Westmoreland Reports Third Quarter 2005 Results.

COLORADO SPRINGS, Colo. -- Westmoreland Coal Company (AMEX:WLB):

Summary:

--  Net loss for the third quarter 2005 of $3.4 million to common
        shareholders includes:
        --  Independent Power Operations
            --  reduction in operating income of $3.9 million from
                independent power projects compared to third quarter
                2004 due primarily to:
                --  a scheduled maintenance outage at ROVA I in the
                    third quarter of 2005
                --  a $0.9 million additional reserve for disputed
                    1996-2004 Halifax County personal property tax
                    assessments at ROVA project
            --  $2.1 million contingent loss reserve charge for a
                disputed North Carolina state tax claim related to the
                1999 sale of a New York independent power project
        --  Coal Operations
            --  $1.0 million in reduced operating income from coal
                operations due primarily to higher commodity,
                administrative and depreciation, depletion and
                amortization expenses

Highlights:

--  $15.6 million higher coal revenue year-over-year due to
        increase in tons sold and higher sales prices
    --  New interim sales agreement which further improves the
        economics of the Jewett Mine and includes $4.9 million of
        additional revenues for tons shipped in the first nine months
        which will be recognized in the fourth quarter
    --  Coal segment capital expenditures reduced by 34% for third
        quarter
    --  Coal operations on track for record production in 2005
    --  No lost-time accidents for third quarter or year-to-date as
        Company operated mines set new individual safety records
    --  Favorable court rulings achieved in UMWA Combined Benefit Fund
        and ROVA acquisition cases

Westmoreland Coal Company (AMEX:WLB) today reported its third quarter financial results. The Company reported a net loss applicable to common shareholders of $3.4 million ($0.41 per diluted common share), for the quarter ended September 30, 2005. This compares to net income applicable to common shareholders of $0.8 million ($0.09 per diluted common share), for the quarter ended September 30, 2004. Results for the third quarter of 2005 were reduced by reserves for two disputed tax claims, reduced earnings from independent power operations due to a planned maintenance outage at the ROVA project and reduced earnings from coal operations due to higher commodity, administrative and depreciation, depletion, and amortization costs partially offset by an increase in tons sold and higher sales prices. As a result of a new interim agreement reached between Texas Westmoreland and its customer, the Company will enjoy a higher sales price, enhanced cost recovery, and lower capital expenditures through at least 2007, and will recognize $4.9 million in revenue during the fourth quarter for coal shipped earlier this year from the Jewett Mine.

For the nine months ended September 30, 2005, net loss applicable to common shareholders was $2.6 million ($0.31 per diluted common share), compared to net income of $7.3 million ($0.84 per diluted common share), for the nine months of 2004. Results for the nine months of 2004 included a one-time operating income benefit of $11.2 million from the Colstrip Units 1&2 arbitration award.

Operating Income

Coal

Operating income for the coal segment was $5.4 million for the third quarter of 2005 compared to $6.4 million for the same period in 2004. Despite an increase in tons sold, operating income decreased by $1.0 million as a result of higher commodity, selling and administrative, and depreciation, depletion and amortizations costs.

Coal revenues were up 20% to $94.4 million for the third quarter of 2005. This compares to coal revenues of $78.8 million for the corresponding quarter in 2004. In the third quarter of 2005, the Company sold 10% more tons than it did in the third quarter of 2004, and received higher sales prices from certain customers. See "New Developments" below.

Tons sold increased to 8.0 million in the third quarter of 2005 compared to 7.3 million tons for the same period in 2004. All of the Company's mines, except the Savage Mine, increased both tons sold and revenues. Lower production at the Jewett Mine in 2004 was primarily the result of heavy rain, flooding and ground saturation. The Company produced 29.0 million tons in 2004 and is on track for anticipated record production of 30.0 million tons in 2005.

Cost of coal sales increased 23% to $78.5 million for the third quarter of 2005 compared to $63.6 million for the comparable period in 2004 as a result of increased tons produced and sold, and increased commodity prices. Arrangements with most of the Company's customers provide for the recovery of certain commodity cost increases using various bases and indices. Under certain contracts, cost recovery tends to lag from one to four quarters.

Selling and administrative costs in the coal segment increased to $5.7 million for the third quarter of 2005 compared to $4.9 million for corresponding quarter of 2004 primarily as a result of computer system implementation costs at the Rosebud Mine and larger legal fees at the Absaloka Mine related to an arbitration of the contract mining price for reserves in a new mining area which could be developed beginning in late 2006.

Depreciation, depletion and amortization costs increased to $4.7 million in the third quarter of 2005 compared to $4.0 million in the third quarter of 2004 as a result of increased capital at the mines over the past year. The increased capital relates to continued mine development and the replacement of mining equipment. Coal segment capital expenditures declined by 34% in third quarter 2005.

Independent Power

Operating income for the independent power segment was $1.2 million in the third quarter of 2005 compared to income of $5.1 million in the corresponding quarter of 2004. For the quarters ended September 30, 2005 and 2004, the ROVA project produced 381,000 and 457,000 megawatt hours, respectively. The ROVA project produced less power during the third quarter of 2005 than in the third quarter of 2004 because the annual planned fall maintenance outage at ROVA I occurred in the third quarter this year and in the fourth quarter last year. Therefore, the fourth quarter of 2005 is expected to reflect higher operating income year over year. Additionally ROVA experienced more unplanned outages in the third quarter of 2005 than in the third quarter of 2004. Unplanned outages, such as occurred in the third quarter of 2005, reduce revenues for the quarter; however, the power sales contract with Dominion Virginia Power (Dominion) is structured such that those revenues should be recovered by year-end this year. The Company also accrued an additional $0.9 million reserve for its share of the contested retroactive Halifax County personal property tax assessment during the third quarter of 2005.

Corporate

Total expenses for the corporate segment, which includes all costs not otherwise classified, including corporate office charges, heritage health benefit costs and business development expenses, were $10.0 million for each of the third quarters of 2005 and 2004. Labor costs (due primarily to higher staffing levels in finance and development), professional fees (including higher costs for Sarbanes-Oxley compliance) and legal costs were higher in the third quarter of 2005 compared to the third quarter of 2004. Long-term incentive compensation decreased $0.8 million in third quarter 2005 compared to the third quarter of 2004 due to the provisions of the plan.

Income Tax Benefit

An income tax benefit of $1.8 million was recognized in the third quarter of 2005 compared to a benefit of $1.7 million in the comparable quarter of 2004. The income tax benefit for the third quarter of 2005 was reduced by the accrual of a reserve for an estimated potential $2.1 million tax liability related to a 1999 tax claim by the State of North Carolina in connection with the Company's sale of its previously owned interest in a Rensselaer, New York, power project.

Cash Flows

Cash provided by operating activities was $17.0 million for the nine months of 2005, compared to $10.7 million for the nine months of 2004. Cash from operations in 2005 compared to 2004 increased primarily because of lower distributions from the ROVA project in 2004 as a result of the project's lenders withholding cash in connection with the Halifax County tax dispute.

Working capital decreased to $8.0 million at September 30, 2005, compared to $18.9 million at December 31, 2004, due to an increase in trade receivables, inventories and deferred overburden removal costs which was more than offset by increases in trade payables due to normal timing differences and an increase in the current portion of asset retirement obligations, production taxes payable and current portion of the asset retirement obligations.

Preferred Stock Dividend

The Company's directors voted to pay a partial dividend of $0.25 per depositary share on January 1, 2006, to record holders as of December 9, 2005. This payment is the fourteenth consecutive quarter that the Company has paid a preferred dividend.

Safety

In the third quarter, the four Company operated mines maintained their lost-time accident free record for 2005. As a result, the lost-time accident rate for the third quarter and nine months of 2005 remains zero, compared to 2.25 and 2.06 for the same periods of 2004 when the mines reported five and twelve lost-time accidents, respectively. The Beulah Mine continues to build on its new safety record, exceeding its previous record of 343 days during the third quarter and has worked 397 days to date without a lost-time accident. The Rosebud Mine exceeded its past record of 367 days and has now worked 386 days without an accident. The Jewett, Absaloka and Savage Mines have worked 380, 293 and 1,384 days to date, respectively, without a lost-time accident.

New Developments

On September 21, 2005, Texas Westmoreland reached a new interim agreement for sales from the Jewett Mine to the Limestone Station that will extend through 2007 unless further modified or replaced by mutual agreement of the parties. The agreement significantly increases the price for coal shipped to Limestone, enhances recovery for increases in costs, and reduces Westmoreland's responsibility for capital expenditures. Included under the agreement are additional payments for tons shipped through the first nine months of the year, most of which (approximately $4.9 million) will be recorded when received in the fourth quarter 2005. In addition, the parties have agreed to continue discussions concerning replacing the interim and long-term lignite supply agreements.

In connection with the Company's effort to acquire the rest of the ROVA project from a subsidiary of LG&E Energy LLC, which has been opposed in court by Dominion, the purchaser of the power, a Virginia State Circuit Court granted a demurrer on September 2, 2005, denying Dominion's claim that it has a right of first refusal to purchase that interest. Dominion has filed a motion for reconsideration, a ruling on which is expected before the end of the year.

The Company also received a favorable court ruling in connection with its challenge of past premiums assessed by the UMWA Combined Benefit Fund (CBF) for retiree medical benefits. The Federal District Court in Baltimore, Maryland, ruled in favor of Westmoreland and the other plaintiff companies. The CBF has sought a stay pending appeal to the Fourth Circuit Court of Appeals. The Company will be entitled to reimbursement of over $6.0 million for past overpayments and a reduction of over $0.5 million per year in premium payments going forward if the District Court's ruling is sustained. In the meantime, Westmoreland commenced withholding certain current amounts saving approximately $350,000 per month beginning in September.

Based on potential power markets and to improve the project economics, the Company now plans to increase the size of the proposed Gascoyne Project in North Dakota from 175MW to 500MW and expects to file a new air permit application for the larger-sized plant. An air permit was granted in June 2005 for the smaller plant.

Management Comments

Christopher K. Seglem, Westmoreland's Chairman, President and CEO, stated: "Our third quarter would have been profitable had we been able to recognize as revenue certain new agreed upon amounts for tons previously shipped from the Jewett Mine and had we not taken contingent charges in the third quarter for unresolved disputed tax obligations. In addition to higher pricing, enhanced cost recovery, and reduced capital expenditure obligations, the interim agreement that was reached with Texas Westmoreland's customer in the third quarter provides for additional future payments for coal shipments from the Jewett Mine made during the first three quarters of 2005. Those revenues will be recognized as payments are received and will make a significant positive impact to our bottom line in the fourth quarter. And, with the ROVA maintenance outage behind us this year, we expect to realize higher operating income in that segment in the fourth quarter as well.

"During the third quarter we realized in aggregate higher prices and sold more tons at our mines than in the same quarter one year ago. Although our coal market strategy is based on long-term sales agreements, approximately 18% of our coal sales portfolio is up for price re-determination at the end of this year, with new prices to be effective January 1, 2006. Most of this tonnage will be generally benchmarked to Southern Powder River Basin (SPRB) coal from Wyoming. Because SPRB market prices and rail transportation costs have risen significantly over the past several months, we anticipate that our price re-determinations will continue to reflect strengthened coal market conditions for us.

"Cost of sales did increase at a faster rate than revenues this quarter. It is important to note, however, that our recovery of costs under certain pass-through provisions tends to lag, some up to four quarters after we incur them. Our quarterly results also reflect higher labor, legal and consulting costs. A portion of these costs relate to our development efforts, which we believe is money well spent. Increased costs related to financial reporting and Sarbanes-Oxley compliance are not discretionary. We are trying very hard to capture whatever value added opportunities may exist in connection with these activities.

"I want to draw attention to the outstanding safety record our coal operations have achieved this quarter and year to date. It is a testament to the focus and ability of our production managers and employees. It is an axiom in our industry that good safety practices go hand in hand with the most effective and productive mines.

"I am especially pleased with the favorable rulings we have won in the CBF and ROVA cases. While those rulings are still subject to appeal, it is gratifying to see our positions validated by the courts to this point. Final, positive outcomes in these cases will deliver meaningful reductions in post-retirement medical costs, on the one hand, and material growth in our business, on the other.

"I believe the need for new baseload coal-fired power is increasingly evident to our citizens and political leaders. The U.S. Department of Energy's database, which tracks new coal-fired plants, reports 129 new projects under consideration. We believe significant opportunities can emerge for Westmoreland particularly in the Western United States for both our development of new power projects and the exploitation of currently controlled, but untapped coal reserves in Montana and North Dakota.

"The states of North Dakota and Montana represent the core of the northern tier where we currently have concentrated our mining operations. We are optimistic about the prospects for new coal and coal-fired power investments there. The political and local support for existing and new energy projects has been outstanding in North Dakota under the leadership of Governor John Hoeven and may be strengthening in Montana. We expect these states to benefit from the recently passed Energy Bill which reaffirmed the importance of coal and coal-fired generation to our Country's future. This legislation will help get much needed electric transmission facilities financed and built, and includes new incentives for research and development and deployment of clean coal technologies. The Energy Bill also provides a tax credit for the production of coal owned by Indian Tribes. Our 80%-owned Absaloka Mine in Montana produces approximately seven million tons of coal annually under lease from the Crow Tribe of Indians. Our joint efforts with the Crow Tribe to include a meaningful tax credit in the legislation resulted in a credit of $1.50 per ton beginning 2006 through 2009, and $2.00 per ton from 2010-2012. The credit will be shared with the Crow Tribe when it is realized.

"In conclusion, the net results for the quarter were negatively impacted by the ROVA outage, the non-cash effect of reserves for contingent tax liabilities, and the delay in recognizing the additional revenues at Jewett. Our fourth quarter will benefit from the additional payments at Jewett and a full fourth quarter of operations at ROVA. While we must continue to work hard to contain costs, we are also beginning to capture some of the upward trends in coal prices. We remain confident that our distinct business model and operating platform is a good one which offers excellent opportunities for continued growth."

Westmoreland has filed its Third Quarter 2005 Form 10-Q with the SEC today, and it will be available on the Company's web site at www.westmoreland.com. Any person interested in receiving a copy of the Third Quarter 2005 Form 10-Q and other public documents can request copies by writing to the Company at the following address: Westmoreland Coal Company, 2 North Cascade Avenue, 14th Floor, Colorado Springs, CO, 80903, or visit www.westmoreland.com.

Westmoreland Coal Company is the oldest independent coal company in the United States. The Company's coal operations include Powder River Basin coal mining in Montana and lignite mining operations in Montana, North Dakota and Texas. Its power operations include ownership interests in two coal-fired and one natural gas-fired generating plants. Westmoreland is implementing a growth strategy dedicated to meeting America's dual goals of low-cost power and a clean environment through the acquisition and development of complementary, niche opportunities in coal, power and other segments of the energy sector. For more information, visit www.westmoreland.com.

Throughout this Form 10-Q, we make statements which are not historical facts or information and that may be deemed "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include, but are not limited to, the information set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy," "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievements, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; health care cost trends; the cost and capacity of the surety bond market; the Company's ability to manage growth and significantly expanded operations; the ability of the Company to implement its growth and development strategy; the Company's ability to pay the preferred stock dividends that are accumulated but unpaid; the Company's ability to retain key senior management; the Company's access to financing; the Company's ability to maintain compliance with debt covenant requirements; the Company's ability to achieve anticipated cost savings and profitability targets; the Company's ability to successfully identify new business opportunities; the Company's ability to negotiate profitable coal contracts, price reopeners and extensions; the Company's ability to predict or anticipate commodity price changes; the Company's ability to maintain satisfactory labor relations; changes in the industry; competition; the Company's ability to utilize its income tax net operating losses; the ability to reinvest cash, including cash that has been deposited in reclamation accounts, at an acceptable rate of return; weather conditions; the availability of transportation; price of alternative fuels; costs of coal produced by other countries; the demand for electricity; the performance of the ROVA Project and the structure of the ROVA Project's contracts with its lenders and Dominion Virginia Power; our ability to complete the acquisition of the portion of the ROVA project that we do not currently own; the effect of regulatory and legal proceedings; environmental issues, including the cost of compliance with existing and future environmental requirements; the contingencies of the Company discussed in Note 7 to the Consolidated Financial Statements; the risk factors set forth below; and the other factors discussed in Items 1, 2, 3 and Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission. As a result of the foregoing and other factors, no assurance can be given as to the future results and achievement of the Company's goals. The Company disclaims any duty to update these statements, even if subsequent events cause its views to change.

Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations

                                       (Unaudited)
                        Three Months Ended      Nine Months Ended
                          September 30,           September 30,
                         2005        2004        2005        2004
----------------------------------------------------------------------
                            (in thousands except per share data)

Revenues:
 Coal                  $94,377     $78,826    $266,177    $242,978
 Independent power
  projects - equity in
  earnings               1,682       5,270      10,310      12,356
----------------------------------------------------------------------
                        96,059      84,096     276,487     255,334
----------------------------------------------------------------------
Costs and expenses:
 Cost of sales - coal   78,498      63,624     217,606     189,942
 Depreciation, depletion
  and amortization       4,794       4,018      14,270      11,439
 Selling and
  administrative         9,195       7,743      24,060      22,420
 Heritage health benefit
  costs                  6,909       7,247      22,279      22,156
 Loss on sales of
  assets                   (28)        (74)        151         (55)
----------------------------------------------------------------------
                        99,368      82,558     278,366     245,902
----------------------------------------------------------------------

Operating income (loss) (3,309)      1,538      (1,879)      9,432

Other income (expense):
 Interest expense       (2,580)     (2,483)     (7,747)     (7,521)
 Interest income           851         674       2,483       2,995
 Minority interest        (295)       (288)       (854)       (891)
 Other                     585         104       1,225         187
----------------------------------------------------------------------
                        (1,439)     (1,993)     (4,893)     (5,230)
----------------------------------------------------------------------
Income (loss) before
 income taxes           (4,748)       (455)     (6,772)      4,202
Income tax benefit       1,761       1,678       5,519       4,382
----------------------------------------------------------------------

Net income (loss)       (2,987)      1,223      (1,253)      8,584
Less preferred stock
 dividend requirements    (436)       (436)     (1,308)     (1,308)
----------------------------------------------------------------------
Net income (loss)
 applicable to common
 shareholders          $(3,423)       $787     $(2,561)     $7,276
======================================================================
Net income (loss) per
 share applicable to
 common shareholders:
   Basic                 $(.41)       $.10      $(0.31)       $.90
   Diluted               $(.41)       $.09      $(0.31)       $.84
======================================================================
Weighted average
 number of common
 shares outstanding:
   Basic                 8,302        8,141       8,255      8,078
   Diluted               8,302        8,710       8,255      8,611
======================================================================
Westmoreland Coal Company and Subsidiaries
Summary Financial Information

                                          (Unaudited)
                           Three Months Ended     Nine Months Ended
                              September 30,         September 30,
                            2005       2004       2005       2004
                                         (in thousands)
----------------------------------------------------------------------
      a. Cash Flow

Net cash provided by
 operating activities      $9,564    $13,604    $17,042    $10,676


Net cash used in
 investing activities     $(4,187)    $9,247)  $(18,262)  $(20,515)


Net cash provided by
 (used in) financing
 activities               $(6,211)   $(8,144)   $(1,597)   $11,964


      b. Production and Sales

Coal - tons (million)         8.0        7.3       22.7       21.4


                                            (Unaudited)
                              September 30, 2005     December 31, 2004
----------------------------------------------------------------------
                                           (in thousands)
Balance Sheet Data
 Total assets                     $532,149               $513,989
 Total debt                       $116,157               $117,259
 Shareholders' equity              $40,704                $39,892
 Common shares outstanding           8,322                  8,169