NGAS Reports 80% Increase in Third Quarter 2005 Revenue
NGAS Resources, Inc. (Nasdaq: NGAS) today reported total revenues for the three months ended September 30, 2005 increased 80 percent to $15.1 million as compared to $8.3 million during the quarter ended September 30, 2004. The increase in revenues was driven by growth in natural gas production as well as higher prevailing oil and natural gas prices. Production volumes during the three months ended September 30, 2005 increased 114 percent to 480.3 Mmcfe compared to 224.6 Mmcfe during the third quarter of 2004. Earnings per fully diluted share were $0.01 for the third quarter 2005 compared to breakeven, or $0.00, per fully diluted share in third quarter 2004.
Operational and Financial Highlights for 3Q 2005 versus 3Q 2004:
— Average daily production was 5,220 Mcfe
— Total production volumes were up 114 percent to 480.3 Mmcfe
— Oil and gas revenues increased 189 percent to $4.2 million,
from $1.5 million in 3Q 2004
— 34 gross (9.7 net) wells drilled, all successfully
— Contract drilling revenue increased 62 percent to $10.5
million
— Average realized natural gas prices in the quarter were
$8.82/Mcf, versus $6.54 in 3Q 2004
— 33 miles of pipeline added to gathering system
— Discretionary cash flow/share was $0.09 compared to $0.04 in
3Q 2004
— Capital expenditures totaled $7.8 million
“We successfully completed the 23-mile eight inch pipeline to the Leatherwood Field in the quarter,” commented William S. Daugherty, President and CEO of NGAS. “We made significant progress with our gathering system, adding 33 miles of pipeline during the third quarter and 109 miles during the first nine months of 2005. We are now connecting wells and have begun flowing gas from our key Leatherwood Field. As a result, we expect net daily production to reach 7,000 Mcfe by year end.”
Mr. Daugherty added, “We are excited about our growth opportunities for 2006. With our Leatherwood pipeline in place, we expect to accelerate development of our reserve base and production capabilities in the Appalachian Basin. We plan to continue expanding our gathering system and increase our lease position as well as seek strategic alliances and acquisitions.”
Thirty four wells were drilled in the quarter with 9.7 wells net to the company. Contract drilling revenue in the third quarter of 2005 increased 61 percent over the prior year to $10.6 million with margins of 21 percent.
Depreciation, depletion and amortization expenses were $0.9 million during the three months ended September 30, 2005 as compared to $0.3 million during the third quarter of 2004. The increase in DD&A expenses was primarily due to the expansion of our asset base, including our acquisition of Stone Mountain Energy in Q4 2004 and the extension of our gathering system.
General and administrative expenses were $3.0 million during the third quarter of 2005, up from $1.9 million during the same quarter of 2004. This increase primarily reflects the timing and extent of marketing costs associated with sponsored drilling programs. As a percentage of revenues, G&A expenses were 19.9 percent, down from 22.7 percent in third quarter 2004.
Operational and Financial Highlights for First Nine Months 2005
— Record production of 1.3 Bcfe versus 0.5 Bcfe in the first
nine months of 2004
— Record revenues of $46.5 million
— 118 gross (33.7 net) wells drilled, all successfully
— 109 miles of pipeline added to gathering system
— Average realized natural gas price of $8.05 Mcf
— Capital expenditures of $22.5 million
A conference call will be held at 4:30 p.m. (ET) today to discuss 3Q 2005 results. The conference call will have a live simulcast on the Internet and can be accessed by logging onto www.ngas.com or http://viavid.net/dce.aspx?sid=00002ADE. A slide presentation, which highlights management’s discussion points, will be available on the company’s website. For those unable to attend the live presentation, the webcast will be archived on the company’s website. In addition, a 48-hour replay is available by phone. The replay number is 1-888-203-1112 or 1-719-457-0820 (international) and using passcode 4466897.
About NGAS Resources, Inc.
NGAS Resources is an independent energy company focused on natural gas development drilling and reserve growth with its main operations in the Appalachian Basin. Additional information, including the Company’s report on Form 10-Q for 3Q 2005, can be accessed on its website at www.ngas.com.
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.
NGAS RESOURCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT (U.S. funds) (Unaudited) Three Months Ended Nine months Ended September 30, September 30, ———— ———— ———— ———— 2005 2004 2005 2004 ———— ———— ———— ———— REVENUE Contract drilling $ 10,581,000 $ 6,561,100 $ 34,897,000 $ 27,927,475 Oil and gas production 4,199,754 1,452,338 10,583,245 3,230,351 Gas transmission and compression 302,694 344,633 1,049,168 1,093,296 ———— ———— ———— ———— Total revenue 15,083,448 8,358,071 46,529,413 32,251,122 ———— ———— ———— ———— DIRECT EXPENSES Contract drilling 8,361,324 5,157,915 27,349,389 20,499,504 Oil and gas production 1,192,036 517,113 2,841,551 1,187,200 Gas transmission and compression 252,743 172,532 880,611 686,724 ———— ———— ———— ———— Total direct expenses 9,806,103 5,847,560 31,071,551 22,373,428 ———— ———— ———— ———— OTHER EXPENSES (INCOME) Selling, general and administrative 3,000,577 1,901,190 9,019,312 6,831,254 Options, warrants and deferred compensation 362,290 194,404 853,988 427,450 Depreciation, depletion and amortization 991,278 324,946 3,039,366 833,550 Interest expense 360,605 87,550 1,424,359 284,253 Interest and dividend income (79,546) (80,076) (165,672) (248,282) Other, net 69,626 35,954 (95,290) (76,275) ———— ———— ———— ———— Total other expenses 4,704,830 2,463,968 14,076,063 8,051,950 ———— ———— ———— ———— INCOME BEFORE INCOME TAXES 572,515 46,543 1,381,799 1,825,744 ———— ———— ———— ———— INCOME TAX EXPENSE Current 121,805 9,351 121,805 416,157 Future 263,513 20,124 871,383 416,895 ———— ———— ———— ———— 385,318 29,475 993,188 833,052 ———— ———— ———— ———— NET INCOME 187,197 17,068 388,611 992,692 DEFICIT, beginning of period (15,410,169) (16,247,660) (15,611,583) (17,223,284) ———— ———— ———— ———— DEFICIT, end of period $(15,222,972)$(16,230,592)$(15,222,972)$(16,230,592) ============ ============ ============ ============ NET INCOME PER SHARE Basic $ 0.01 $ 0.00 $ 0.02 $ 0.07 ============ ============ ============ ============ Diluted $ 0.01 $ 0.00 $ 0.02 $ 0.07 ============ ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 17,583,061 14,725,187 16,432,965 13,555,811 ============ ============ ============ ============ Diluted 19,597,136 15,877,802 17,722,030 16,107,154 ============ ============ ============ ============ NGAS RESOURCES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (U.S. funds) September 30, December 31, 2005 2004 ————- ————- ASSETS (Unaudited) Current assets: Cash $ 17,499,769 $ 11,849,372 Accounts receivable 6,268,600 2,281,715 Prepaid expenses and other current assets 3,542,571 2,152,174 Loans to related parties 79,849 142,718 ————- ————- Total current assets 27,390,789 16,425,979 Bonds and deposits 387,695 124,650 Oil and gas properties 87,248,623 68,156,790 Property and equipment 2,901,594 2,668,908 Loans to related parties 240,157 357,175 Investments — 55,454 Deferred financing costs 466,204 1,024,810 Goodwill 313,177 313,177 ————- ————- Total assets $118,948,239 $ 89,126,943 ============= ============= LIABILITIES Current liabilities: Accounts payable 5,704,793 3,381,726 Accrued liabilities 5,657,919 3,537,576 Customers’ drilling deposits 23,846,725 12,652,001 Long term debt, current portion 15,027,692 121,247 ————- ————- Total current liabilities 50,237,129 19,692,550 Future income taxes 2,924,815 2,053,432 Long term debt 7,883,545 25,870,498 Deferred compensation 711,788 368,935 ————- ————- Total liabilities 61,757,277 47,985,415 ————- ————- SHAREHOLDERS’ EQUITY Capital stock Authorized: 5,000,000 Preferred shares, non- cumulative, convertible 100,000,000 Common shares Issued: 18,894,646 Common shares (December 31, 2004 – 15,605,208) 70,296,064 54,929,887 21,100 Common shares held in treasury, at cost (23,630) (23,630) Paid-in capital – options and warrants 2,095,575 1,796,504 To be issued: 9,185 Common shares (December 31, 2004 – 10,070) 45,925 50,350 ————- ————- 72,413,934 56,753,111 Deficit (15,222,972) (15,611,583) ————- ————- Total shareholders’ equity 57,190,962 41,141,528 ————- ————- Total liabilities and shareholders’ equity $118,948,239 $ 89,126,943 ============= ============= 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. Three Months Ended September 30 2005 2004 ———- ——— Net Income $ 187,197 $ 17,068 DD&A 991,278 324,946 Certain other non-cash items* 362,290 194,404 Deferred Taxes 263,513 20,124 ———- ——— 1,804,278 556,542 Cash flow/share $ 0.09 $ 0.04 * includes fair value of option and warrant grants and deferred compensation