the Company.

    In addition to the foregoing, Consultant agrees to be available to advise and counsel with the CEO and the management team of the Company and to perform other executive level duties when required for the benefit of the Company.

    3.  Term.  The term of this Agreement for the performance of the foregoing services shall be for a period beginning November 1, 2001 and ending on May 31, 2003.

    4.  Compensation and Expenses.  As consideration for the services to be performed under this Agreement, Consultant will be compensated as follows:

a)

Consultant shall receive a one-time lump sum payment in the amount of One Hundred Sixty Seven Thousand ($167,000) on or about May 31, 2002. In addition, on May 31, 2002, 50% of the principal balance and all accrued interest on those certain loans provided to Consultant under those certain Promissory Notes dated January 10, 1992, January 4, 1993, January 7, 1994, and February 9, 1995 (hereinafter collectively the "Notes") shall be forgiven by the Company; and



b)

Consultant shall receive a one-time lump sum payment in the amount of One Hundred Seventy FiveThousand ($175,000) on or about May 31, 2003. In addition, on May 31, 2003 the remaining principal balance and all accrued interest outstanding under the Notes shall be forgiven by the Company.

    5.  Hold Harmless.  Upon execution of this Agreement, Consultant shall enter into that certain Indemnification Agreement on even date herewith attached hereto and incorporated herein by reference as Exhibit A.

    6.  Independent Contractor Status.  Consultant is performing the services contained in this Agreement as an independent contractor, and is the sole judge of the manner in which to perform such services, that Consultant is not an employee or an agent of the Company while performing said services. It is further understood that, as an independent contractor, Consultant will be responsible for payment of state and Federal income taxes, FICA, self employment tax and any other taxes that my be due as a result of the consideration that is received in connection with the performance of the services contained in this Agreement or the forgiveness of the loans described herein. Upon execution of this Agreement, Consultant expressly waives any and all rights to participate in and be eligible for the Company's medical, dental, vision and life insurance coverage provided for employees of the company; provided however that Consultant shall have available such health coverage as may be provided to other directors of the Company as further described in Article II, paragraph 1. Further, upon execution of this Agreement, Consultant shall not continue to participate in or be eligible for benefits under the Company's 401K Plan or the Company's Profit Sharing Plan.

    7.  Confidential Information.  Consultant acknowledges that pursuant to his prior employment with the Company and during the term of this Agreement, Consultant occupies a position of trust and confidence. Accordingly, the Consultant specifically agrees not to disclose any proprietary or confidential information of the Company acquired during his prior employment and during the term of this Agreement for a period of two (2) years after the term of this Agreement. In the event the Company has executed confidentiality agreement(s) with other companies in the course of its business, then Consultant may disclose certain confidential information in accordance with the terms and conditions of the confidentiality agreement(s) with said companies. If the Consultant violates this agreement of confidentiality, the Company shall pursue any and all legal and equitable remedies, including injunctive relief.

    8.  Agreement Not to Compete.  Consultant hereby agrees that during the term of this Agreement he shall not engage in material competition with the activities of or plans of the Company as they exist up to May 31, 2003. Material competition by the Consultant shall mean that the Consultant is involved in any business or investment venture, in any material or controlling capacity including but not limited to an employee, consultant, advisor, agent, shareholder, independent contractor, investor, partner, member, owner or otherwise, which venture directly competes with or has a material adverse economic effect on any of the business activities or business plans of the Company. Examples of such material competition include, but shall not be limited to an activity involving the gathering and processing business within 25 miles of one of the Company's existing or planned gathering and processing facilities; an activity involving the storage or hub business for natural gas or natural gas liquids within 100 miles of an existing or planned storage facility of the Company; and/or an activity involving the purchase of oil or gas leases, the farming-in of such leases or any similar arrangement, within five (5) miles of the boundaries of an existing oil or gas lease of the Company. In the event the Consultant violates this agreement not to compete, the Company shall, in addition to any other remedies provided by law, be permitted to pursue an action for injunctive relief (preliminary or permanent), monetary damages, or both.

    9.  Ownership of Documents.  All information, drawings, documents and materials of any kind and in any form, which the Consultant created or obtained during his prior employment with the Company or which Consultant creates or obtains during the term of this Agreement shall be the sole and exclusive property of the Company.

ARTICLE II
Continuation as Director

    1.  Director of the Board of Directors for Western Gas Resources, Inc.  Consultant shall continue as a director of Western Gas Resources, Inc.'s Board of Directors for the term of this Agreement or for so long as he has been elected a director. Consultant shall be paid customary director fees and committee fees, if any, during his service as a director, including reasonable travel and expenses in connection therewith. Consultant shall also have the option to obtain health insurance through the Company under similar terms approved in the June 28, 1996 meeting of the Board of Directors for directors who were serving on the Board at that time.

    2.  Director Insurance Coverage—Costs of Defense.  During the term of Consultant's service as a director of the Board of Directors and for two (2) years thereafter, the Company shall provide to Consultant with adequate insurance coverage to cover any claims that may be made arising from his past, present, or future activities on behalf of the Company, in the same manner as such insurance is provided to the other directors of the Company, provided that such insurance coverage is available to the Company at a reasonable cost. Thereafter, if the Consultant wants continuing insurance coverage, he shall be responsible for the cost thereof. Consultant hereby represents that to his knowledge no investigation, claim, or litigation is currently pending or threatened against him at this time relating to or arising out of his activities as Chief Executive Officer and President. In the event Consultant is subpoenaed as a witness with respect to any claim, investigation, or litigation in which the Company is a party, or joined as a party to litigation arising out of the performance of Consultant's duties while employed by the Company, the Company shall provide legal representation to the Consultant at no cost to him, provided, that in the event the Consultant is a party in the action, the Board of Directors has made a finding that the Consultant has acted in good faith.

ARTICLE III
Miscellaneous

    1.  Benefit.  This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, including, but not limited to (i) any corporation which may acquire all or substantially all of the Company's assets and business, (ii) any corporation with or into which the Company may be consolidated or merged, or (iii) any corporation that is the successor corporation in a share exchange, and the Consultant, his heirs, guardians and personal and legal representatives.

    2.  Notices.  All notices and communications hereunder shall be in writing and shall be deemed given when sent postage prepaid by registered or certified mail, return receipt requested, and, if intended for the Company, shall be addressed to it, to the attention of its General Counsel, at:

Western Gas Resources, Inc.
12200 North Pecos Street
Denver, Colorado 80234

or at such other address which the Company shall have given notice to the Consultant in the manner herein provided, and if intended for the Consultant, shall be addressed to him at his last known residence, or at such other address at which the Consultant shall have given notice to the Company in the manner provided herein:

LANNY F. OUTLAW
2159 Stonehenge Circle
Lafayette, CO 80026

    3.  Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

    4.  Severability.  In the event one or more of the provisions contained in this Agreement, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or any other application or modification thereof, shall not in any way be affected or impaired thereunder, and the invalid provision shall be enforceable to the maximum extent permitted by law.

    5.  Counterparts.  This Agreement may be executed in more than one copy, each copy of which shall serve as an original for all purposes, but all copies shall constitute but one and the same Agreement.

    6.  No Assignment.  This Agreement is personal to each of the parties hereto, and neither party may assign nor delegate any of such party's rights or obligations hereunder.

    7.  Headings.  All headings set forth in this Agreement are intended for convenience only and shall not control or affect the meaning, construction or effect of this Agreement or of any of the provisions hereof.

    8.  Binding Arbitration, Attorney's Fees and Expenses.  Except for disputes arising or resulting from the payment provisions contained in Article I, paragraph 4 of this Agreement, if any dispute arises between the parties to this Agreement (but not as to whether the Company is obligated to provide legal representation to Consultant under Article II, paragraph 2), then both parties shall submit the dispute to binding arbitration. Both parties agree to be bound by the decision of such arbitration. The obligation to submit to binding arbitration shall not prevent either party from seeking a court order or an injunction enforcing the term of this Agreement. In the event of any binding arbitration between the parties, or any litigation to enforce any provision (except for disputes arising or resulting from the provision contained in Article I paragraph 4) of this Agreement or any right of either party, the unsuccessful party to such arbitration or litigation shall pay the successful party all costs and expenses, including reasonable attorneys' fees, incurred. In the event a dispute arises or results from the provisions of Article I paragraph 4 of this Agreement, then both parties shall submit the dispute to binding arbitration under the foregoing provisions, except that all costs and expenses, including reasonable attorneys' fees, incurred shall be solely borne by the Company.

    9.  Waiver of Breach.  The waiver by any party hereto of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any party.

    10.  Time of the Essence.  Time is of the essence with respect to this Agreement.

    11.  Entire Agreement.  This Agreement contains all agreements, understandings, and arrangements between the parties hereto and no other exists. All previous agreements, understandings, and arrangements between the parties are terminated by this Agreement. This Agreement may be amended, waived, changed, modified, extended or rescinded only by a writing signed by the party against whom such amendment, waiver, change, modification, extension or rescission is sought.

IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as of the date first written above.

WESTERN GAS RESOURCES, INC., a Delaware corporation
By:	/s/ WILLIAM J. KRYSIAK Name: William J. Krysiak Title: Chief Financial Officer
	/s/ LANNY F. OUTLAW Lanny F. Outlaw

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AGREEMENT

EX-10.27

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2001 EMPLOYMENT AGREEMENT

THIS 2001 EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement") is made effective as of             , 200  by and between WESTERN GAS RESOURCES, INC., a Delaware corporation, (hereinafter referred to as the "Corporation"), and            (hereinafter referred to as the "Employee").

WITNESSETH:

    WHEREAS, the Corporation, its subsidiaries and affiliates (the "Western Companies") acquire, design, construct and operate natural gas gathering and processing facilities, market, store and transport natural gas, natural gas liquids and sulphur, market electrical power and explore for, develop, and produce oil and gas.

    WHEREAS, employee has substantial experience in the Corporation's business and is currently the Corporation's            .

    WHEREAS, prior hereto, the Corporation and the Employee have entered into that certain Employment Agreement, dated            , 200  , which shall be terminated upon execution of this,Agreement and further, shall be replaced in its entirety by this Agreement.

    NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

    1.  Employment.  Corporation hereby employs the Employee and the Employee hereby accepts such employment with the Corporation upon the terms and conditions hereinafter set forth. The Employee's employment shall continue until it is terminated in accordance with the provisions of paragraph 12 hereof.

    2.  Powers, Duties and Responsibilities.

(a)

Employee shall devote his full time, attention and effort to the business of the Western Companies during the Corporation's normal business hours and during such other times as are reasonably necessary for the proper performance of his responsibilities hereunder.



(b)

Employee's primary duties shall be to act as            . Employee shall have such powers, duties and responsibilities, and shall perform such other functions in connection with the business of the Companies, as may be assigned from time to time by the Corporation. At all times during Employee's employment under this Agreement (including employment following a Change of Control of the Corporation as hereinafter described), Employee shall be employed in the Corporation's offices in Denver, Colorado.

    3.  Compensation and Bonus.  For all of the services rendered by Employee pursuant to this Agreement, the Corporation shall pay the Employee his or her current annual base salary. In no event shall Employee's current annual base salary be decreased, but it may, from time to time be increased at the discretion of Employer during the term of this Agreement (hereinafter referred to as Compensation), payable in accordance with the Corporation's normal pay practices during the term of Employee's employment. In addition, the Corporation may pay Employee a bonus, as may be determined pursuant to any bonus plan applicable to the Employee for such year, if any, approved by the Corporation's Board of Directors from time-to-time in its sole and absolute discretion. Employee may provide a written election to have any bonus due in December of any year paid in January of the following year.

    4.  Officer Insurance Coverage—Costs of Defense.  During the term of Employee's employment and for two (2) years thereafter, to the extent the Corporation maintains an insurance policy or policies providing directors' and officers' liability insurance, Employee shall be covered by such policy or

policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Corporation officer. Such coverage shall provide to Employee officer liability insurance coverage to cover any claims that may be made arising from his past, present, or future activities on behalf of the Western Companies, in the same manner as such insurance is provided to the other officers of the Corporation, provided that such insurance coverage is available to the Corporation at a reasonable cost. Employee hereby represents that to his knowledge no investigation, claim, or litigation is currently pending or threatened against him at this time relating to or arising out of his activities as an employee of any Western Company.

    5.  Cooperation With Respect to Investigations, Claims or Litigation.  During the term of Employee's employment and at all times thereafter, should a Western Company become involved in any investigation, claim, or litigation relating to or arising out of Employee's past, present, or future duties with a Western Company or with respect to any matters which the Employee has knowledge, Employee agrees to fully, and in good faith, cooperate with the Corporation with respect to such investigation, claim, or litigation. The Corporation shall reimburse Employee for any and all expenses (including attorneys' fees) and, if requested by Employee shall (within two business days of such request) advance such expenses to Employee, which are incurred by Employee in connection with any action for (i) indemnification or advance payment of expenses by the Corporation under this Agreement or any other agreement or Corporation Bylaw now or hereafter in effect relating to claims and/or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Corporation, regardless of whether Employee ultimately in determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be.

    6.  Indemnification Agreement.  Exhibit "A", attached hereto and incorporated herein by reference is an Indemnification Agreement by and between the Corporation and the Employee. The Corporation and the Employee each agree to execute and deliver such Indemnification Agreement concurrently with the execution and delivery of this Agreement. To the extent any provision set forth in the Indemnification Agreement is in conflict with any provision set forth in this Agreement, the provision set forth in the Indemnification Agreement shall govern.

    7.  Employee Benefits.  During the term of employment, Employee shall be eligible to participate in the employee benefit plans provided by the Corporation in which the Employee participates as of the date hereof, as such plans may be changed from time to time, in accordance with the provisions of such plans, including, but not limited to, the Corporation's qualified retirement plans, the Corporation's Stock Option Plan(s), and the Corporation's loan plan to acquire stock. The Employee hereby agrees and acknowledges that nothing in this Agreement guarantees him the right to any grant of stock options under any Stock Option Plan, or loan under any loan plan and that the Board of Directors, in its sole and absolute discretion, in accordance with the terms of such plans, as they may be modified from time to time, determines whether and when any stock options are granted or loans extended.

    8.  Confidential Information.  Employee acknowledges that pursuant to the employment hereunder, Employee occupies a position of trust and confidence. Accordingly, in order to facilitate the performance of this Agreement and the activities contemplated by this Agreement, the Western Companies may disclose to Employee or Employee may develop or obtain certain proprietary or confidential information of the Western Companies. During Employee's employment hereunder and for a period of one (1) year thereafter (which may be increased to two (2) years thereafter pursuant to Section 14(a)(ii) or (v) hereof), Employee hereby agrees not to use or to disclose to any person, other than in the discharge of his duties under this Agreement, any "proprietary or confidential" information of the Western Companies, including, but not limited to, any information concerning the business operations, business strategies, or internal structure of the Western Companies; the customers or clients of the Western Companies; any acquisition strategies of the Western Companies; the gas and other products' marketing or transportation strategies of the Western Companies, its subsidiaries or affiliates; the terms of any gas gathering, processing, marketing, or transportation contracts entered into by the

Western Companies; past, present or future research done by the Western Companies respecting the business or operations of the Western Companies, or customers or clients or potential customers or clients of the Western Companies; personnel data of the Western Companies, product or process knowledge; the Employee's work performed for, or relating to or for, any customer or client of any Western Company or the gas or other product pricing for any customer or client of any Western Company; any method or procedure relating or pertaining to projects developed by any Western Company or contemplated by any Western Company to be developed; or any gas gathering, processing, drilling, marketing, transportation project which any Western Company is developing; or any plans or strategy related to the foregoing which is not generally available or disclosed to the public.

    If the Employee violates this agreement of confidentiality, the Corporation shall, in addition to any other remedy provided by law, be permitted to pursue an action for injunctive relief, monetary damages, or both. The Employee acknowledges that all such information constitutes confidential and/or proprietary information of the Western Companies and agrees that such information shall be kept confidential; such information shall be used solely for the purpose of performing the obligations hereunder or activities contemplated by this Agreement; and that he shall not otherwise disclose or make use of such information, except in response to a court order.

    9.  Non-Solicitation.  During Employee's employment hereunder and for a period of three years thereafter, Employee shall not engage in any of the following:

(i)

Hire, offer to hire (or participate in the hiring or offer to hire of) any officer or employee of any Western Company; or



(ii)

directly or indirectly, solicit, divert or take away or attempt to solicit, divert or take away any business any Western Company has enjoyed or solicited prior to the date hereof or at any time during Employee's term of employment with the Corporation.

    This provision, however, shall not be construed to require the Employee to violate any law forbidding anti-competitive practices or any law regarding anti-trust.

    In addition, nothing contained herein shall prevent Employee from hiring any officer or employee of any Western Company as a result of a general solicitation in a publicly available publication. In the event Employee violates this non-solicitation provision, the Western Company shall, in addition to any other remedy provided by law, be permitted to pursue an action for injunctive relief, monetary damages, or both.

    10.  Ownership of Documents.  All information, drawings, documents and materials whether in writing, on computer disks, computer hard drive, on magnetic tape or otherwise prepared by the Employee in connection with his employment, or which Employee obtains in the course of or as result of his employment by the Corporation shall be the sole and exclusive property of the Corporation and will be delivered to the Corporation by the Employee on the earlier of a demand by the Corporation or promptly after termination of his employment hereunder, together with all written, computer, magnetic tape or other evidence of the information, drawings, document and materials, if any, furnished by any Western Company to the Employee in connection with the Employee's employment.

    11.  Agreement Not To Compete.  The parties hereto recognize that the Employee is retained by the Corporation as part of a professional, management and executive staff of the Corporation whose duties include the formulation and execution of management policy. Therefore, except in the event of termination which would entitle Employee to payments pursuant to paragraphs 14 (a) (ii), or 14 (a) (v) in which case the terms of this provision shall not apply, the Employee hereby agrees that during the term of his employment hereunder and for a period of one (1) year after the termination of employment, he shall not act or engage in material competition with the activities of or plans of any Western Company as they exist up to the time of the Employee's termination of employment. Material competition by the Employee shall mean that the Employee is involved in any business or investment

activity, in any capacity including but not limited to an employee, consultant, advisor, agent, shareholder, independent contractor, investor, partner, member, owner or otherwise, which activity directly competes with or has a material adverse economic effect on any of the business activities or business plans of any Western Company. Examples of such material competition include, but shall not be limited to an activity involving the gathering and processing business within 25 miles of one of the Western Companies' existing or planned gathering, processing or generation facilities; an activity involving the storage or hub business for natural gas or natural gas liquids within 100 miles of an existing or planned storage facility of any Western Company; and/or an activity involving the purchase of oil or gas leases, the farming-in of such leases or any similar arrangement, within five (5) miles of the boundaries of an existing oil or gas lease of any Western Company. In the event the Employee violates this agreement not to compete, the Corporation shall, in addition to any other remedies provided by law, be permitted to pursue an action for injunctive relief (preliminary or permanent), monetary damages, or both.

    12.  Termination of Employment.  Employee's employment pursuant to this Agreement shall terminate upon the first to occur of the following events:

(a)

The Employee's death.



(b)

The Employee's disability as that term is defined pursuant to the Corporation's disability insurance plan covering its officers.



(c)

The Employee's written election to terminate employment, to be effective ninety (90) days thereafter unless an earlier effective date is specified by the Corporation.



(d)

The Corporation's written election to terminate Employee's employment without "cause."



(e)

The Corporation's written election to terminate the Employee's employment "for cause."



(f)

In the event of a Change of Control (as hereinafter defined), Employee's employment is terminated without cause or upon the expiration of six (6) months following a Change of Control, whichever is earlier.

    For purposes of this Agreement, the Corporation may elect to terminate Employee's employment "for cause" if: (i) Employee shall have committed a felony, fraud, theft or embezzlement involving the assets of any Western Company; (ii) Employee violates or causes any Western Company to violate, in a material respect, any statute, law, ordinance, rule or regulation relating to such Western Company, which violation results in a material adverse effect to the Corporation's business or financial condition; (iii) Employee engages in any activity which is outside the scope of the Employee's authority and detrimental to any Western Company's business; (iv) Employee fails to comply with the provisions of this Agreement and Employee has either (x) not diligently commenced to correct such detrimental activity; or (y) failed to comply after ten (10) days' written notice from the Corporation, which notice provides a detailed description thereof; or (v) Employee intentionally fails or refuses to perform his obligations or responsibilities hereunder, or to carry out any reasonable and lawful direction of the Corporation with respect to such obligations or responsibilities.

    13.  Employee's Rights and Obligations Upon Death or Disability.  If the Employee's employment is terminated as a result of death or disability, then the Employee shall be entitled to the following in full satisfaction of all of his rights under this Agreement or at law:

(i)

Employee's Right to Compensation and Benefits. Employee shall be entitled to the pro-rata share of Compensation and employee benefits, if any, which have been earned but not paid through the date of Employee's death or disability. Employee shall only be entitled to such additional bonus, if any, which has been previously authorized by the Board of Directors, but has not been paid as of the date of Employee's death or disability.

(ii)

Employee's Obligations. Notwithstanding such termination of employment, if the Employee is terminated as a result of disability, Employee shall remain bound by the provisions of paragraphs 5, 8, 9, 10 and 11 hereof.

    14.  Employee's Rights and Obligations Upon Termination of Employment By the Corporation Without Cause.  If Employee's employment is terminated by the Corporation without cause pursuant to Section 12(d) herein, then Employee shall be entitled to the following in full satisfaction of his rights under this Agreement or at law:

(a)

Severance Pay.

(i)

Employee shall be entitled to severance pay in an amount equal to the annual Compensation. Such severance pay will be payable in accordance with the Corporation's normal pay practices over the 12 months following such termination of employment.



(ii)

Notwithstanding anything else contained herein, in the event of a Change of Control of the Corporation (as hereinafter defined) or after the sale of substantially all the assets of the Corporation, upon the earlier of a) Employee's employment is terminated without cause after a Change of Control of the Corporation or b) upon the expiration of six (6) months following said Change of Control, then the Employee shall be entitled to severance pay equal to two (2) times the annual Compensation of Employee. Severance pay pursuant to this paragraph shall be paid to the Employee either a) over a 24-month period or b) in a one-time lump sum payment, at Employee's option. If the Employee elects payment over a 24 month period, then monthly installments shall commence on the first day of the calendar month following the date of termination of employment or the first day of the calendar month following the expiration of six (6) months after a Change of Control. If the Employee elects payment in a one-time lump sum payment, then said payment shall be made within thirty (30) days of the date of termination of employment or within thirty (30) days after the expiration of the six (6) months after a Change of Control. In the event that the Employee is entitled to the severance pay pursuant to this sub-section, the obligation of the Employee not to use or to disclose any "proprietary or confidential information" set forth in Section 8 hereof shall apply for two (2) years following such Change of Control of the Corporation or such sale of substantially all the assets of the Corporation.



(iii)

The severance pay provisions of this Section 14(a) (ii) are not additive and in no event shall the Employee be entitled to receive severance pay greater than two (2) times the annual Compensation.



(iv)

Notwithstanding anything else contained herein, in the event of a Change of Control of the Corporation (as hereinafter defined) or after the sale of substantially all the assets of the Corporation, upon the earlier of a) Employee's employment is terminated without cause after a Change of Control of the Corporation or b) upon the expiration of six (6) months following said Change of Control, then Employee shall receive either of the following for unvested stock options previously granted to Employee:



A)

in the event of a Change of Control in which the Corporation is acquired in a cash purchase, then Employee shall receive a lump sum payment constituting the positive difference between the exercise price of unvested stock options previously granted to Employee and the transaction price of common stock; or



B)

in the event of a Change of Control in which the Corporation is acquired in a stock purchase, then Employee's stock options which have not vested prior to termination without cause shall be converted to an amount of unqualified vested options of the

acquiring corporation's stock at the original grant price to Employee based upon the conversion rate of the acquiring corporation's stock on the acquisition date.

(v)

Notwithstanding anything else contained herein, in the event Employee's employment is terminated without cause within sixty (60) days prior to the release of a press release regarding a Change of Control of the Corporation, then the Employee shall be entitled to severance pay equal to two (2) times the annual Compensation of Employee. Severance pay pursuant to this paragraph shall be payable to the Employee either a) over a 24 month period or b) in a one-time lump sum payment, at Employee's option. If the Employee elects payment over a 24-month period, then monthly installments shall commence on the first day of the calendar month following Employee's election for payment. If the Employee elects payment in a one-time lump sum payment, then said payment shall be made within thirty (30) days of the date of Employee's election for payment. In addition, for any unvested stock options previously granted to Employee, Employee shall be entitled to either payment or conversion of such unvested stock options as described in paragraph 14 (a) (iv). In the event that the Employee is entitled to the severance pay pursuant to this sub-section, the obligation of the Employee not to use or to disclose any "proprietary or confidential information" set forth in Section 8 hereof shall apply for two (2) years following the, earlier of such termination or such Change of Control of the Corporation.



(vi)

For purposes of this Agreement, "Change of Control of the Corporation" means the acquisition by any person or persons acting in concert (including corporations, partnerships, associations or unincorporated organizations), of legal ownership or beneficial ownership (within the meaning of Rule 13d-3, promulgated by the Securities and Exchange Commission and now in effect under the Securities Exchange Act of 1934 (s amended), of a number of voting shares of capital stock of the Corporation greater than the number of voting shares of capital stock of the Corporation which are then owned, both legally and beneficially (as defined above), by Brion G. Wise, Bill M. Sanderson, Walter L. Stonehocker, Dean Phillips, Ward Sauvage, their immediate families and the companies through which they and their immediate families hold ownership in the Corporation ("the Founders"). None of the Founders shall be counted among those persons acting in concert to acquire ownership unless such Founder, acting in concert with an acquiring person or group (an "Acquiring Group Founder"), votes against the other Founders in an election for the Board of Directors or the modification of the Corporation's certificate of incorporation or by-laws or in the vote to accept or reject a plan of merger, sale of substantially all of the assets of the Corporation or similar proposal. The shares of an Acquiring Group Founder shall be counted in the acquiring group's shares and shall not be counted in the shares of the Founders who are not Acquiring Group Founders.

(b)

Employee's Right to Compensation and Benefits. Employee shall be entitled to the pro-rata share of Compensation and employee benefits, if any, which have been earned but not paid through the date of termination of employment. Employee shall only be entitled to such additional bonus, if any, which has been previously authorized by the Board of Directors, but has not been paid as of the date of termination of employment.



(c)

Payment of Excise Taxes. The Corporation shall be responsible for the payment of any and all excise taxes including any increase in income taxes resulting from such payment, which may result or be assessed to the Employee in connection with payments, whether in cash, stock or benefits received by the Employee under this paragraph 14 of this Agreement. In addition, the Corporation shall defend, indemnify, save and hold the Employee harmless from any and all

claims for excise taxes which are due or may become due or which arise or result from any dispute with a Federal, state or local taxing authority in connection with this paragraph 14.

(d)

Employee's Obligations. Notwithstanding such termination of employment, Employee shall remain bound by the provisions of paragraphs 5, 8, 9, 10 and 11 hereof.

    15.  Employee's Rights and Obligations Upon Termination of Employment by the Corporation With Cause.  If Employee's employment is terminated by the Corporation with cause pursuant to paragraph 12(e) herein, then the Employee shall be entitled to the following in full satisfaction of all of his rights under this Agreement or at law:

(i)

Severance Pay. Employee shall not be entitled to any severance pay.



(ii)

Employee's Right to Compensation and Benefits. Employee shall only be entitled to the pro-rata share of Compensation and employee benefits, if any, earned but not paid through the date of termination of employment. Employee shall only be entitled to such additional bonus, if any, which has been previously authorized by the Board of Directors, but has not been paid as of the date of termination of employment.



(iii)

Employee's Obligations. Notwithstanding such termination of employment, Employee shall remain bound by the provisions of paragraphs 5, 8, 9, 10 and11 hereof.

    16.  Employee's Rights and Obligations Upon Termination of Employment By Employee.  If Employee's employment is terminated by the Employee pursuant to paragraph 12(c) herein, then the Employee shall be entitled to the following in full satisfaction of all of his rights under this Agreement or at law:

(i)

Severance Pay. Employee shall be entitled to no severance pay.



(ii)

Employee's Rights to Compensation and Benefits. Employee shall be entitled to the pro-rata share of Compensation and Employee Benefits, if any, which have been earned but not paid through the effective date of such termination of employment. Employee shall only be entitled to such additional bonus, if any, which has been previously authorized by the Board of Directors, but has not been paid as of the date of termination of employment.



(iii)

Employee's Obligations. Notwithstanding such termination of employment, Employee shall remain bound by the provisions of paragraphs 5, 8, 9, 10 and 11 hereof.

    17.  Benefit.  This Agreement shall inure to the benefit of and be binding upon the Corporation, its successors and assigns, including, but not limited to (i) any entity which may acquire all or substantially all of the Corporation's assets and business, (ii) any entity with or into which the Corporation may be consolidated or merged, or (iii) any entity that is the successor corporation in a share exchange, and the Employee, his heirs, guardians and personal and legal representatives. The Employee and the Corporation also agree that each Western Company shall be deemed to be a third-party beneficiary to this Agreement.

    18.  Notices.  All notices and communications hereunder shall be in writing and shall be deemed given when sent postage prepaid by registered or certified mail, return receipt requested, and, if intended for the Corporation, shall be addressed to it, to the attention of its President, at:

Western Gas Resources, Inc.
12200 North Pecos Street
Denver, Colorado 80234

or at such other address which the Corporation shall have given notice to the Employee in the manner herein provided, and if intended for the Employee, shall be addressed to him at his last known

residence, or at such other address at which the Employee shall have given notice to the Corporation in the manner provided herein:

    19.  Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

    20.  Severability.  In the event one or more of the provisions contained in this Agreement, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or any other application or modification thereof, shall not in any way be affected or impaired. The parties further agree that any such invalid, illegal or unenforceable provision or restriction shall be deemed modified so that it shall be enforced to the greatest extent permissible under law, and to the extent that any court of competent jurisdiction determines any provision or restriction herein to be overly broad, or unenforceable, such court is hereby empowered and authorized to limit such provisions or restriction so that it is enforceable for the longest duration of time, within the largest geographical area and with the broadest scope.

    21.  Miscellaneous.

(a)

Counterparts. This Agreement may be executed in more than one copy, each copy of which shall serve as an original for all purposes, but all copies shall constitute but one and the same Agreement.



(b)

Assignment. Except as provided in paragraph 17, this Agreement is personal to each of the parties hereto, and neither party may assign nor delegate any of such party's rights or obligations hereunder without first obtaining the written consent of the other party.



(c)

Headings. All headings set forth in this Agreement are intended for convenience only and shall not control or affect the meaning, construction or effect of this Agreement or of any of the provisions hereof.



(d)

Gender, Plurals and Pronouns. Throughout this Agreement, the masculine gender shall include the feminine and neuter, and the singular shall include the plural and vice versa, wherever the context and facts require such construction.



(e)

Binding Arbitration, Attorney's Fees and Expenses. Except for disputes arising or resulting from the provisions contained in paragraph 14 of this Agreement, if any dispute arises between the parties to this Agreement (but not as to whether the Corporation is obligated to provide legal representation to the Employee pursuant to Section 4 hereof), then both parties shall submit the dispute to binding arbitration. Both parties agree to be bound by the decision of such arbitration. The obligation to submit to binding arbitration shall not prevent either party from seeking a court order or an injunction enforcing the term of this Agreement. In the event of any binding arbitration between the parties, or any litigation to enforce any provision (except for disputes arising or resulting from the provision contained in paragraph 14) of this Agreement or any right of either party, the unsuccessful party to such arbitration or litigation shall pay the successful party all costs and expenses, including reasonable attorneys' fees, incurred. In the event a dispute arises or results from the provisions of paragraph 14 of this Agreement, then both parties shall submit the dispute to binding arbitration under the foregoing provisions, except that all costs and expenses, including reasonable attorneys' fees, incurred shall be solely borne by the Corporation.



(f)

Waiver of Breach. The waiver by any party hereto of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any party.

(g)

Entire Agreement. Except for the Indemnification Agreement, this Agreement contains all agreements, understandings, and arrangements between the parties hereto and no other exists. Except for the Indemnification Agreement, all previous agreements, understandings, and arrangements between the parties relating to employment are terminated by this Agreement. This Agreement may be amended, waived, changed, modified, extended or rescinded only by a writing signed by the party against whom such amendment, waiver, change, modification, extension or rescission is sought.

    IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first written above.

WESTERN GAS RESOURCES, INC.
By:	Name: Title:
EMPLOYEE
By:	Name:

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2001 EMPLOYMENT AGREEMENT

EX-10.28

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EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the Agreement is made effective as of the October 15, 2001, by and between Western Gas Resources, Inc., a Delaware corporation, (hereinafter referred to as the "Corporation" or "Company"), and Peter A. Dea, (hereinafter referred to as the "Employee").

WITNESSETH:

    A.  The Corporation, its subsidiaries and affiliates (the "Western Companies") acquire, design, construct and operate natural gas gathering and processing facilities, market, store and transport natural gas, natural gas liquids and sulfur, market electrical power and explore for, develop, and produce oil and gas.

    B.  The Corporation desires to employ Employee as its Chief Executive Officer and President and Employee has agreed to accept such position upon the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

1.  Employment. Corporation hereby employs the Employee and the Employee hereby accepts such employment with the Corporation upon the terms and conditions hereinafter set forth. The Employee's employment shall commence on November 1, 2001, and continue until May 31, 2005 unless it is earlier terminated in accordance with the provisions of paragraph 12 hereof. Employee's employment may be extended, from time to time, by a written agreement signed by both parties.

2.  Powers, Duties and Responsibilities.

    a.  Employee shall devote his full time, attention and effort to the business of the Western Companies during the Corporation's normal business hours and during such other times as are reasonably necessary for the proper performance of his responsibilities hereunder, provided that Employee may serve as an outside director for Echo Star, and as a committee member, director, or trustee of selected nonprofit organizations, as long as such activities don't interfere with the performance of his duties under this Agreement.

    b.  Employee's primary duties shall be to act as Chief Executive Officer and President and shall perform the duties customarily associated with such position.

    c.  The Employee shall perform his duties at the Corporation's headquarters in Denver, Colorado.

3.  Compensation and Bonus.

    a.  For all of the services rendered by Employee pursuant to this Agreement, the Corporation shall pay the Employee an annual base salary of not less than $475,000 (hereinafter referred to as ("Compensation"), payable in accordance with the Corporation's normal pay practices during the term of Employee's employment. In no event shall Employee's current annual base salary be decreased, but it may, from time to time be increased at the discretion of Corporation during the term of this Agreement. The Compensation shall be paid on a calendar-year basis, and shall be pro rated for any partial year.

    b.  In addition to the Employee's Compensation, the Corporation shall pay to the Employee a bonus (the "Incentive Bonus") for each calendar year during the term of his employment, of between fifty-five percent (55%) and one hundred ten percent (110%) of Employee's Compensation paid for such calendar year. The payment of any bonus will be dependent upon whether the actual financial performance of the Corporation meets the budget projections adopted

by the Board of Directors for such calendar year. If the Corporation fails to meet its minimum budget expectations, Employee will not receive any Incentive Bonus for that calendar year. Except in the case of death or disability, Employee must be employed by the Corporation at the end of the calendar year (or May 31, 2005, in the case of the last year of this Agreement) in order to receive an Incentive Bonus for that year. The Incentive Bonus for calendar year 2001 shall be based on the Compensation paid to Employee in such year. The criteria for determining the amount of the Incentive Bonus shall be determined by mutual agreement between the Employee and the Board of Directors within 60 days of the effective date of this Agreement. The bonus shall be paid within 60 days following the end of the calendar year.

4.  Officer Insurance Coverage—Costs of Defense. During the term of Employee's employment and for two (2) years thereafter, the Corporation shall provide to Employee officer liability insurance coverage to cover any claims that may be made arising from his past, present, or future activities on behalf of the Western Companies, in the same manner as such insurance is provided to the other officers of the Corporation, provided that such insurance coverage is available to the Corporation at a reasonable cost. Thereafter, if the Employee wants continuing officer liability insurance coverage, he shall be responsible for the cost thereof.

5.  Cooperation With Respect to Investigations, Claims or Litigation. During the term of Employee's employment and at all times thereafter, should a Western Company become involved in any investigation, claim, or litigation relating to or arising out of Employee's past, present, or future duties with a Western Company or with respect to any matters which the Employee has knowledge, Employee agrees to fully, and in good faith, cooperate with the Corporation with respect to such investigation, claim, or litigation. The Corporation shall reimburse Employee for his reasonable out-of-pocket expenses incurred to provide such cooperation.

6.  Indemnification Agreement. Exhibit "A", attached hereto and incorporated herein by reference is an Indemnification Agreement by and between the Corporation and the Employee. The Corporation and the Employee each agree to execute and deliver such Indemnification Agreement concurrently with the execution and delivery of this Agreement. To the extent any provision set forth in the Indemnification Agreement is in conflict with any provision set forth in this Agreement, the provision set forth in the Indemnification Agreement shall govern.

7.  Employee Benefits.

    a.  During the term of employment, Employee shall be eligible to participate in the employee benefit plans maintained by the Corporation, in accordance with the provisions of such plans, as such plans may be changed from time to time. Employee shall receive five (5) weeks of paid vacation per year, to be taken at such time and manner as to not unreasonably interfere with the performance of his duties. Employee shall have all other benefits provided to or received by other executives of the Company.

    b.  Pursuant to, and as more fully explained in, the stock option agreement attached hereto as Exhibit B and executed herewith, Corporation will provide Employee with 300,000 stock options to purchase common stock of the Corporation, at an exercise price equal to five dollars ($5.00) below the closing price for the Company's stock on the effective date of this Employment

Agreement (November 1, 2001), with vesting of the stock options to occur over a four year period, in accordance with the following schedule:

Year of Service Completed	Percentage of Options Vested
1	25	%
2	25	%
3	25	%
4	25	%

For these purposes, a Year of Service shall be 12 months of full-time employment with the Company during a period beginning September 1, and ending August 31. Employee must be employed on the last day of any such 12-month period in order to have completed a year of service. The Employee hereby agrees and acknowledges that nothing in this Agreement guarantees him the right to any additional grant of stock options. However, the Board of Directors, in its sole discretion, may grant additional stock options to Employee. Employee shall receive registered stock upon the exercise of his options.

8.  Confidential Information. Employee acknowledges that pursuant to the employment hereunder, Employee occupies a position of trust and confidence. Accordingly, in order to facilitate the performance of this Agreement and the activities contemplated by this Agreement, the Western Companies may disclose to Employee or Employee may develop or obtain certain proprietary or confidential information of the Western Companies. During Employee's employment hereunder and for a period of one (1) year therefrom, Employee hereby agrees not to use or to disclose to any person, other than in the discharge of his duties under this Agreement, any "proprietary or confidential" information of the Western Companies, including, but not limited to, any information concerning the business operations, business strategies, or internal structure of the Western Companies, the customers or clients of the Western Companies, any acquisition strategies of the Western Companies, the gas and other products, marketing or transportation strategies of the Western Companies, its subsidiaries or affiliates, the terms of any gas gathering, processing, marketing, or transportation contracts entered into by the Western Companies, past, present or future research done by the Western Companies respecting the business or operations of the Western Companies, or customers or clients or potential customers or clients of the Western Companies, personnel data of the Western Companies, product or process knowledge, the Employee's work performed for, or relating to or for, any customer or client of any Western Company or the gas or other product pricing for any customer or client of any Western Company, any method or procedure relating or pertaining to projects developed by any Western Company or contemplated by any Western Company to be developed, or any gas gathering, processing, drilling, marketing, transportation project which any Western Company is developing, or any plans or strategy related to the foregoing Information shall not be deemed to be Confidential Information for purposes of this Agreement which: (i) is or hereafter becomes publicly known through no act or omission of the Employee; (ii) is received by Employee without restriction on disclosure from a third party who disclosed the information without violating any restriction on confidentiality or disclosure; (iii) is independently developed by Employee without reference to the Confidential Information and without violation of any confidentiality restriction; or (iv) is divulged by Employee pursuant to statute, regulation, or the order of a court of competent jurisdiction, provided that Employee previously notifies the Corporation so as to allow the Corporation to take appropriate protective measures.

    If the Employee violates this agreement of confidentiality, the Corporation shall, in addition to any other remedy provided by law, be permitted to pursue an action for injunctive relief, monetary damages, or both. The Employee acknowledges that all such information constitutes confidential and/or proprietary information of the Western Companies and agrees that such information shall be kept confidential, such information shall be used solely for the purpose of performing the obligations

hereunder or activities contemplated by this Agreement, and that he shall not otherwise disclose or make use of such information, except in response to a court order.

9.  Non-Solicitation. During Employee's employment hereunder and for a period of six (6) months thereafter, Employee shall not engage in any of the following: (a) hire, offer to hire (or participate in the hiring or offer to hire of) any officer or employee of any Western Company; or (b) directly solicit any current customer of the Corporation at any time during Employee's term of employment with the Corporation. Provided, however, these restrictions shall not apply after a Change of Control, as defined in paragraph 15(a)(2) or as provided in paragraph 17(a). This provision, however, shall not be construed to require the Employee to violate any law forbidding anti-competitive practices or any law regarding anti-trust.

    In addition, nothing contained herein shall prevent Employee from hiring any officer or employee of any Western Company as a result of a general solicitation in a publicly-available publication, including the internet. In the event Employee violates this non-solicitation provision, the Western Company shall, in addition to any other remedy provided by law, be permitted to pursue an action for injunctive relief, monetary damages, or both.

10. Ownership of Documents. All information, drawings, documents and materials whether in writing, on computer disks, computer hard drive, on magnetic tape or otherwise prepared by the Employee in connection with his employment, or which Employee obtains in the course of or as result of his employment by the Corporation shall be the sole and exclusive property of the Corporation and will be delivered to the Corporation by the Employee on the earlier of a demand by the Corporation or promptly after termination of his employment hereunder, together with all written, computer, magnetic tape or other evidence of the information, drawings, document and materials, if any, furnished by any Western Company to the Employee in connection with the Employee's employment.

11. Agreement Not To Compete. The parties hereto recognize that the Employee is retained by the Corporation as part of a professional, management and executive staff of the Corporation whose duties include the formulation and execution of management policy. Therefore, the Employee hereby agrees that during the term of his employment hereunder and for a period of six (6) months after the termination of employment, he shall not act or engage in material competition with the activities of or plans of any Western Company as they exist up to the time of the Employee's termination of employment; provided, however, that this agreement not to compete shall terminate in the event of a Change of Control of the Corporation or as provided in paragraph 17. Material competition by the Employee shall mean that the Employee is involved in any business or investment activity, in any capacity including but not limited to an employee, consultant, advisor, agent, shareholder, independent contractor, investor, partner, member, owner or otherwise, which activity directly competes with or has a material adverse economic effect on any of the material business activities or business plans of any Western Company. Material competition shall not include any activity involving the gathering and processing business that is not within 25 miles of one of the Western Companies' existing or planned gathering, processing or generation facilities; an activity involving the storage or hub business for natural gas or natural gas liquids that is not within 100 miles of an existing or planned storage facility of any Western Company; and/or an activity involving the purchase of oil or gas leases, the farming in of such leases or any similar arrangement, that is not within five (5) miles of the boundaries of an existing oil or gas lease of any Western Company. In the event the Employee violates this agreement not to compete, the Corporation shall, in addition to any other remedies provided by law, be permitted to pursue an action for injunctive relief (preliminary or permanent), monetary damages, or both. Provided, however, these restrictions shall not apply after a Change of Control, as defined in paragraph 15(a)(2) or as set forth in paragraph 17.

12. Termination of Employment. Employee's employment pursuant to this Agreement shall terminate upon the first to occur of the following events:

    a.  The Employee's death.

    b.  The Employee's disability, as that term is defined pursuant to the Corporation's disability insurance plan covering its officers.

    c.  The Employee's written election to terminate employment, to be effective ninety (90) days thereafter unless an earlier effective date is specified by the Corporation, with or without Good Reason.

    d.  The Corporation's written election to terminate Employee's employment without "cause."

    e.  The Corporation's written election to terminate the Employee's employment "for cause."

    Cause.  For purposes of this Agreement, a termination of employment is for "Cause" if the Employee has been convicted of a felony involving moral turpitude or the termination is evidenced by a resolution adopted in good faith by two-thirds of the Board that the Employee (a) intentionally and continually failed substantially to perform his reasonably assigned duties with the Company (other than a failure resulting from the Employee's incapacity due to physical or mental illness or from the Employee's assignment of duties that would constitute "Good reason" as hereinafter defined) which failure continued for a period of at least thirty days after a written notice of demand for substantial performance has been delivered to the Employee specifying the manner in which the Employee has failed substantially to perform, or (b) intentionally engaged in conduct which is demonstrably and materially injurious to the Company; provided, however, that no termination of the Employee's employment shall be for Cause until (x) there shall have been delivered to the Employee a copy of a written notice setting forth that the Employee was guilty of the conduct set forth in this section and specifying the particulars thereof in detail, and (y) the Employee shall have been provided an opportunity to be heard in person by the Board (with the assistance of the Employee's counsel if the Employee so desires). Neither an act nor a failure to act, on the Employee's part shall be considered "intentional" unless the Employee has acted or failed to act with a lack of good faith and with a lack of reasonable belief that the Employee's action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Employee if Employee has terminated for good reason shall constitute Cause for purposes of this Agreement.

13. [Section Intentionally Omitted].

14. Employee's Rights and Obligations Upon Death or Disability. If the Employee's employment is terminated as a result of death or disability, then the Employee shall be entitled to the following in full satisfaction of all of his rights under this Agreement or at law:

    a.  Employee's Right to Compensation and Benefits. Employee shall be entitled to the pro-rata share of Compensation and employee benefits, if any, which have been earned but not paid through the date of Employee's death or disability. Employee shall only be entitled to such additional bonus, if any, which has been previously authorized by the Board of Directors, but has not been paid as of the date of Employee's death or disability. For purposes of this Agreement, a bonus shall be deemed to be authorized on the date that the Board of Directors fixes the criteria to be met in order for the Employee to earn his bonus.

    b.  Employee's Obligations. Notwithstanding such termination of employment, if the Employee is terminated as a result of disability, Employee shall remain bound by the provisions of paragraphs 5, 8, 9, 10 and 11 hereof.

15. Employee's Rights and Obligations Upon Termination of Employment By the Corporation Without Cause or By Employee for Good Reason. If Employee's employment is terminated by the Corporation without cause pursuant to Section 12(d) herein or by the Employee for Good Reason, then Employee shall be entitled to the following in full satisfaction of his rights under this Agreement or at law:

    a.  Severance Pay.

    (1) Employee shall be entitled to severance pay in an amount equal to his most recent Compensation, plus his Incentive Bonus for the calendar year preceding such termination of employment. Such severance pay will be payable in accordance with the Corporation's normal pay practices over the 12 months following such termination of employment.

    (2) Notwithstanding anything else contained herein, in the event Employee's employment is terminated without cause within one year after a Change of Control of the Corporation (as hereinafter defined), then the Employee shall be entitled to severance pay equal to the sum of three times his most recent Compensation and three times his Incentive Bonus for the calendar year preceding such termination of employment, reduced by any Compensation or severance pay paid or earned but not yet paid to the Employee after the date the Change of Control of the Corporation occurred and before the date of termination of employment. Severance pay pursuant to this paragraph shall be paid to the Employee in a lump sum within 60 days following termination without cause following Change of Control of the Corporation.

    (3) Notwithstanding anything else contained herein, in the event Employee's employment is terminated without cause within one year after a Change of Control of the Corporation (as hereinafter defined), then Employee shall receive either of the following for unvested stock options previously granted to Employee:

    (i)  in the event of a Change of Control in which the Corporation is acquired in a cash purchase, then Employee shall receive a lump sum payment constituting the positive difference between the exercise price of unvested stock options previously granted to Employee and the transaction price of common stock to be paid at Closing; or

    (ii) in the event of a Change of Control in which the Corporation is acquired in a stock purchase, then Employee's stock options which have not vested prior to termination without cause shall be converted to an amount of unqualified options of the acquiring corporation's stock at the original grant price to Employee based upon the conversion rate of the acquiring corporation's stock on the acquisition date, provided such option plan contains the same material terms and conditions as the Stock Option Agreement attached hereto.

    (4) Notwithstanding anything else contained herein, in the event Employee's employment is terminated without cause within sixty (60) days prior to the release of a press release, regarding a Change of Control of the Corporation, then the Employee shall be entitled to severance pay equal to three times his Compensation and Incentive Bonus for the preceding 12-month period, reduced by any Compensation or severance pay paid or payable to the Employee after the date of termination and before the date the Change of Control of the Corporation occurred. Severance pay pursuant to this paragraph shall be payable to the Employee within 60 days following such termination of employment, but before the date of the Change of Control of the Corporation).

    (5) For purposes of this Agreement, "Change of Control of the Corporation" means the acquisition by any person or persons acting in concert (including corporations, partnerships, associations or unincorporated organizations), of legal ownership or beneficial ownership (within the meaning of Rule 13d-3, promulgated by the Securities and Exchange Commission

and now in effect under the Securities Exchange Act of 1934 (as amended), of a number of voting shares of capital stock of the Corporation greater than the number of voting shares of capital stock of the Corporation which are then owned, both legally and beneficially (as defined above), by Brion G. Wise, Bill M. Sanderson, Walter L. Stonehocker, Dean Phillips, Ward Sauvage, their immediate families and the companies through which they and their immediate families hold ownership in the Corporation ("the Founders"). None of the Founders shall be counted among those persons acting in concert to acquire ownership unless such Founder, acting in concert with an acquiring person or group (an "Acquiring Group Founder"), votes against the other Founders in an election for the Board of Directors or the modification of the Corporation's certificate of incorporation or bylaws or in the vote to accept or reject a plan of merger, sale of substantially all of the assets of the Corporation or similar proposal. The shares of an Acquiring Group Founder shall be counted in the acquiring group's shares and shall not be counted in the shares of the Founders who are not Acquiring Group Founders.

    "Change of Control" shall also be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d3 under said Act), directly or indirectly, of securities of the Corporation representing 20% or more of the total voting power represented by the Corporation's then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation and any new director whose election by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds (²/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Corporation outstanding immediately prior thereto continuing to represent (ether by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of (in one transaction or a series of transactions) all or substantially all of the Corporation's assets.

    For purposes of this paragraph, the term Voting Securities means any securities of the Corporation which vote generally in the election of directors.

    (6) In the event of a Change of Control of the Corporation which is not followed by a termination of the Employee without cause, Employee shall continue to serve the Corporation by the performance of the job and duties described in paragraph 2 hereof, and the Employee shall be employed in the Corporation's offices in Denver, Colorado.

    b.  Employee's Right to Compensation and Benefits. Employee shall be entitled to the pro rata share of Compensation and employee benefits, if any, which have been earned but not paid through the date of termination of employment. Employee shall only be entitled to such additional bonus, if any, which has been previously authorized by the Board of Directors, but has not been paid as of the date of termination of employment.

    c.  Employee's Obligations. Notwithstanding such termination of employment, Employee shall remain bound by the provisions of paragraphs 5, 8, 9, 10 and 11 hereof; provided, however, that the Agreement Not to Compete in paragraph 11 shall not apply if there has been a Change of Control.

    d.  Stock Options. Employee's nonvested stock options shall become one hundred percent (100%) vested upon a termination of employment by the Corporation without cause or by Employee with Good Reason. Employee shall have in all events three (3) months in which to exercise his options in the event of his termination unless he is terminated for cause by the Corporation or unless Employee terminates this Agreement without Good Reason.

    e.  Golden Parachute Payments. In the event that there is a Determination (as defined below) that Employee is subject to any excise tax pursuant to Section 4999 of the Internal Revenue Code of 1986, or otherwise by reason of (a) any payment or distribution by the Company or its affiliated companies to or for the benefit of Employee (b) the vesting of any stock options awarded to or for the benefit of Employee by the Company or any of its affiliated companies, (c) any other fact or circumstance arising in connection with this Agreement or Employee's employment with the Company (such excise tax, together with any interest or penalties imposed with respect thereto, are hereinafter collectively referred to as the "Excise Tax"), the Company shall make a payment to Employee (the "Grossed-Up Payment") in an amount such that after payment by Employee of all taxes (including any interest and penalties imposed with respect to such taxes), including without limitation, any income taxes and excise taxes, imposed upon the Grossed-Up Payment the Employee shall retain an amount of the Grossed-Up Payment equal to the Excise Tax. The Company shall engage at its expense an outside accounting firm to determine whether Employee is subject to an Excise Tax, the amount of such Excise Tax, and the amount of any Grossed-Up Payment due to Employee pursuant to this paragraph, as well as the underlying assumptions used to make these determinations (the "Determination"). This Determination shall be made within 10 business days of the receipt of notice from Employee or the Corporation that there may have been an event giving rise to a liability for Excise Tax, and the Corporation shall pay the Employee the Grossed-Up Payment within five days of the receipt of the Determination. If any of the assumptions used in making the Determination subsequently proves to be incorrect, inaccurate, or otherwise in error, and if by reason thereof Employee is obligated to pay more in taxes, interest and penalties, than was assumed in the Determination, Employee shall notify the Corporation of such fact, and the Corporation shall request the outside accounting firm to recompute the amount of the Grossed-Up Payment due to Employee using the correct facts (the "Revised Determination"). This Revised Determination shall be made within 10 business days of the receipt of the notice from Employee, and the Corporation shall pay the Employee the difference between the Grossed-Up Payment as computed under the Revised Determination, and the Grossed-Up Payment as computed under the original Determination, within five days of the receipt of the Revised Determination with the result that Employee is held harmless on an after-tax basis for any excise or income tax (including resulting interest and penalties).

    e.  "Good Reason" shall mean any of the following events which have not been cured by the Corporation within 30 days of the Corporation's receiving notice thereof from Employee: (i) any material breach by the Corporation of its obligations under this Agreement, including the failure of the Corporation to pay Employee the salary or bonus, if any, or to provide the benefits, if any, in accordance with this Agreement; (ii) any material diminishment in Employee's status, title, duties, functions, responsibilities or authority or a change that requires Employee to report to someone other than the Board, or a material reduction of base salary or benefits; or (iii) the Corporation's requiring Employee to be based anywhere other than within twenty-five (25) miles of Employee's current principal place of employment, except for required travel on the business of the Corporation, or, in the event Employee consents to such relocation, the failure of the

Corporation to pay or reimburse Employee for the reasonable costs incurred by Employee in connection with such relocation.

16. Employee's Rights and Obligations Upon Termination of Employment by the Corporation With Cause. If Employee's employment is terminated by the Corporation with cause pursuant to paragraph 12(e) herein, then the Employee shall be entitled to the following in full satisfaction of all of his rights under this Agreement or at law.

    a.  Severance Pay. Employee shall not be entitled to any severance pay.

    b.  Employee's Rights to Compensation and Benefits. Employee shall only be entitled to the pro rata share of Compensation and Employee Benefits, if any, earned but not paid through the date of termination of employment. Employee shall only be entitled to such additional bonus, if any, which has been previously authorized by the Board of Directors, but has not been paid as of the date of termination of employment.

    c.  Employee's Obligations. Notwithstanding such termination of employment, Employee shall remain bound by the provisions of paragraphs 5, 8, 9, 10 and 11 hereof.

17. Employee's Rights and Obligations Upon Termination of Employment By Employee. If Employee's employment is terminated by the Employee pursuant to paragraph 12(c) herein, then the Employee shall be entitled to the following in full satisfaction of all of his rights under this Agreement or at law:

    a.  Severance Pay. Employee shall be entitled to no severance pay; provided, however, that if the Company gives Employee written notice of its election to enforce the Agreement Not to Compete in paragraph 11 hereof within thirty (30) days of such termination of employment, then Employee shall be entitled to severance pay in an amount equal to the sum of his most recent Compensation and fifty percent (50%) of his Incentive Bonus, for the calendar year preceding such termination of employment. Such severance pay will be payable in accordance with the Corporation's normal pay practices over the 12 months following such termination of employment.

    b.  Employee's Rights to Compensation and Benefits. Employee shall be entitled to the pro rata share of Compensation and Employee Benefits, if any, which have been earned but not paid through the effective date of such termination of employment. Employee shall only be entitled to such additional bonus, if any, which has been previously authorized by the Board of Directors, but has not been paid as of the date of termination of employment.

    c.  Employee's Obligations. Notwithstanding such termination of employment, Employee shall remain bound by the provisions of paragraphs 5, 8, 9, and 10 hereof. In addition, the provisions of paragraph 11 shall apply only if the Company has made the election described in paragraph 17(a).

18. Directorship. Upon the effective date of this Agreement, Employee shall be elected as a member of the Company's Board of Directors and shall serve in such capacity during the term of his employment with the Company. Upon Employee's termination of employment, for any reason, Employee agrees to resign immediately from his position as a Director of Corporation.

19. Benefit. This Agreement shall inure to the benefit of and be binding upon the Corporation, its successors and assigns, including, but not limited to (i) any corporation which may acquire all or substantially all of the Corporation's assets and business, (ii) any corporation with or into which the Corporation may be consolidated or merged, or (iii) any corporation that is the successor corporation in a share exchange, and the Employee, his heirs, guardians and personal and legal representatives.

20. Notices. All notices and communications hereunder shall be in writing and shall be deemed given when sent postage prepaid by registered or certified mail, return receipt requested, and, if intended for the Corporation, shall be addressed to it, to the attention of its President, at:

Western Gas Resources, Inc.
12200 North Pecos Street
Denver, Colorado 80234

or at such other address which the Corporation shall have given notice to the Employee in the manner herein provided, and if intended for the Employee, shall be addressed to him at his last known residence, or at such other address at which the Employee shall have given notice to the Corporation in the manner provided herein:

Employee: Peter A. Dea
Address:

21. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

22. Severability. In the event one or more of the provisions contained in this Agreement, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or any other application or modification thereof, shall not in any way be affected or impaired. The parties further agree that any such invalid, illegal or unenforceable provision or restriction shall be deemed modified so that it shall be enforced to the greatest extent permissible under law, and to the extent that any court of competent jurisdiction determines any provision or restriction herein to be overly broad, or unenforceable, such court is hereby empowered and authorized to limit such provisions or restriction so that it is enforceable for the longest duration of time, within the largest geographical area and with the broadest scope.

23. Miscellaneous.

    a.  Counterparts. This Agreement may be executed in more than one copy, each copy of which shall serve as an original for all purposes, but all copies shall constitute but one and the same Agreement.

    b.  Assignment. This Agreement is personal to each of the parties hereto, and neither party may assign nor delegate any of such party's rights or obligations hereunder without first obtaining the written consent of the other party.

    c.  Headings. All headings set forth in this Agreement are intended for convenience only and shall not control or affect the meaning, construction or effect of this Agreement or of any of the provisions hereof.

    d.  Gender, Plurals and Pronouns. Throughout this Agreement, the masculine gender shall include the feminine and neuter, and the singular shall include the plural and vice versa, wherever the context and facts require such construction.

    e.  Binding Arbitration, Attorney's Fees and Expenses. If any dispute arises between the parties to this Agreement with respect to any amounts due hereunder to any one of the parties (but not as to whether the Corporation is obligated to provide legal representation to the Employee pursuant to Section 4 hereof), then both parties shall submit the dispute to binding arbitration. Both parties agree to be bound by the decision of such arbitration. The obligation to submit to binding arbitration shall not prevent either party from seeking a court order or an injunction enforcing the term of this Agreement. In the event of any binding arbitration between the parties, or any litigation to enforce any provision of this Agreement or any right of either party, the

unsuccessful party to such arbitration or litigation shall pay the successful party all costs and expenses, including reasonable attorney's fees, incurred.

    f.   Waiver of Breach. The waiver by any party hereto of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any party.

    g.  Entire Agreement. Except for the Indemnification Agreement, this Agreement contains all agreements, understandings, and arrangements between the parties hereto and no other exists. Except for the Indemnification Agreement, all previous agreements, understandings, and arrangements between the parties relating to employment are terminated by this Agreement. This Agreement may be amended, waived, changed, modified, extended or rescinded only by a writing signed by the party against whom such amendment, waiver, change, modification, extension or rescission is sought.

IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date first written above.

CORPORATION:     WESTERN GAS RESOURCES, INC.
By	/s/ LANNY F. OUTLAW Lanny F. Outlaw Lanny F. Outlaw, authorized on behalf of the Board of Directors
EMPLOYEE:
	/s/ PETER A. DEA Peter A. Dea

Exhibit A

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this "Agreement"), effective as of November 1, 2001, between Western Gas Resources, Inc., a Delaware corporation (the "Company"), and Peter A. Dea (the "lndemnitee").

WHEREAS, it is essential to the Company to retain and attract as officers and directors the most capable persons available;

WHEREAS, Indemnitee is the Chief Executive Officer, President and director of the Company;

WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors of public companies in today's environment;

WHEREAS, the Bylaws of the Company require the Company to indemnify and advance expenses to its officers and directors to the full extent permitted by law and the Indemnitee has been serving and continues to serve as an officer or director of the Company in part in reliance on such Bylaws;

WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner and Indemnitee's reliance on the aforesaid Bylaws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such Bylaws, or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies;

NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows:

1.

Certain Definitions:

(a)

Change in Control: shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d3 under said Act), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company's then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (²/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting

power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets.

(b)

Claim: any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether instituted by the Company or any other party, that Indemnitee in good faith, believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other.



(c)

Expenses: include attorneys' fees and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Claim relating to any Indemnifiable Event.



(d)

Indemnifiable Event: any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity.



(e)

Independent Legal Counsel: an attorney or firm of attorneys, selected in accordance with the provisions of Section 3, who shall not have otherwise performed services for the Company or Indemnitee within the last five years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).



(f)

Potential Change in Control: shall be deemed to have occurred if (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; (iii) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 9.5% or more of the combined voting power of the Company's then outstanding Voting Securities, increases his beneficial ownership of such securities by five percentage points (5%) or more over the percentage so owned by such person; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.



(g)

Reviewing Party: any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel.



(h)

Voting Securities: any securities of the Company which vote generally in the election of directors.

2.

Basic Indemnification Arrangement.

(a)

In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to

the fullest extent permitted by law as soon as practicable but in any event no later than thirty days after written demand is presented to the Company, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Claim. If so requested by Indemnitee, the Company shall advance (within two business days of such request) any and all Expenses to Indemnitee (an "Expense Advance").

(b)

Notwithstanding the foregoing, the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law.

(c)

Notwithstanding the foregoing, the obligation of the Company to make an Expense Advance pursuant to Section 2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court, of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed).

(d)

If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 3 hereof.

(e)

If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee. substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the States of Colorado or Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.

(f)

Notwithstanding anything else contained herein, in no event shall Indemnitee be entitled to indemnification under this Agreement for any Claims that relate to liability: (i) under Section 16(b) of the Securities Exchange Act of 1934, as amended; (ii) under federal or state securities laws for "insider trading"; (iii) conduct finally adjudged as constituting active or deliberate dishonesty or willful fraud or illegality; (iv) conduct finally adjudged as producing an unlawful personal benefit to Indemnitee; or (v) prior to a Change of Control, under any Claim initiated by the Indemnitee unless the Board of Directors of the Company shall have authorized or consented to such Claim.

3.

Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board

of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or Company Bylaw now or hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

4.

Establishment of Trust.

(a)

In the event of a Potential Change in Control, the Company shall: (i) upon written request by Indemnitee, create a trust for the benefit of Indemnitee, with the trustee chosen by Indemnitee; (ii) from time to time upon written request of Indemnitee, fund such trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for and defending any Claim relating to an Indemnifiable Event, and any and all judgments, fines, penalties and settlement amounts of any and all Claims relating to an Indemnifiable Event from time to time actually paid or claimed, reasonably anticipated or proposed to be paid.

(b)

Notwithstanding anything else contained herein, in no event shall the Company be required to deposit more than Five Hundred Thousand Dollars ($500,000) in any trust created hereunder in excess of amounts deposited in respect of reasonably anticipated Expenses.

(c)

The amount or amounts to be deposited in the trust pursuant to the foregoing funding obligation shall be determined by the Reviewing Party, in any case in which the Independent Legal Counsel referred to above is involved.

(d)

The terms of the trust shall provide that upon a Change in Control (i) the trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the trustee shall advance, within two business days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section 2(b) of this Agreement), (iii) the trust shall continue to be funded by the Company in accordance with the funding obligation set forth herein, (iv) the trustee shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in such trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that Indemnitee has been fully indemnified under the terms of this Agreement.

5.

Indemnification for Additional Expenses. The Company shall indemnify Indemnitee against any and all expenses (including attorneys' fees) and, if requested by Indemnitee, shall (within two business days of such request) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or Company Bylaw now or hereafter in effect relating to Claims for Indemnifiable Events and/or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be.

6.

Partial Indemnity. Etc. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.

7.

Burden of Proof. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.

8.

No Presumptions. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief.

9.

Nonexclusivity. Etc. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company's Bylaws or the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.

10.

Liability Insurance. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer.

11.

Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.

12.

Amendments. Etc. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

13.

Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all

papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

14.

No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder.

15.

Binding Effect. Etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, executors and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer or director of the Company or of any other enterprise at the Company's request.

16.

Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable in any respect, and the validity and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired and shall remain enforceable to the fullest extent permitted by law.

17.

Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of November 1, 2001.

WESTERN GAS RESOURCES, INC.
By:	/s/ LANNY F. OUTLAW Lanny F. Outlaw, authorized on behalf of the Board of Directors
INDEMNITEE:
By:	/s/ PETER A. DEA Peter A. Dea

EXHIBIT B

WESTERN GAS RESOURCES, INC.
STOCK OPTION AGREEMENT

    THIS AGREEMENT ("Agreement"), effective as of November 1, 2001, by and between Western Gas Resources, Inc. and its successors and assigns (hereinafter called the "Corporation"), a Delaware corporation, and Peter A. Dea, Chief Executive Officer and President of the Corporation (hereinafter called the "Optionee").

R E C I T A L S:

    A.  The Optionee is eligible for stock options pursuant to an employment agreement effective October 15, 2001 ("Employment Agreement") by and between Optionee and Corporation under the terms and conditions of the Employment Agreement and this Agreement.

    B.  The Board of Directors of the Corporation considers it desirable and in the Corporation's best interests that the Optionee be given an opportunity to purchase shares of its Common Stock in order to provide incentive for the Optionee to remain with the Corporation and to promote the success of the Corporation.

    NOW, THEREFORE, in consideration of the promises exchanged herein, it is agreed as follows:

    1.  Grant of Option. The Corporation hereby grants as of November 1, 2001, (the "Grant Date") to the Optionee the right, privilege and option to exercise 300,000 shares ("Option") of the Common Stock, par value $0.10 (the "Common Stock") of the Corporation, at an exercise price equal to five dollars ($5.00) below the closing price per share for the Common Stock on the effective date of the Employment Agreement in the manner and subject to the conditions hereafter provided.

    2.  Period of Exercise of Option. This Option may be exercised in whole or in part, or in installments, from time to time, with respect to the shares covered hereby, in the amounts and at the times specified below. The Option or any portion thereof, once it becomes exercisable as specified below, shall remain exercisable until it shall expire in accordance with the provisions of this Agreement.

    a.  Notwithstanding anything to the contrary, no Option or portion thereof granted under this Agreement may be exercised after the earlier of (i) five (5) years after the date the Optionee has the right to exercise such Option or portion thereof, in accordance with paragraph 2(b), below; or (ii) ten (10) years after the date the Option is granted.

    b.  Except as expressly provided in Section 2(e), below, Optionee shall become entitled to exercise that portion of the Option and to purchase the percentage of the Common Stock subject to the Option in accordance with the following schedule:

    (1) Commencing one (1) year from the Grant Date, the Optionee shall have the right to exercise twenty-five percent (25%) of the Option and to purchase twenty-five percent (25%) of the Common Stock subject to the Option.

    (2) Commencing two (2) years from the Grant Date, the Optionee shall have the right to exercise twenty-five percent (25%) of the Option and to purchase twenty-five percent (25%) of the Common Stock subject to the Option.

    (3) Commencing three (3) years from the Grant Date, the Optionee shall have the right to exercise twenty-five percent (25%) of the Option and to purchase twenty-five percent (25%) of the Common Stock subject to the Option.

    (4) Commencing four (4) years from the Grant Date, the Optionee shall have the right to exercise twenty-five percent (25%) of the Option and to purchase twenty-five percent (25%) of the Common Stock subject to the Option.

    The Optionee's right to purchase Shares subject to the Option shall be cumulative, so that four (4) years from the Grant Date, the Optionee shall be entitled to exercise one hundred percent (100%) of the Option and to purchase all of the Common Stock subject to the Option, subject to all of the provisions of this Agreement.

    c.  Except as provided in Sections 2(d), 2(e) 2(f) and 2(g), Optionee may exercise an Option only if, at the time such Option is exercised, such Optionee is Chief Executive Officer and President of, and has continuously been employed since the grant of the Option, as the Chief Executive Officer and President by the Corporation.

    d.  If Optionee's employment is terminated without cause or by Optionee for Good Reason (as those terms are defined in the Employment Agreement) and Optionee ceases to be the Chief Executive Officer and President of the Corporation, all of the Options granted to such Optionee shall become one hundred percent (100%) exercisable, without regard to the provisions of Section 2(b) above; provided, however, that no such Option may be exercised after three (3) months from the later of such Optionee's date of termination or the date Optionee ceases to be the Chief Executive Officer and President. Upon expiration of said period, all unexercised Options, or portions thereof, shall terminate, be forfeited, and shall lapse.

    e.  If Optionee dies while he is Chief Executive Officer and President of the Corporation, or ceases to be the Chief Executive Officer and President as a result of disability, all of the Options granted to such Optionee shall become one hundred percent (100%) exercisable, without regard to the provisions of Section 2(b) above. In such event, the Options may be exercised by the disabled Optionee, or in the event of death, the person or persons to whom his rights under the Option shall pass by will, or by the applicable laws of descent and distribution; provided, however, that no such Option may be exercised after one hundred eighty (180) days from the later of such Optionee's date of death, or the date Optionee ceases to be the Chief Executive Officer and President as a result of disability, whichever is applicable. Upon expiration of said period, all unexercised Options, or portions thereof, shall terminate, be forfeited, and shall lapse.

    f.   If Optionee's employment is terminated by the Corporation for cause or by Optionee without good reason (as defined in the Employment Agreement) Optionee may, within three (3) months thereafter, subject to provisions of Sections 2 (a), (b) and (c), exercise the Option to the extent that the Option was exercisable as of the date of termination for cause. All unexercised Options, or portions thereof, shall terminate, be forfeited, and shall lapse.

    g.  Notwithstanding the provision of Section 2(b), above, in the event (1) there is a "Change of Control" of the Corporation as defined in the Employment Agreement; and (2) the Optionee is terminated as the Chief Executive Officer and President of the Corporation without cause or terminated by Optionee with Good Reason (as defined in the Employment Agreement), then all of the Options granted to such Optionee under this Agreement shall become one hundred percent (100%) exercisable, subject to the other provisions of this Section 2. All unexercised Options, or portions thereof, shall terminate, be forfeited, and shall lapse upon expiration of a three (3) month period, for any of the reasons set forth herein.

    3.  Method of Exercise. To exercise an Option, the Optionee, or his successors, shall give written notice to the Treasurer of the Corporation at its principal office. Said notice shall be accompanied by full payment of the shares being purchased. If the option is exercised by the successor of the Optionee following his death, proof shall also be submitted of the right of the successor to exercise the option. The Corporation shall not be required to transfer or deliver any certificate or certificates for shares

purchased upon any such exercise of said option: (a) until after compliance with all then applicable requirements of law; and (b) prior to admission of such shares to listing on any stock exchange on which the stock may then be listed. In no event shall the Corporation be required to issue fractional shares to the Optionee.

    4.  Limitation Upon Exercise. The option is not transferable by the Optionee otherwise than by will or the laws of descent and distribution and is exercisable, during the lifetime of the Optionee, only by the Optionee.

    5.  Limitation Upon Transfer. Except as otherwise provided herein, the option and all rights granted hereunder shall not be transferred by the Optionee, and may not be assigned, pledged, or hypothecated in any way and shall not be subject to execution, attachment or similar process. Upon any attempt to transfer the option, or to assign, pledge, hypothecate or otherwise dispose of such option or of any rights granted hereunder, contrary to the provisions hereof, or upon the levy of any attachment or similar process upon such option or such rights, such option and such rights shall immediately become null and void.

    6.  Stock Adjustment. In the event of any change in Common Stock of the Corporation by reason of a stock split, stock dividend, recapitalization, exchange of shares, or other transaction, the number of shares remaining subject to the option and the option price per share shall be appropriately adjusted by the Board of Directors.

    7.  Corporate Reorganization. If there shall be any capital reorganization or consolidation or merger of the Corporation with another corporation or corporations, or any sale of all or substantially all of the Corporation's properties and assets to any other corporations, the Corporation shall take such action as may be necessary to enable the Optionee to receive upon any subsequent exercise of such option, in whole or in part, in lieu of shares of Common Stock, securities or other assets as were issuable or payable upon such reorganization, consolidation, merger or sale in respect of, or in exchange for such shares of Common Stock.

    8.  Rights of Stockholder. Neither the Optionee, his legal representative, nor other persons entitled to exercise the option shall be or have any rights of a stockholder in the Corporation in respect of the shares issuable upon exercise of the option granted hereunder, unless and until certificates representing such shares shall have been delivered pursuant to the terms hereof.

    9.  Rights of Optionee. Nothing contained in this Agreement shall confer upon Optionee any right to continue to remain as the Chief Executive Officer and President of the Corporation.

    10. Stock Reserved. The Corporation shall at all times during the term of this Agreement reserve and keep available such number of shares of its Common Stock as will be sufficient to satisfy the terms of this Agreement.

    11. Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Corporation.

    12. Incorporation of Employment Agreement by Reference. This Stock Option Agreement is subject to all of the terms and conditions contained in the Employment Agreement, a copy of which has been furnished to the Optionee.

    IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.

WESTERN GAS RESOURCES, INC.
By:	/s/ LANNY F. OUTLAW Lanny F. Outlaw, authorized on behalf of the Board of Directors
	/s/ PETER A. DEA Optionee

QuickLinks

EMPLOYMENT AGREEMENT

Exhibit A

INDEMNIFICATION AGREEMENT

EXHIBIT B

WESTERN GAS RESOURCES, INC. STOCK OPTION AGREEMENT