Fitch Affirms Western Gas Resources Ratings; Outlook Stable

Business Wire, August 11, 2005

NEW YORK -- Western Gas Resources, Inc.'s (WGR) outstanding senior unsecured debt rating and $500 million revolving credit facility due June 2009 have both been affirmed at 'BBB-' by Fitch Ratings. The Rating Outlook is Stable. WGR is a mid-size integrated natural gas company with core operations encompassing natural gas exploration and production (E&P), midstream natural gas and liquids services, and related energy marketing activities.

WGR's rating reflects the company's favorable track record of proved reserve and production growth; a conservative price risk management strategy focused on hedging at least 50% of ongoing natural gas and natural gas liquids (NGL) production; continued free cash flow generation by WGR's midstream gas gathering, processing, and transportation segment; and credit measures which remain robust relative to the current rating category. Primary credit concerns include the impact of commodity price volatility on earnings and cash flow, significant levels of capital spending required to maintain current production and throughput volumes, WGR's high inventory of proved undeveloped gas reserves, and asset concentration in the U.S. Rocky Mountain region, particularly the Powder River Basin.

WGR has made meaningful progress toward achieving its stated goal of doubling proved natural gas reserves and production by year-end 2006. Since Dec. 31, 2001 proved reserves have grown by 71% with most additions coming via the drill bit as opposed to acquisitions. Importantly, consolidated debt levels have risen by only about $50 million over the same timeframe as WGR has effectively deployed free cash flow generated by its midstream assets toward E&P growth. However, with about 70% of WGR's 812 billion cubic feet equivalent (bcfe) year-end-2004 proved reserve classified as proved undeveloped, significant levels of capital spending will be required to bring these assets into production and generate incremental cash flows.

Since 1999, WGR's E&P segment has achieved a historical production growth rate averaging 19% per year while maintaining an average reserve life in excess of 12 years. During 2004, WGR posted average net production of 152 thousand cubic feet per day (mmcf/d), up about 6.0% from 2003 as growing production from the Big George coalbed methane (CBM) field and the Greater Green River basin offset expected declines in the Wyodak CBM. Since WGR's reserve inventory is largely centered in Wyoming's Powder River Basin (PRB), regulatory issues including permitting related to drilling on federal lands and water discharge permits will continue to challenge WGR's growth aspirations. WGR reports that it has received 87% of the required federal drilling permits and 71% of the required water discharge permits for its 2005 drilling program in the PRB.

WGR's natural gas midstream processing assets and related gas gathering/transmission assets are located primarily in the Rockies, mid-Continent, and Southwestern regions of the U.S. and are fully integrated with E&P operations. Processing throughput currently approximates 1.4 billion cubic feet per day with a dedicated reserve base of about 4.3 trillion cubic feet. Most of WGR's producer agreements are long-term in nature. Approximately 70% of WGR's 2004 gas processing gross margin was derived from percentage-of-proceeds (POP) agreements. Under POP-based contracts, WGR is required to return to the underlying producer a percentage of the proceeds from the sale of residue gas and liquids. Accordingly, margins under POP contracts are tied directly to the absolute value of both gas and NGLs. Although POP contracts tend to be less volatile than keep-whole contracts (10% of 2004 gross margin), which are fully exposed to the relative value of NGLs versus natural gas, they do not offer the predictability of fee-based contracts. On the other hand, POP exposure is generally easier to hedge, a factor which WGR has historically taken advantage of.

WGR's rationalized asset base, low operating cost structure, strengthened balance sheet profile, and growing CBM production have translated into meaningful earnings and cash growth over the past several years. In addition, recent balance sheet restructuring initiatives including the redemption of cumulative convertible preferred stock and the early retirement of high-cost senior subordinated debt has pared interest expense by approximately $7 million annually. As a result, consolidated credit measures for the 12-month period ended June 30, 2005 are exceptionally strong for the rating category, with consolidated debt leverage, as measured by Debt/EBITDA of approximately 1.2 times (x) and cash interest coverage in excess of 15.0x. Although credit measures are considerably weaker under a stressed commodity price scenario, Fitch notes that WGR's credit ratios have remained within low investment grade parameters during prior periods of depressed commodity prices due to hedging and management's willingness to cut back on capital spending.