Western Gas Resources shares tumbled 7% Thursday to $30.35 after the company reported a 33% decline in quarterly net income to $14 million ($0.19/share) compared to $20.9 million ($0.28/share in 2Q2003) because of one-time special charges for redemption of 10% senior subordinated notes ($6.7 million) and the cost ($7 million) of settling false price reporting charges with the Commodity Futures Trading Commission.

In total the special items reduced Western’s earnings per share of common stock by $0.18. However, the company reported a slight production increase to 13.6 Bcfe (150 MMcfe/d), flat gas throughput volumes at 1.3 Bcf/d, flat sales volumes but much higher commodity prices — gas prices increased 12%.

“The realization and outlook for strong commodity prices, volume growth and our low cost structure continue to benefit and sustain our shareholders for value appreciation,” said CEO Peter Dea. “Our integrated approach to developing and delivering unconventional Rocky Mountain natural gas to much needed U.S. markets continues to prove very successful.”

Dea highlighted the company’s Big George coalbed methane (CBM) production from the Powder River Basin, which was up 78% to 57 MMcf/d. The Big George “continues to increase from our current development areas and more pilot areas are expected to begin producing gas shortly,” said Dea. “In the Pinedale Anticline [in southwestern Wyoming], the recently received approval to downspace our leasehold from 40 to 20 acres, will provide additional production and reserves to our interest throughout the decade.”

Western said its net gas production from the Pinedale Anticline, Jonah Field and Sand Wash Basin development areas in southwest Wyoming and northwest Colorado was 2.9 Bcfe and averaged 32 MMcfe/d, a 40% increase compared to the same period last year.

Western’s exploration and production division realized higher segment operating profit of $36.6 million, compared to $28.5 million in 2Q2003, because of higher gas prices. Western said its Powder River Basin production grew 3% to 10.6 Bcfe/d from the first quarter of this year but was down 7% compared to 2Q2003.

Western said total industry production from the Big George, which is a deeper play in the Powder River Basin than the WyoDak coal and is expected to yield bigger results, has increased to 137 MMcf/d as of May.

Based on drilling and permitting progress to date, Western expects to reach its 2004 goal of participating in 800 CBM wells in the Powder River Basin, including 500 wells in the Big George coal. Western and partner Williams are the largest gas producers in the basin. Western also is the largest gas gatherer in the Powder River.

It averaged 399 MMcf/d of CBM gathering volumes, including third-party gas, during the second quarter, compared to 414 MMcf/d in the same period in 2003. Of that volume, 113 MMcf/d was transported through the company’s MIGC pipeline.

Western’s gathering and processing realized segment operating profit rose to $41 million compared to $26.2 million in 2Q2003, due to higher commodity prices and improved contract terms in the Powder River.

Western reported gas transportation realized segment-operating profit of $2.5 million compared to $2.9 million. Its marketing unit realized operating profit of $3.3 million compared to $8.8 million in 2Q2003.

Western’s production volumes are expected to average 162 MMcfe/d net during the second half of 2004. This includes 121 MMcf/d of CBM production in the Powder River Basin, 34 MMcfe/d from the Greater Green River Basin and 7 MMcf/d in the San Juan Basin.

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