-- Debt Reduction from Sale of Appalachian Gathering Assets
-- Production Up 5% in the Quarter and 9% for the Nine Months
-- Adds to Acreage Position in Leatherwood Field
LEXINGTON, Ky., Nov. 3, 2009 (GLOBE NEWSWIRE) -- NGAS Resources, Inc. (Nasdaq:NGAS) today reported third quarter 2009 total revenue of $11.2 million, compared to $23.6 million in the third quarter of 2008. The decline reflects significantly lower commodity prices, reduced drilling activity and lower gas transmission and processing revenue following the sale of 485 miles of the company's Appalachian gas gathering assets during the quarter. A one-time, pre-tax gain of $3.4 million on the sale of the gathering assets was reported in the period.
The company reported a net loss of $0.1 million in the third quarter 2009 compared with net income of $0.9 million a year ago. Discretionary cash flow was $4.1 million or $0.14 per share in third quarter 2009 compared with $6.2 million, or $0.23. (A reconciliation of this non-GAAP measure is provided at the end of this release.)
William S. Daugherty, President and CEO of NGAS Resources, commented, "Operationally, the third quarter and year-to-date were quiet as our drilling program reflects the difficult macro-environment. However, it was a successful quarter strategically as we monetized our gas gathering assets, paid down our revolving debt and added acreage to our core Leatherwood field." Mr. Daugherty added, "We believe these initiatives, coupled with increasing operational momentum, have strengthened the company and positioned us for future growth."
Operational and Financial Highlights for 3Q 2009 versus 3Q 2008:
-- Production volumes increased 5% to 1.0 Bcfe
-- Average daily production was 10.8 Mmcfe versus 10.3 Mmcfe
-- Average natural gas price was $5.67/Mcf versus $9.80
- Average price for the Appalachian gas portion was
$6.53
-- Debt reduction of $45 million in 3Q09
Third Quarter 2009 Expense Review
Depreciation, depletion and amortization expenses were $3.3 million in third quarter 2009, flat with the same quarter of the prior year, reflecting additions to oil and gas properties offset by the sale of gas gathering assets.
Selling, general and administrative expenses were down 27 percent in the 2009 third quarter to $2.6 million from $3.6 million in the same quarter of 2008. This primarily reflects the timing and extent of marketing costs for sponsored drilling partnerships. As a percentage of revenue, SG&A costs were 23.2 percent, compared to 15.1 percent in third quarter 2008.
Interest expense in the quarter was $1.2 million, a savings of 18 percent compared to $1.5 million in the same period last year, reflecting lower borrowings on the company's line of credit.
Corporate Events in Third Quarter 2009
During the quarter, the company divested 485 miles of its Appalachian gas gathering system in two tranches. On July 15, 2009, a 50 percent undivided interest was sold to Seminole Gas Company, LLC. (Seminole) for $28 million. As part of the transaction, the company entered into various joint ownership, gas marketing and gas sales arrangements with Seminole and its parent company, Seminole Energy Services, LLC (Seminole Energy). The company also granted Seminole Energy a six-month option to purchase its remaining 50 percent interest in the gathering system for $22 million, payable $7.5 million at closing and the balance in monthly installments through December 2011 under a promissory note bearing interest at 8 percent per annum. The company reserved the right to require exercise of the purchase option, conditioned on its completion of an equity offering for at least $5 million. On August 17, 2009, after satisfying that condition with an equity raise of approximately $6.1 million, the company closed the sale of its remaining interest in the gathering system to Seminole Energy. All of the proceeds from the gathering system sale and equity raise were applied to debt reduction.
Operational and Financial Highlights for Nine Months 2009 versus Nine Months 2008:
-- Total production volumes were 3.0 Bcfe compared to 2.8 Bcfe
-- Average daily production was 11.1 Mmcfe versus 10.1 Mmcfe
-- Average natural gas price was $6.31/Mcf versus $9.40
- Average price for the Appalachian gas portion was $7.44
-- Discretionary cash flow was $11.0 million versus $17.1 million
Conference Call Information
Management will host a conference call today at 4:30 p.m. (Eastern) to discuss the 3Q 2009 results. The call-in number is 877-604-9670 or 719-325-4818 (international). Conference ID number is 4372292. The conference call will be webcast and can be accessed by logging onto www.ngas.com. For those unable to listen to the live presentation, the webcast will be archived on the company's website. A telephone replay will also be available for one week beginning at 7:30 p.m. (Eastern), November 3, 2009 and ending at 11:59 p.m. on Tuesday, November 10, 2009, and can be accessed by dialing 888-203-1112 or 719-457-0820 (international) and entering pin number 4372292.
About NGAS Resources
NGAS Resources is an independent exploration and production company focused on unconventional natural gas basins in the United States that support repeatable drilling opportunities, principally in the southern portion of the Appalachian Basin. Additional information, including the Company's annual report on Form 10-K for 2008 and its 2009 proxy statement can be accessed on its website at www.ngas.com.
Forward-Looking Statements
This release includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act relating to matters such as anticipated operating and financial performance and prospects. Actual performance and prospects may differ materially from anticipated results due to economic conditions and other risks, uncertainties and circumstances partly or totally outside the control of the company, including risks of production variances from expectations, volatility of product prices, the level of capital expenditures required to fund drilling, and the ability of the company to implement its business strategy. These and other risks are described in the company's periodic reports filed with the United States Securities and Exchange Commission and can be accessed on the company's website at www.ngas.com.
NGAS RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2009 2008 2009 2008
----------- ----------- ----------- -----------
REVENUE
Contract
drilling $ 3,831,250 $ 9,799,561 $16,328,000 $24,027,035
Oil and gas
production 6,239,324 11,222,879 20,198,187 30,891,933
Gas trans-
mission,
compression
and processing 1,123,921 2,567,852 6,528,132 7,662,504
----------- ----------- ----------- -----------
Total revenue 11,194,495 23,590,292 43,054,319 62,581,472
----------- ----------- ----------- -----------
DIRECT EXPENSES
Contract
drilling 2,913,418 7,570,698 12,328,110 18,447,544
Oil and gas
production 2,658,985 3,922,629 7,598,044 9,794,679
Gas transmission,
compression
and processing 960,879 1,039,597 2,955,204 3,087,391
----------- ----------- ----------- -----------
Total direct
expenses 6,533,282 12,532,924 22,881,358 31,329,614
----------- ----------- ----------- -----------
OTHER EXPENSES
(INCOME)
Selling,
general and
administrative 2,601,514 3,551,908 8,404,519 10,282,485
Options,
warrants and
deferred
compensation 285,309 229,209 1,022,774 601,691
Depreciation,
depletion and
amortization 3,304,139 3,318,320 10,610,630 9,451,272
Bad debt
expense -- 342,195 -- 749,035
Interest
expense 1,191,409 1,457,300 4,023,274 4,138,913
Interest income (52,698) (10,774) (67,708) (89,577)
Gain on sale
of assets (3,356,177) -- (3,369,082) --
Other, net 292,073 87,584 600,896 115,939
----------- ----------- ----------- -----------
Total other
expenses 4,265,569 8,975,742 21,225,303 25,249,758
----------- ----------- ----------- -----------
INCOME (LOSS)
BEFORE INCOME
TAXES 395,644 2,081,626 (1,052,342) 6,002,100
INCOME TAX
EXPENSE 508,116 1,136,441 571,357 3,372,464
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (112,472) $ 945,185 $(1,623,699) $ 2,629,636
=========== =========== =========== ===========
NET INCOME (LOSS)
PER SHARE
Basic $ 0.00 $ 0.04 $ (0.06) $ 0.10
=========== =========== =========== ===========
Diluted $ 0.00 $ 0.04 $ (0.06) $ 0.10
=========== =========== =========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING:
Basic 28,873,105 26,508,570 27,508,925 26,364,158
=========== =========== =========== ===========
Diluted 28,873,105 26,977,438 27,508,925 27,019,313
=========== =========== =========== ===========
NGAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2009 2008
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash $ 970,467 $ 981,899
Accounts receivable 5,372,800 10,450,173
Note receivable 6,124,570 --
Prepaid expenses and other
current assets 869,224 540,253
Loans to related parties 76,024 79,188
------------- -------------
Total current assets 13,413,085 12,051,513
Bonds and deposits 258,695 623,898
Note receivable 8,375,430 --
Oil and gas properties 181,158,605 229,218,344
Property and equipment 5,278,048 3,285,925
Loans to related parties 171,429 171,429
Deferred financing costs 1,439,399 1,689,580
Goodwill 313,177 313,177
------------- -------------
Total assets $ 210,407,868 $ 247,353,866
============= =============
LIABILITIES
Current liabilities:
Accounts payable $ 5,092,604 $ 12,362,092
Accrued liabilities 619,117 675,141
Deferred compensation -- 2,246,439
Customer drilling deposits 2,621,671 2,262,955
Long-term debt 88,643 24,000
------------- -------------
Total current liabilities 8,422,035 17,570,627
Deferred compensation 497,650 --
Deferred income taxes 13,520,833 12,949,476
Long-term debt 74,046,866 108,580,448
Other long-term liabilities 4,163,766 3,685,849
------------- -------------
Total liabilities 100,651,150 142,786,400
------------- -------------
SHAREHOLDERS' EQUITY
Capital stock
Authorized:
5,000,000 Preferred shares
100,000,000 Common shares
Issued:
30,484,361 Common shares
(2008 - 26,543,646) 117,142,639 110,626,912
21,100 Common shares
held in treasury,
at cost (23,630) (23,630)
Paid-in capital
- options and
warrants 4,336,463 3,774,600
Contributed surplus 425,731 690,370
To be issued:
9,185 Common shares
(2008 - 9,185) 45,925 45,925
------------- -------------
121,927,128 115,114,177
Deficit (12,170,410) (10,546,711)
------------- -------------
Total shareholders' equity 109,756,718 104,567,466
------------- -------------
Total liabilities and
shareholders' equity $ 210,407,868 $ 247,353,866
============= =============
NGAS RESOURCES, INC.
CASH FLOW RECONCILIATION
Discretionary cash flow represents net income, as determined under generally accepted accounting principles ("GAAP"), with certain non-cash items added back. Although a non-GAAP measure, discretionary cash flow is widely accepted as a financial indicator of an oil and gas company's ability to generate cash that can be used to internally fund exploration and development activities and to service debt. This measure may also be used in the valuation, comparison, rating and investment recommendations for companies in the oil and gas exploration and production industry. Cash flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing, or financing activities or as an indicator of cash flows or measure of liquidity.
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2009 2008 2009 2008
----------- ----------- ----------- -----------
Net income (loss) $ (112,472) $ 945,185 $(1,623,699) $ 2,629,636
DD&A 3,304,139 3,318,320 10,610,630 9,451,272
Options, warrants
and deferred
compensation 350,310 457,329 1,449,025 861,381
Bad debt expense -- 342,195 -- 749,035
Deferred taxes 508,116 1,136,441 571,357 3,372,464
----------- ----------- ----------- -----------
DISCRETIONARY
CASH FLOW $ 4,050,093 $ 6,199,470 $11,007,313 $17,063,788
=========== =========== =========== ===========
DISCRETIONARY
CASH FLOW PER
SHARE $ 0.14 $ 0.23 $ 0.40 $ 0.63
=========== =========== =========== ===========