updated 11/9/2010 7:16:55 PM ET 2010-11-10T00:16:55

  • 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 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-E

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