NGAS Resources Reports Third Quarter 2010 Financial Results

  • Contract Drilling Revenue Increased 19%
  • Announces Review of Strategic Alternatives

LEXINGTON, Ky., Nov. 9, 2010 (GLOBE NEWSWIRE) -- NGAS Resources (Nasdaq:NGAS) today reported third quarter 2010 total revenue of $11.0 million, compared to $11.2 million for the comparable quarter in 2009. Results for the quarter reflect a 19% increase in contract drilling revenue offset by lower production and higher transportation costs. Oil and gas production revenue was down 10% in the quarter reflecting a 15% production decline partially offset by slightly higher natural gas prices.

For the quarter, the company reported a net loss of $2.5 million, compared to a net loss of $1.1 million in third quarter 2009. Loss per share was $0.06, compared with a $0.04 loss per share in the same period last year. Third quarter 2009 results were positively impacted by a one-time, pre-tax gain of $3.4 million, or $0.07 per share, on the sale of the Appalachian gas gathering assets. Discretionary cash flow per share was $0.01 in third quarter 2010 compared to $0.14 in the same period last year. (A reconciliation of this non-GAAP measure is provided at the end of this release.)

William S. Daugherty, President and CEO commented, "We are continuing to reduce our cost structure to maximize our margins, particularly during this period of low gas prices. As we drill more horizontal wells, efficiencies are driving costs down." Added Mr. Daugherty, "During the quarter, we drilled our longest extended lateral to date in the Devonian shale to 4,800 feet. In addition to our improved economics from these extended laterals, we are accelerating our focus on oil drilling to take advantage of the disparity between oil and gas prices. We are very encouraged with the early results from our first two Weir oil and gas wells and plan to continue development on our Weir prospect."

Operational Highlights for 3Q 2010 versus 3Q 2009

  • Average daily production was 9,184 Mcfe versus 10,838 Mcfe
  • Total production was 0.85 Bcfe compared to 1.00 Bcfe
  • Average natural gas prices $5.74/Mcf versus $5.67
  • Average price for Appalachian production was $6.08/Mcf

Third Quarter 2010 Expense Review

Selling, general and administrative (SG&A) expenses in third quarter 2010 decreased 5% to $2.5 million. This primarily reflects cost cutting initiatives as well as the timing and extent of marketing activities for sponsored drilling partnerships and the level of partnership sales.

Cash interest expense declined 19% in third quarter 2010 due to lower debt under the company's credit facility and convertible notes. Total interest expense in the quarter was $1.6 million, which included $0.6 million of non-cash interest. The non-cash interest expense reflects the application of the effective interest method for accretion of the debt discount on the company's convertible notes.

The company recognized a fair value gain on derivative financial instruments of $0.4 million under mark-to-market accounting for the embedded conversion features of the convertible notes and related warrants.

Operational Highlights for 9M 2010 versus 9M 2009
  • Average daily production was 9,201 Mcfe versus 11,125 Mcfe
  • Total production was 2.51 Bcfe compared to 3.04 Bcfe
  • Average natural gas prices $5.98/Mcf versus $6.31
  • Average price for Appalachian production was $6.44/Mcf

Review of Strategic Alternatives

The company announced today that during the third quarter it hired an investment bank to assist the company and that it is evaluating all of its strategic alternatives and that it is actively pursuing possible transactions that may include the sale of the company or of some, or all of, the company's assets.  

There can be no assurances that the company's evaluation and pursuit of strategic alternatives will result in any specific transactions. The company does not intend to disclose developments with respect to its evaluation and pursuit of strategic alternatives unless, and until the evaluation of all proposals and alternatives has been completed, and the company has entered into a transaction, or unless otherwise required by law or where a disclosure is deemed appropriate.

While this process is underway, NGAS will continue with its previously announced plan to drill up to 57 horizontal wells in its 2010 drilling partnership.

Covenant Default

The company also announced that as a result of the operations reported today it was not in compliance with the leverage ratio covenant under its credit facility as of September 30 th. The company currently has outstanding borrowings of $35.8 million under its credit facility and $21.5 million principal amount of outstanding convertible notes. The convertible notes contain a cross default provision that would entitle the holders to call their notes for redemption as a result of this default. The company is currently engaged in discussions with its lenders to obtain a waiver or forbearance of such defaults but those negotiations may not be successful. If these lenders choose to accelerate their indebtedness, the company does not have sufficient cash to make these payments.

Conference Call Information

Management will host a conference call today at 4:30 p.m. (Eastern) to discuss the results. The conference call can be accessed by dialing 1-800-946-0708 for U.S. callers and 1-719-457-2647 for international callers. The passcode for the call is 7723084. The conference call will be webcast and can be accessed on the company's website at A replay will be available approximately two hours after the call's completion and will be available until 11:59 p.m. (Eastern) on November 16, 2010. The replay can be accessed by dialing 1-877-870-5176 for U.S. callers and 1-858-384-5517 for international callers. The passcode is 7723084. The webcast will be archived and available for a time on the company's website at

About NGAS Resources

NGAS Resources is an independent exploration and production company focused on unconventional natural gas plays in the eastern United States, principally in the southern Appalachian Basin. Core assets include over 360,000 acres with interests in approximately 1,400 wells and an extensive inventory of horizontal drilling locations. NGAS also operates the gas gathering facilities for its core Appalachian properties, providing deliverability directly from the wellhead to the interstate pipeline. Additional information, including the company's annual report on Form 10-K for 2009 and 2010 proxy statement, can be accessed on its website at

The NGAS Resources, Inc. logo is available at

Forward Looking Statement

This release contains 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. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in those statements 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 availability of capital to fund drilling and the ability of the company to implement its business strategy. These and other risk factors are described in the company's annual report on Form 10-K for 2009 filed with the SEC and are also available on the company's website. The company will not necessarily update any of the forward-looking statements except as required by law. 
NGAS Resources, Inc.
ASSETS September 30, 2010 December 31, 2009
Current assets: (Unaudited)  
Cash $5,105,017 $4,332,650
Accounts receivable 5,535,965 7,277,311
Note receivable 6,632,906 6,247,880
Prepaid expenses and other current assets 697,614 633,884
Loans to related parties 75,141 75,679
Total current assets 18,046,643 18,567,404
Bonds and deposits 258,945 258,695
Note receivable 1,742,524 6,766,451
Oil and gas properties 175,109,611 182,189,679
Property and equipment 9,590,271 5,113,093
Loans to related parties 171,429 171,429
Deferred financing costs 837,908 1,235,705
Goodwill 313,177 313,177
Total assets $206,070,508 $214,615,633
Current liabilities:    
Accounts payable $3,016,509 $5,587,290
Accrued liabilities 892,858 938,829
Long-term debt, current portion 49,892,193 32,534,084
Fair value of derivative financial instruments 52,306 111
Customer drilling deposits 2,511,856 5,581,877
Total current liabilities 56,365,722 44,642,191
Deferred compensation 1,112,198 651,287
Deferred income taxes 10,289,262 12,559,549
Long-term debt 15,256,975 40,949,836
Fair value of derivative financial instruments 146,668
Other long-term liabilities 4,292,132 3,962,254
Total liabilities 87,462,957 102,765,117
Capital stock    
    5,000,000 Preferred shares    
100,000,000 Common shares    
  42,530,766 Common shares (2009 – 30,484,361) 132,034,607 117,142,639
          21,100 Common shares held in treasury, at cost (23,630) (23,630)
                        Paid-in capital – options and warrants 4,735,629 4,467,246
To be issued    
            9,185 Common shares 45,925 45,925
  136,792,531 121,632,180
Deficit (18,184,980) (9,781,664)
Total shareholders' equity 118,607,551 111,850,516
Total liabilities and shareholders' equity $206,070,508 $214,615,633
NGAS Resources, Inc.
  Three Months Ended September 30, Nine Months Ended September 30,
  2010 2009 2010 2009
Contract drilling $4,555,485 $3,831,250 $15,667,095 $16,328,000
Oil and gas production 5,616,269 6,239,324 17,644,686 20,198,187
Gas transmission, compression and processing 784,750 1,123,921 2,835,327 6,528,132
Total revenue 10,956,504 11,194,495 36,147,108 43,054,319
Contract drilling 3,196,824 2,913,418 11,574,230 12,328,110
Oil and gas production 3,988,755 2,658,985 11,007,455 7,598,044
Gas transmission, compression and processing 91,902 960,879 512,452 2,955,204
Total direct expenses 7,277,481 6,533,282 23,094,137 22,881,358
Selling, general and administrative 2,479,006 2,601,514 7,811,382 8,404,519
Options, warrants and deferred compensation 226,066 285,309 729,295 1,022,774
Depreciation, depletion and amortization 3,388,841 3,304,139 9,906,178 10,610,630
Interest expense 1,603,067 2,196,091 5,073,965 6,892,550
Interest income (191,430) (52,698) (667,686) (67,708)
Loss (gain) on sale of assets 209,206 (3,356,177) 218,709 (3,369,082)
Fair value loss (gain) on derivative financial instruments (359,398) 4,847 337,195 (4,477)
Refinancing costs 625,344
Other, net (91,228) 292,073 (307,808) 600,896
Total other expenses 7,264,130 5,275,098 23,726,574 24,090,102
LOSS BEFORE INCOME TAXES (3,585,107) (613,885) (10,673,603) (3,917,141)
INCOME TAX EXPENSE (BENEFIT) (1,075,874) 508,116 (2,270,287) 571,357
NET LOSS $(2,509,233) $(1,122,001) $(8,403,316) $(4,488,498)
Basic $(0.06) $(0.04) $(0.23) $(0.16)
Diluted $(0.06) $(0.04) $(0.23) $(0.16)
Basic 41,044,918 28,873,105 36,709,848 27,508,925
Diluted 41,044,918 28,873,105 36,709,848 27,508,925
NGAS Resources, Inc.
DISCRETIONARY Cash Flow Reconciliation
Discretionary cash flow represents net income, determined in accordance with 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 fund development activities and service debt internally. This measure may also be used in the valuation, comparison and rating of companies in the E&P and other industries. Cash flow is not a measure of financial performance under GAAP and should not be considered as an alternative to net cash flows from operating, investing or financing activities determined under GAAP.
  Three Months Ended September 30, Nine Months Ended September 30,
  2010 2009 2010 2009
Net income (loss) $(2,509,233) $(1,122,001) $(8,403,316) $(4,488,498)
Non-cash compensation 306,068 350,310 809,297 1,449,025
Depreciation, depletion and amortization 3,388,841 3,304,139 9,906,178 10,610,630
Non-cash interest expense 640,674 1,004,682 2,093,135 2,869,276
Fair value loss (gain) on derivative financial instruments (359,398) 4,847 337,195 (4,477)
Income tax expense (benefit) (1,075,874) 508,116 (2,270,287) 571,357
DISCRETIONARY CASH FLOW $391,078 $4,050,093 $2,472,202 $11,007,313

CONTACT:  NGAS Resources, Inc.          Michael P. Windisch, CFO          (859) 263-3948          Fax: (859) 263-4228

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