NGAS Resources Reports Third Quarter 2010 Financial Results
09 Noviembre 2010 - 3:34PM
- Contract Drilling Revenue Increased 19%
- Announces Review of Strategic
Alternatives
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 30th. 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 www.ngas.com. 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 www.ngas.com.
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 www.ngas.com.
The NGAS Resources, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=7617
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. |
CONSOLIDATED BALANCE
SHEETS |
|
|
|
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 |
LIABILITIES |
|
|
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 |
SHAREHOLDERS' EQUITY |
|
|
Capital stock |
|
|
Authorized: |
|
|
5,000,000
Preferred shares |
|
|
100,000,000 Common shares |
|
|
Issued: |
|
|
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. |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(Unaudited) |
|
|
|
|
|
|
Three Months
Ended September 30, |
Nine Months Ended
September 30, |
|
2010 |
2009 |
2010 |
2009 |
REVENUE |
|
|
|
|
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 |
DIRECT EXPENSES |
|
|
|
|
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 |
OTHER EXPENSES (INCOME) |
|
|
|
|
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) |
NET LOSS PER SHARE |
|
|
|
|
Basic |
$(0.06) |
$(0.04) |
$(0.23) |
$(0.16) |
Diluted |
$(0.06) |
$(0.04) |
$(0.23) |
$(0.16) |
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING: |
|
|
|
|
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. |
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
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 |
DISCRETIONARY CASH FLOW/PER SHARE |
$0.01 |
$0.14 |
$0.07 |
$0.40 |
NGAS-E
CONTACT: NGAS Resources, Inc.
Michael P. Windisch, CFO
(859) 263-3948
Fax: (859) 263-4228
ngas@ngas.com
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