NGAS Reports 116% Increase in 1Q 2006 Production Revenue
NGAS Resources, Inc. (Nasdaq: NGAS) today reported oil and gas revenue rose 116 percent over first quarter 2005 due to production volume increases and higher realized commodity prices. Total revenue was a record $27.3 million, a 37 percent increase over the comparable period in 2005. The growth in total revenue was driven by higher oil and gas revenue as well as a 22 percent increase in contract drilling revenue.
Net income was $625,737 versus $737,066 in first quarter 2005. The decline in net income was primarily due to decreased profitability in contract drilling compared to first quarter 2005. Earnings per fully diluted share were $0.03 for the first quarter of 2006 compared to $0.04 in the first quarter of 2005. Weighted average fully diluted shares outstanding for the first quarter 2006 were 23,177,078 compared to 17,463,618 in the first quarter of 2005.
Operational and Financial Highlights for 1Q 2006 versus 1Q 2005:
— Average daily production was 7,380 Mcfe versus 4,409 Mcfe
— Total production volumes were up 67 percent to 664.1 Mmcfe
— 79 gross (18.65 net) wells drilled
— Average realized natural gas price was $9.35 Mcf versus $7.25
— Oil and gas revenue increased 116 percent to $6.2 million from
$2.9 million
— Discretionary cash flow was $3.5 million versus $2.6 million
— Capital expenditures totaled $25.8 million
— 26 miles of pipeline added to gathering system
— Closed acquisition of the 116-mile pipeline from Duke Energy
William S. Daugherty, President and CEO of NGAS Resources commented, “We are pleased to have delivered record revenue of $27 million in the quarter. Our performance was driven by strong oil and gas revenue as we continue our transition to a production-based company.” Mr. Daugherty added, “We anticipate drilling 195 gross wells this year, with a significant increase in our net well position. Coupled with strategic acquisitions, we expect this strategy to generate ongoing growth in our production for the balance of 2006 and 2007. Additionally, we are excited about our continued implementation of a cost plus contract drilling structure which is expected to increase margins in this segment.”
First Quarter 2006
During the quarter, the Company drilled 79 gross wells, resulting in 18.65 net wells. Contract drilling revenue increased 22 percent from the prior year to $20.4 million, with margins of 18.2 percent. Higher oil field service costs continue to exert pressure on margins.
Depreciation, depletion and amortization expenses were $1.5 million in the first quarter 2006 compared to $1.0 million in the first quarter of 2005. The increase was driven by asset base expansion, including the late 2005 acquisition of the coal bed methane assets from Dart Energy Corporation in the Arkoma Basin, and extension of our gathering system.
Selling, general and administrative expenses were $4.5 million, up from $3.5 million in the same quarter of 2005. This primarily reflects the timing and extent of marketing costs for our sponsored drilling programs. As a percentage of revenue, SG&A costs were 16.4 percent, down from 17.5 percent in first quarter 2005.
Conference Call Info
A conference call will be held at 4:30 p.m. (Eastern) today to discuss 1Q 2006 results. The conference call will be webcast and can be accessed by logging onto www.ngas.com or http://viavid.net/dce.aspx?sid=0000303E. A slide presentation, which highlights management’s discussion points, will be available on the Company’s website. For those unable to listen to the live presentation, the webcast will be archived on the Company’s website. In addition, a telephone replay will also be available for one week beginning at 7:30 p.m. (Eastern), May 9, 2006, and can be accessed by dialing 888-203-1112 or 719-457-0820 (international callers) and entering pin number 3492528.
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 2005 and its quarterly report on Form 10-Q for the first quarter of 2006, 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 (Unaudited) Three Months Ended March 31, ———————— 2006 2005 ———– ———– REVENUE Contract drilling $20,411,500 $16,677,000 Oil and gas production 6,204,184 2,875,788 Gas transmission and compression 703,571 457,458 ———– ———– Total revenue 27,319,255 20,010,246 ———– ———– DIRECT EXPENSES Contract drilling 16,702,930 12,369,805 Oil and gas production 1,453,468 758,821 Gas transmission and compression 632,429 392,784 ———– ———– Total direct expenses 18,788,827 13,521,410 ———– ———– OTHER EXPENSES (INCOME) Selling, general and administrative 4,474,392 3,506,825 Options, warrants and deferred compensation 428,747 252,608 Depreciation, depletion and amortization 1,537,912 1,046,555 Interest expense 600,383 508,753 Interest income (118,360) (37,740) Other, net 40,948 (143,732) ———– ———– Total other expenses 6,964,022 5,133,269 ———– ———– INCOME BEFORE INCOME TAXES 1,566,406 1,355,567 ———– ———– FUTURE INCOME TAX EXPENSE 940,669 618,501 ———– ———– NET INCOME $ 625,737 $ 737,066 =========== =========== Basic $ 0.03 $ 0.05 =========== =========== Diluted $ 0.03 $ 0.04 =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 21,377,525 15,689,872 Diluted 23,177,078 17,463,618 =========== =========== NGAS RESOURCES, INC. CONSOLIDATED BALANCE SHEETS March 31, December 31, 2006 2005 ———– ———– ASSETS (Unaudited) Current assets: Cash $ 9,124,216 $ 23,944,252 Accounts receivable 7,081,341 6,883,700 Prepaid expenses and other current assets 1,553,066 3,161,847 Loans to related parties 7,014 26,235 ———– ———– Total current assets 17,765,637 34,016,034 Bonds and deposits 433,695 432,695 Oil and gas properties 130,031,651 105,785,340 Property and equipment 3,109,281 2,934,169 Loans to related parties 262,957 264,377 Deferred financing costs 2,320,551 2,377,791 Other non-current assets 1,473,944 650,000 Goodwill 313,177 313,177 ———– ———– Total assets $155,710,893 $146,773,583 =========== =========== LIABILITIES Current liabilities: Accounts payable 6,973,417 5,439,437 Accrued liabilities 8,593,310 5,788,554 Customers’ drilling deposits 7,799,375 23,627,975 Long term debt, current portion 24,000 24,000 ———– ———– Total current liabilities 23,390,102 34,879,966 Future income taxes 4,822,424 3,881,755 Long term debt 53,041,634 34,947,905 Deferred compensation 982,370 836,568 ———– ———– Total liabilities 82,236,530 74,546,194 ———– ———– SHAREHOLDERS’ EQUITY Common stock, no par value, 100,000,000 shares authorized, 21,435,942 shares issued (2005 – 21,357,628) 82,830,277 82,371,189 21,100 shares held in treasury, at cost (23,630) (23,630) Paid-in capital – options and warrants 2,994,168 2,743,806 Contributed surplus 1,660,713 1,748,926 9,185 shares to be issued 45,925 45,925 ———– ———– 87,507,453 86,886,216 Accumulated deficit (14,033,090) (14,658,827) ———– ———– Total shareholders’ equity 73,474,363 72,227,389 ———– ———– Total liabilities and shareholders’ equity $155,710,893 $146,773,583 =========== =========== 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 March 31, ———————— 2006 2005 ———– ———– NET INCOME $ 625,737 $ 737,066 DD&A 1,537,912 1,046,555 OTHER NON-CASH ITEMS 428,747 252,608 DEFERRED TAXES 940,669 618,501 ———– ———– DISCRETIONARY CASH FLOW $3,533,065 $2,654,730 =========== =========== DISCRETIONARY CASH FLOW PER SHARE $ 0.15 $ 0.15 =========== ===========