Western Gas Resources Inc. reported a 65% increase in earnings per diluted share Tuesday to 56 cents/share, a 7.2% increase in gas production to an average of 149 MMcf/d, higher gas gathering throughput and much higher realized gas prices.

“Our upstream and midstream operations performed exceptionally well and realized significant increases in segment operating profit from year ago levels,” said CEO Peter Dea. “In our upstream operations, we expect double-digit production growth in 2003 for the sixth year in a row as we drill into our vast inventory of low-risk, low-cost unbooked reserves.” For the full year 2003, Western’s production volumes are expected to be 149 MMcfe/d, an increase of 12% compared to 2002.

Western said its quarterly net income rose 56% to $20.9 million. For the first nine months of the year, net income increased 85% to $65.2 million or earnings of $1.75 per share.

However, the company reported that its total gas sales volumes and financial results from gas transportation and gas marketing operations fell during the quarter. Transportation volumes and results were down because Powder River Basin producers shifted significant volumes off of the company’s MIGC gathering lines and onto the competing Fort Union Gathering System, Western said.

Marketing did poorly mainly because of the decline in market liquidity and transaction volumes. Western’s total gas sales, including production, plant gas sales and resales from third parties, fell to only 1.3 Bcf/d from 2 Bcf/d in 3Q2002 because of declines in resales from third parties.

Total quarterly NGLs sales volumes also fell to an average of 1.6 million gallons per day compared to 2.2 million gallons per day in the same period of 2002. The decrease in NGL sales was largely the result of a reduction in third party sales volume and as a result of reduced NGL production at Western’s Granger facility. It was more economical during the quarter and most of the year to leave ethane in the natural gas stream.

While third-party volumes declined, Western’s production and realized prices rose. Average NGL prices increased 36% to 57 cents per gallon, and average natural gas prices increased 70% to $4.70/Mcf compared to $2.77/Mcf for the same period in 2002.

The company’s production grew in the Powder River Basin coal bed methane (CBM) play and the Greater Green River Basin. Its exploration and production segment realized operating profit of $28.2 million for the third quarter of 2003 compared to $18.4 million for the same period in 2002.

Net CBM production sold increased 3% to 11.7 Bcf in the quarter, and averaged 127 MMcf/d. In 2003, the company has participated in the drilling of 470 wells through October 2003 and plans to participate in a total of 600 to 650 wells.

The Bureau of Land Management’s (BLM) Buffalo, WY, field office has issued permits for 273 CBM wells on federal acreage since the final Record of Decision (ROD) for the Powder River Basin Oil and Gas Environmental Impact Statement was approved in April. Since the issuance of the ROD, Western and its co-developer, Williams (formerly Barrett Resources) have received 89 CBM well permits. The BLM has publicly stated that its goal is to issue a total of 3,000 permits annually.

As of October, gross natural gas production from Western’s CBM wells in the Big George coal was 37 MMcf/d of gas. Overall, total industry production from the Big George coal has increased 158% in the last 12 months to 112 MMcf/d in August 2003, Western said. The company expects to participate in 240 Big George wells in 2003 as part of its overall drilling program and has identified over 10,000 potential gross CBM well drilling locations in the Powder River Basin.

Western’s greater Green River Basin production increased 41% to 2.1 Bcfe in the quarter and averaged 23 MMcfe/d. In the third quarter, the Wyoming Oil & Gas Commission approved two in-fill pilot programs on the company’s leasehold to evaluate decreasing the well spacing on the Pinedale Anticline to 20 acres per well from 40 acres per well. If the increased density concept proves successful, the company could participate in up to 1,000 additional well locations over the next 15 to 20 years on 20-acre spacing.

Western’s gathering, processing and treating segment reported a 20% increase in operating profit to $30.7 million. An expansion of the Rendezvous gathering system in the greater Green River Basin is planned for completion in December 2003. The expansion will extend the system 24 miles north on the Pinedale Anticline and increase the overall capacity of the system from 275 MMcf/d to 350 MMcf/d at an estimated cost of $32 million, of which the company’s share is $16 million. As part of Rendezvous’ expansion process, Western is also implementing a 100 MMcf/d processing capacity upgrade at its Granger plant.

Western’s gas transportation division reported a 48% drop in operating profit during the quarter to $2.2 million. Marketing reported a 50% decline in operating profit to $4.6 million. Western’s marketing division utilizes a dedicated portion of the company’s firm transportation capacity to purchase gas in the Rocky Mountain region for resale in the higher priced Midcontinent markets. However, the price difference between the two regions narrowed as additional transportation capacity out of the Rocky Mountain region became operational in the second quarter of 2003.

The company also said that its equity-hedging positions failed to produce strong results during the quarter. Operating profit related to hedging fell by $7.1 million in the third quarter and by $29.2 million in the first nine months of the year. The company has hedged 70,000 MMBtu of its 2004 equity production in a costless collar structure with a minimum price of $4/MMBtu and an average maximum price of $7.81/MMBtu on a Nymex-equivalent basis.

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