Natural Gas Services Group
Annual Report 2007

Plain-text annual report

N A T U R A L G A S S E R V I C E S G R O U P , I N C . A N N U A L RE P O R T 2 0 0 7 ABOUT NGS Headquartered in Midland, TX, NGS main- horsepower per unit and can be natural gas tains a rapidly growing rental fleet of high engine or electric motor driven. quality rotary screw and reciprocating com- pressors in the 50-500 horsepower range. At the end of 2007 our rental fleet totaled over 1,350 compressor units…the largest rental compressor fleet in our U.S. market segment. We provide repair and maintenance services on our rental fleet units through our network of district offices in Midland, TX, Farmington, NGS manufactures our own proprietary re- ciprocating compressor product line. The CiP (Cylinders in Plane) reciprocating compressor is a unique and efficient, small horsepower de- sign that is utilized in our rental fleet and sold to compressor packagers, distributors and end-users throughout North America. NM, Bridgeport, TX, Tulsa, OK, and Lewiston, The Company designs, fabricates, sells, in- MI. We maintain rental compressor fabrication stalls and services technologically advanced facilities in Midland, TX and Lewiston, MI. and patented industrial flare and ignition sys- We design, fabricate and sell highly engi- neered rotary screw compressor packages through our SCS Engineered Products line in Tulsa, OK. This equipment ranges up to 1500 tems through our Flare King product line for use in onshore and offshore oil and natural gas production facilities. Executive Officers and Directors Stephen C. Taylor Chairman of the Board, President and Chief Executive Officer Natural Gas Services Group, Inc. Earl R. Wait Vice President – Accounting and Treasurer, Natural Gas Services Group, Inc. Jim Hazlett Vice President – Technical Services, Natural Gas Services Group, Inc. Paul Hensley Director, Natural Gas Services Group, Inc. Senior Vice President of Technology Alan A. Baker Director, Natural Gas Services Group, Inc. Former President, Chairman and Chief Executive Officer of Halliburton Company’s Energy Services Group Charles G. Curtis Director, Natural Gas Services Group, Inc. Retired, Former President and Chief Executive Officer of Curtis One Inc., dba Roll Stair William F. Hughes, Jr. Director, Natural Gas Services Group, Inc. Co-owner, The Whole Wheatery, LLC Gene A. Strasheim Director, Natural Gas Services Group, Inc. Retired, Former Chief Financial Officer, Skyline Electronics Products Richard L. Yadon Director, Natural Gas Services Group, Inc. Owner and Operator, Yadeco Pipe & Equipment President and Owner, Midland Pipe & Equipment, Inc. John W. Chisholm Director, Natural Gas Services Group, Inc. Founder, Wellogix, Inc. Independent Auditors Hein + Associates, LLP 14755 Preston Rd, Suite 320 Dallas, Texas 75254 Legal Counsel Lynch, Chappell and Alsup Midland, Texas Investor Relations Creative Options Communications 110 N. Milam Street PMB Box 115 Fredericksburg, Texas 78624 (972) 355-6070 www.jdcreativeoptions.com Transfer Agent & Registrar Computershare Trust Company, Inc. Golden, Colorado Annual Meeting of Shareholders Date: May 28, 2008, 9:00 A.M. CST Hilton Hotel – Midland 117 West Wall Street Midland, Texas 79701 Form 10-K Filing Earl R. Wait Vice President – Accounting and Treasurer, Natural Gas Services Group, Inc. Headquarters 508 West Wall Street, Suite 550 Midland, Texas 79701 (432) 563-3974 (432) 563-5567 fax www.ngsgi.com Michigan 3690 CR 491 Lewiston, Michigan 49756 (989) 786-3788 (989) 786-5182 fax New Mexico 3900 N. 1st Bloomfield, New Mexico 87413 (505) 632-4566 (505) 632-1364 fax North Texas Bldg 107 PR 1420 Bridgeport, Texas 76426 (940) 683-5322 (940) 683-5113 fax Oklahoma 5725 Bird Creek Avenue Catoosa, Oklahoma 74015 (918) 266-3330 (918) 971-1818 fax West Texas 4925 SCR 1303 Odessa, Texas 79765 (432) 617-5051 (432) 617-5050 fax www.ngsgi.com Offices Headquarters 508 West Wall Street, Suite 550 Midland, Texas 79701 (432) 563-3974 (432) 563-5567 fax www.ngsgi.com Michigan 3690 CR 491 Lewiston, Michigan 49756 (989) 786-3788 (989) 786-5182 fax New Mexico 3900 N. 1st Bloomfield, New Mexico 87413 (505) 632-4566 (505) 632-1364 fax North Texas Bldg 107 PR 1420 Bridgeport, Texas 76426 (940) 683-5322 (940) 683-5113 fax Oklahoma 5725 Bird Creek Avenue Catoosa, Oklahoma 74015 (918) 266-3330 (918) 971-1818 fax West Texas 4925 SCR 1303 Odessa, Texas 79765 (432) 617-5051 (432) 617-5050 fax $ 19.61 $ 16.69 $ 18.78 $ 13.98 $ 19.65 $ 13.81 $ 14.81 $ 12.68 High Low $ 16.43 $16.69 $ 18.00 $ 22.80 High $ 12.76 $ 12.01 $ 13.77 $ 16.57 Low $ 39.99 $ 36.00 $ 11.85 $ 11.11 High $ 15.67 $ 11.55 $ 9.51 $ 9.08 Low Fourth Quarter Third Quarter Second Quarter First Quarter 2007 2006 2005 Stock Data 18,269 12,114 1.01 21,739 12,278 30,437 72,489 $ $ $ $ $ $ 16,076 11,472 0.66 25,935 7,588 23,536 62,729 $ $ $ $ $ $ 3,789 8,481 0.52 16,184 4,446 16,609 49,311 $ $ $ $ $ $ 2007 2006 2005 Cash Flow Provided by Operations Weighted Average Shares Outstanding (Fully Diluted) Earnings Per Diluted Share Capital Expenditures–Rental Fleet Net Income Rental Revenue Total Revenue (In thousands, except for per share data) Financial Highlights TO OUR SHAREHOLDERS FINANCIAL HIGHLIGHTS OPERATING AREAS Dear Fellow Shareholders, For the sixth consecutive year, Natural Gas Services Group, Inc. (NGS) reported record results. Our total revenue increased 16% to $72.5 million and net income grew 62% to $12.3 million. Earnings before interest, taxes, depreciation and amortization increased 40% between 2006 and 2007 and ran 38% of revenue in 2007, an enviable record itself. We earned 66 cents per diluted share in 2006 and $1.01 per diluted share in 2007, a 53% increase. Our capital expenditures in 2007 were a bit over $25 million, with 98% allocated directly to growth capital, e.g., in support of expanding our rental compression services. Included in that amount was approximately $2 million for the purchase and improvement of another facility for the fabrication of rental compression units. This facility more than doubled the floor space and acreage available to us for rental fabrication. We also invested approximately $500 thousand into a significant upgrade of our information technology infrastructure. Stephen C. Taylor Chairman of the Board, President and Chief Executive Officer Natural Gas Services Group, Inc. We continued to vigorously grow our rental compressor fleet and had 1,353 units in it at the end of 2007. This was an addition of 242 net units through the year. We have added 767 compressors to our rental fleet during the 2005-2007 period and, according to industry reported data, we operate the fifth largest rental compression fleet in the U.S. Our balance sheet continues to be strong. Total debt was reduced to $14.6 million at the end of 2007, a 21% reduction compared to year-end 2006. Our total debt-to-equity ratio decreased from 18% to 13% in the same period and we ended the year with cash/cash equivalents of almost $19 million. In today’s disruptive credit markets we continue to have the luxury and flexibility to grow the business in an aggressive manner. NGS’s diluted earnings per share have grown 45% per year compounded annually between 2002 and 2007 while our market capitalization has increased 72% over the same period. On June 30, 2007 we merged our wholly owned subsidiary, Screw Compression Systems, into NGS. While we are able to benefit from some nominal tax savings with the new structure, our driving force was to create one corporate entity and eliminate burdensome internal accounting processes required by the separation. We will retain the former subsidiary names as brand names, i.e., SCS Engineered Products will represent our custom fabricated sales out of Tulsa and CiP Compressors will continue to refer to our proprietary small-medium horsepower compressor frame Again, in October 2007, for the third year in a row, NGS was named to the Forbes magazine list of 200 best managed small companies in the US. From a market perspective we see continued opportunity for our business. Over 31,000 development gas wells were drilled in 2007 in the US, but the supply of natural gas is projected to grow by an average of only 3% per year from 2007-2009 while it is estimated that we will consume an average of 4% per year over the same period. All of the bullish factors from the last 2-3 years continue, e.g., supply/demand imbalance, declining Canadian imports, increasing commodity prices, higher well decline rates, increasing capital budgets by our customers and continued active drilling in unconventional gas plays. Although there are market pressures that we have to contend with, primarily the increasing scarcity of skilled workers, constrained supplier deliveries and rising costs, NGS is optimally positioned in our market of choice and we should continue to grow steadily. December 2008 will mark the 10th anniversary of the founding of NGS. The Company has come a long way in that short amount of time and it is attributable to the contributions of many, whether they are shareholders, employees, customers or suppliers. I want to thank all for their part over the past few years and particularly for making 2007 another record year. I look forward to continued success for our Company in the years ahead. Sincerely, Stephen Taylor Chairman, President and CEO $72,489 $70,000 $60,000 $62,729 $7,588 $49,311 $50,000 $4,446 $12,278 1,353 (160,733 H.P) 1,111 (129,158 H.P) 865 (97,275 H.P) $10,000 $7,500 $5,000 1250 1000 750 2005 2006 2007 2005 2006 2007 2005 2006 2007 Total Revenue (in thousands of dollars) Net Income (in thousands of dollars) Rental Unit Fleet Growth Number of Units (horsepower) Comparison Of Cumulative Total Return* Among Natural Gas Services Group, Inc., The AMEX Composite Index and The S&P 500 Energy Equipment & Services Index Natural Gas Services Group AMEX Composite Index S&P 500 Energy Equipment & Services Index $500 $400 $300 $200 $100 $0 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 * Assumes that the value of the investment in our common stock and each index was $100 on October 21, 2002, the date of our initial public offering, and that all dividends were reinvested. Historical stock performance during this period may not be indicative of future stock performance. N A T U R A L G A S S E R V I C E S G R O U P , I N C . A N N U A L RE P O R T 2 0 0 7 ABOUT NGS Headquartered in Midland, TX, NGS main- tains a rapidly growing rental fleet of high quality rotary screw and reciprocating com- pressors in the 50-500 horsepower range. At the end of 2007 our rental fleet totaled over 1,350 compressor units…the largest rental compressor fleet in our U.S. market segment. We provide repair and maintenance services on our rental fleet units through our network of district offices in Midland, TX, Farmington, NM, Bridgeport, TX, Tulsa, OK, and Lewiston, MI. We maintain rental compressor fabrication facilities in Midland, TX and Lewiston, MI. We design, fabricate and sell highly engi- neered rotary screw compressor packages through our SCS Engineered Products line in Tulsa, OK. This equipment ranges up to 1500 horsepower per unit and can be natural gas engine or electric motor driven. NGS manufactures our own proprietary re- ciprocating compressor product line. The CiP (Cylinders in Plane) reciprocating compressor is a unique and efficient, small horsepower de- sign that is utilized in our rental fleet and sold to compressor packagers, distributors and end-users throughout North America. The Company designs, fabricates, sells, in- stalls and services technologically advanced and patented industrial flare and ignition sys- tems through our Flare King product line for use in onshore and offshore oil and natural gas production facilities. Executive Officers and Directors Stephen C. Taylor Chairman of the Board, President and Chief Executive Officer Natural Gas Services Group, Inc. Earl R. Wait Vice President – Accounting and Treasurer, Natural Gas Services Group, Inc. Jim Hazlett Vice President – Technical Services, Natural Gas Services Group, Inc. Paul Hensley Director, Natural Gas Services Group, Inc. Senior Vice President of Technology Alan A. Baker Director, Natural Gas Services Group, Inc. Former President, Chairman and Chief Executive Officer of Halliburton Company’s Energy Services Group Charles G. Curtis Director, Natural Gas Services Group, Inc. Retired, Former President and Chief Executive Officer of Curtis One Inc., dba Roll Stair William F. Hughes, Jr. Director, Natural Gas Services Group, Inc. Co-owner, The Whole Wheatery, LLC Gene A. Strasheim Director, Natural Gas Services Group, Inc. Retired, Former Chief Financial Officer, Skyline Electronics Products Richard L. Yadon Director, Natural Gas Services Group, Inc. Owner and Operator, Yadeco Pipe & Equipment President and Owner, Midland Pipe & Equipment, Inc. John W. Chisholm Director, Natural Gas Services Group, Inc. Founder, Wellogix, Inc. Independent Auditors Hein + Associates, LLP 14755 Preston Rd, Suite 320 Dallas, Texas 75254 Legal Counsel Lynch, Chappell and Alsup Midland, Texas Investor Relations Creative Options Communications 110 N. Milam Street PMB Box 115 Fredericksburg, Texas 78624 (972) 355-6070 www.jdcreativeoptions.com Transfer Agent & Registrar Computershare Trust Company, Inc. Golden, Colorado Annual Meeting of Shareholders Date: May 28, 2008, 9:00 A.M. CST Hilton Hotel – Midland 117 West Wall Street Midland, Texas 79701 Form 10-K Filing Earl R. Wait Vice President – Accounting and Treasurer, Natural Gas Services Group, Inc. Headquarters 508 West Wall Street, Suite 550 Midland, Texas 79701 (432) 563-3974 (432) 563-5567 fax www.ngsgi.com Michigan 3690 CR 491 Lewiston, Michigan 49756 (989) 786-3788 (989) 786-5182 fax New Mexico 3900 N. 1st Bloomfield, New Mexico 87413 (505) 632-4566 (505) 632-1364 fax North Texas Bldg 107 PR 1420 Bridgeport, Texas 76426 (940) 683-5322 (940) 683-5113 fax Oklahoma 5725 Bird Creek Avenue Catoosa, Oklahoma 74015 (918) 266-3330 (918) 971-1818 fax West Texas 4925 SCR 1303 Odessa, Texas 79765 (432) 617-5051 (432) 617-5050 fax www.ngsgi.com Offices Headquarters 508 West Wall Street, Suite 550 Midland, Texas 79701 (432) 563-3974 (432) 563-5567 fax www.ngsgi.com Michigan 3690 CR 491 Lewiston, Michigan 49756 (989) 786-3788 (989) 786-5182 fax New Mexico 3900 N. 1st Bloomfield, New Mexico 87413 (505) 632-4566 (505) 632-1364 fax North Texas Bldg 107 PR 1420 Bridgeport, Texas 76426 (940) 683-5322 (940) 683-5113 fax Oklahoma 5725 Bird Creek Avenue Catoosa, Oklahoma 74015 (918) 266-3330 (918) 971-1818 fax West Texas 4925 SCR 1303 Odessa, Texas 79765 (432) 617-5051 (432) 617-5050 fax $ 19.61 $ 16.69 $ 18.78 $ 13.98 $ 19.65 $ 13.81 $ 14.81 $ 12.68 High Low $ 16.43 $16.69 $ 18.00 $ 22.80 High $ 12.76 $ 12.01 $ 13.77 $ 16.57 Low $ 39.99 $ 36.00 $ 11.85 $ 11.11 High $ 15.67 $ 11.55 $ 9.51 $ 9.08 Low Fourth Quarter Third Quarter Second Quarter First Quarter 2007 2006 2005 Stock Data 18,269 12,114 1.01 21,739 12,278 30,437 72,489 $ $ $ $ $ $ 16,076 11,472 0.66 25,935 7,588 23,536 62,729 $ $ $ $ $ $ 3,789 8,481 0.52 16,184 4,446 16,609 49,311 $ $ $ $ $ $ 2007 2006 2005 Cash Flow Provided by Operations Weighted Average Shares Outstanding (Fully Diluted) Earnings Per Diluted Share Capital Expenditures–Rental Fleet Net Income Rental Revenue Total Revenue (In thousands, except for per share data) Financial Highlights TO OUR SHAREHOLDERS FINANCIAL HIGHLIGHTS OPERATING AREAS Dear Fellow Shareholders, For the sixth consecutive year, Natural Gas Services Group, Inc. (NGS) reported record results. Our total revenue increased 16% to $72.5 million and net income grew 62% to $12.3 million. Earnings before interest, taxes, depreciation and amortization increased 40% between 2006 and 2007 and ran 38% of revenue in 2007, an enviable record itself. We earned 66 cents per diluted share in 2006 and $1.01 per diluted share in 2007, a 53% increase. Our capital expenditures in 2007 were a bit over $25 million, with 98% allocated directly to growth capital, e.g., in support of expanding our rental compression services. Included in that amount was approximately $2 million for the purchase and improvement of another facility for the fabrication of rental compression units. This facility more than doubled the floor space and acreage available to us for rental fabrication. We also invested approximately $500 thousand into a significant upgrade of our information technology infrastructure. Stephen C. Taylor Chairman of the Board, President and Chief Executive Officer Natural Gas Services Group, Inc. We continued to vigorously grow our rental compressor fleet and had 1,353 units in it at the end of 2007. This was an addition of 242 net units through the year. We have added 767 compressors to our rental fleet during the 2005-2007 period and, according to industry reported data, we operate the fifth largest rental compression fleet in the U.S. Our balance sheet continues to be strong. Total debt was reduced to $14.6 million at the end of 2007, a 21% reduction compared to year-end 2006. Our total debt-to-equity ratio decreased from 18% to 13% in the same period and we ended the year with cash/cash equivalents of almost $19 million. In today’s disruptive credit markets we continue to have the luxury and flexibility to grow the business in an aggressive manner. NGS’s diluted earnings per share have grown 45% per year compounded annually between 2002 and 2007 while our market capitalization has increased 72% over the same period. On June 30, 2007 we merged our wholly owned subsidiary, Screw Compression Systems, into NGS. While we are able to benefit from some nominal tax savings with the new structure, our driving force was to create one corporate entity and eliminate burdensome internal accounting processes required by the separation. We will retain the former subsidiary names as brand names, i.e., SCS Engineered Products will represent our custom fabricated sales out of Tulsa and CiP Compressors will continue to refer to our proprietary small-medium horsepower compressor frame Again, in October 2007, for the third year in a row, NGS was named to the Forbes magazine list of 200 best managed small companies in the US. From a market perspective we see continued opportunity for our business. Over 31,000 development gas wells were drilled in 2007 in the US, but the supply of natural gas is projected to grow by an average of only 3% per year from 2007-2009 while it is estimated that we will consume an average of 4% per year over the same period. All of the bullish factors from the last 2-3 years continue, e.g., supply/demand imbalance, declining Canadian imports, increasing commodity prices, higher well decline rates, increasing capital budgets by our customers and continued active drilling in unconventional gas plays. Although there are market pressures that we have to contend with, primarily the increasing scarcity of skilled workers, constrained supplier deliveries and rising costs, NGS is optimally positioned in our market of choice and we should continue to grow steadily. December 2008 will mark the 10th anniversary of the founding of NGS. The Company has come a long way in that short amount of time and it is attributable to the contributions of many, whether they are shareholders, employees, customers or suppliers. I want to thank all for their part over the past few years and particularly for making 2007 another record year. I look forward to continued success for our Company in the years ahead. Sincerely, Stephen Taylor Chairman, President and CEO $72,489 $70,000 $60,000 $62,729 $49,311 $50,000 $4,446 $12,278 $7,588 1,353 (160,733 H.P) 1,111 (129,158 H.P) 865 (97,275 H.P) $10,000 $7,500 $5,000 1250 1000 750 2005 2006 2007 2005 2006 2007 2005 2006 2007 Total Revenue (in thousands of dollars) Net Income (in thousands of dollars) Rental Unit Fleet Growth Number of Units (horsepower) Comparison Of Cumulative Total Return* Among Natural Gas Services Group, Inc., The AMEX Composite Index and The S&P 500 Energy Equipment & Services Index $500 $400 $300 $200 $100 $0 12/31/02 Natural Gas Services Group AMEX Composite Index S&P 500 Energy Equipment & Services Index 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 * Assumes that the value of the investment in our common stock and each index was $100 on October 21, 2002, the date of our initial public offering, and that all dividends were reinvested. Historical stock performance during this period may not be indicative of future stock performance. TO OUR SHAREHOLDERS FINANCIAL HIGHLIGHTS OPERATING AREAS Dear Fellow Shareholders, For the sixth consecutive year, Natural Gas Services Group, Inc. (NGS) reported record results. Our total revenue increased 16% to $72.5 million and net income grew 62% to $12.3 million. Earnings before interest, taxes, depreciation and amortization increased 40% between 2006 and 2007 and ran 38% of revenue in 2007, an enviable record itself. We earned 66 cents per diluted share in 2006 and $1.01 per diluted share in 2007, a 53% increase. Our capital expenditures in 2007 were a bit over $25 million, with 98% allocated directly to growth capital, e.g., in support of expanding our rental compression services. Included in that amount was approximately $2 million for the purchase and improvement of another facility for the fabrication of rental compression units. This facility more than doubled the floor space and acreage available to us for rental fabrication. We also invested approximately $500 thousand into a significant upgrade of our information technology infrastructure. Stephen C. Taylor Chairman of the Board, President and Chief Executive Officer Natural Gas Services Group, Inc. We continued to vigorously grow our rental compressor fleet and had 1,353 units in it at the end of 2007. This was an addition of 242 net units through the year. We have added 767 compressors to our rental fleet during the 2005-2007 period and, according to industry reported data, we operate the fifth largest rental compression fleet in the U.S. Our balance sheet continues to be strong. Total debt was reduced to $14.6 million at the end of 2007, a 21% reduction compared to year-end 2006. Our total debt-to-equity ratio decreased from 18% to 13% in the same period and we ended the year with cash/cash equivalents of almost $19 million. In today’s disruptive credit markets we continue to have the luxury and flexibility to grow the business in an aggressive manner. NGS’s diluted earnings per share have grown 45% per year compounded annually between 2002 and 2007 while our market capitalization has increased 72% over the same period. On June 30, 2007 we merged our wholly owned subsidiary, Screw Compression Systems, into NGS. While we are able to benefit from some nominal tax savings with the new structure, our driving force was to create one corporate entity and eliminate burdensome internal accounting processes required by the separation. We will retain the former subsidiary names as brand names, i.e., SCS Engineered Products will represent our custom fabricated sales out of Tulsa and CiP Compressors will continue to refer to our proprietary small-medium horsepower compressor frame Again, in October 2007, for the third year in a row, NGS was named to the Forbes magazine list of 200 best managed small companies in the US. From a market perspective we see continued opportunity for our business. Over 31,000 development gas wells were drilled in 2007 in the US, but the supply of natural gas is projected to grow by an average of only 3% per year from 2007-2009 while it is estimated that we will consume an average of 4% per year over the same period. All of the bullish factors from the last 2-3 years continue, e.g., supply/demand imbalance, declining Canadian imports, increasing commodity prices, higher well decline rates, increasing capital budgets by our customers and continued active drilling in unconventional gas plays. Although there are market pressures that we have to contend with, primarily the increasing scarcity of skilled workers, constrained supplier deliveries and rising costs, NGS is optimally positioned in our market of choice and we should continue to grow steadily. December 2008 will mark the 10th anniversary of the founding of NGS. The Company has come a long way in that short amount of time and it is attributable to the contributions of many, whether they are shareholders, employees, customers or suppliers. I want to thank all for their part over the past few years and particularly for making 2007 another record year. I look forward to continued success for our Company in the years ahead. Sincerely, Stephen Taylor Chairman, President and CEO $72,489 $70,000 $60,000 $62,729 $7,588 $49,311 $50,000 $4,446 $12,278 1,353 (160,733 H.P) 1,111 (129,158 H.P) 865 (97,275 H.P) $10,000 $7,500 $5,000 1250 1000 750 2005 2006 2007 2005 2006 2007 2005 2006 2007 Total Revenue (in thousands of dollars) Net Income (in thousands of dollars) Rental Unit Fleet Growth Number of Units (horsepower) Natural Gas Services Group AMEX Composite Index S&P 500 Energy Equipment & Services Index $500 $400 $300 $200 $100 $0 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 * Assumes that the value of the investment in our common stock and each index was $100 on October 21, 2002, the date of our initial public offering, and that all dividends were reinvested. Historical stock performance during this period may not be indicative of future stock performance. Comparison Of Cumulative Total Return* Among Natural Gas Services Group, Inc., The AMEX Composite Index and The S&P 500 Energy Equipment & Services Index Financial Highlights (In thousands, except for per share data) Total Revenue Rental Revenue Net Income Capital Expenditures–Rental Fleet Earnings Per Diluted Share Weighted Average Shares Outstanding (Fully Diluted) Cash Flow Provided by Operations 2005 2006 2007 $ $ $ $ $ $ 49,311 16,609 4,446 16,184 0.52 8,481 3,789 $ $ $ $ $ $ 62,729 23,536 7,588 25,935 0.66 11,472 16,076 $ $ $ $ $ $ 72,489 30,437 12,278 21,739 1.01 12,114 18,269 Stock Data 2005 2006 2007 First Quarter Second Quarter Third Quarter Fourth Quarter Low $ 9.08 $ 9.51 $ 11.55 $ 15.67 High $ 11.11 $ 11.85 $ 36.00 $ 39.99 Low $ 16.57 $ 13.77 $ 12.01 $ 12.76 High $ 22.80 $ 18.00 $16.69 $ 16.43 Low High $ 12.68 $ 14.81 $ 13.81 $ 19.65 $ 13.98 $ 18.78 $ 16.69 $ 19.61 (432) 617-5050 fax (432) 617-5051 Odessa, Texas 79765 4925 SCR 1303 West Texas (918) 971-1818 fax (918) 266-3330 Catoosa, Oklahoma 74015 5725 Bird Creek Avenue Oklahoma (940) 683-5113 fax (940) 683-5322 Bridgeport, Texas 76426 Bldg 107 PR 1420 North Texas (505) 632-1364 fax (505) 632-4566 Bloomfield, New Mexico 87413 3900 N. 1st New Mexico (989) 786-5182 fax (989) 786-3788 Lewiston, Michigan 49756 3690 CR 491 Michigan www.ngsgi.com (432) 563-5567 fax (432) 563-3974 Midland, Texas 79701 508 West Wall Street, Suite 550 Headquarters Natural Gas Services Group, Inc. Vice President – Accounting and Treasurer, Earl R. Wait Form 10-K Filing Midland, Texas 79701 117 West Wall Street Hilton Hotel – Midland Date: May 28, 2008, 9:00 A.M. CST Annual Meeting of Shareholders Computershare Trust Company, Inc. Golden, Colorado Transfer Agent & Registrar www.jdcreativeoptions.com (972) 355-6070 Fredericksburg, Texas 78624 PMB Box 115 110 N. Milam Street Creative Options Communications Investor Relations Midland, Texas Lynch, Chappell and Alsup Legal Counsel Dallas, Texas 75254 14755 Preston Rd, Suite 320 Hein + Associates, LLP Independent Auditors Director, Natural Gas Services Group, Inc. Founder, Wellogix, Inc. John W. Chisholm President and Owner, Midland Pipe & Equipment, Inc. Owner and Operator, Yadeco Pipe & Equipment Director, Natural Gas Services Group, Inc. Richard L. Yadon Skyline Electronics Products Retired, Former Chief Financial Officer, Director, Natural Gas Services Group, Inc. Gene A. Strasheim Co-owner, The Whole Wheatery, LLC Director, Natural Gas Services Group, Inc. William F. Hughes, Jr. of Curtis One Inc., dba Roll Stair Retired, Former President and Chief Executive Officer Director, Natural Gas Services Group, Inc. Charles G. Curtis of Halliburton Company’s Energy Services Group Former President, Chairman and Chief Executive Officer Director, Natural Gas Services Group, Inc. Alan A. Baker Senior Vice President of Technology Director, Natural Gas Services Group, Inc. Paul Hensley Natural Gas Services Group, Inc. Vice President – Technical Services, Jim Hazlett Natural Gas Services Group, Inc. Vice President – Accounting and Treasurer, Earl R. Wait Chairman of the Board, President and Chief Executive Officer Natural Gas Services Group, Inc. Stephen C. Taylor Executive Officers and Directors gas production facilities. use in onshore and offshore oil and natural tems through our Flare King product line for Tulsa, OK. This equipment ranges up to 1500 through our SCS Engineered Products line in neered rotary screw compressor packages We design, fabricate and sell highly engi- and patented industrial flare and ignition sys- facilities in Midland, TX and Lewiston, MI. stalls and services technologically advanced MI. We maintain rental compressor fabrication The Company designs, fabricates, sells, in- NM, Bridgeport, TX, Tulsa, OK, and Lewiston, end-users throughout North America. to compressor packagers, distributors and sign that is utilized in our rental fleet and sold is a unique and efficient, small horsepower de- (Cylinders in Plane) reciprocating compressor ciprocating compressor product line. The CiP NGS manufactures our own proprietary re- of district offices in Midland, TX, Farmington, on our rental fleet units through our network We provide repair and maintenance services compressor fleet in our U.S. market segment. 1,350 compressor units…the largest rental the end of 2007 our rental fleet totaled over pressors in the 50-500 horsepower range. At quality rotary screw and reciprocating com- engine or electric motor driven. tains a rapidly growing rental fleet of high horsepower per unit and can be natural gas Headquartered in Midland, TX, NGS main- ABOUT NGS ANNUAL REPORT 2007 NATURAL GAS SERVICES GROUP, INC. (432) 617-5050 fax (432) 617-5051 Odessa, Texas 79765 4925 SCR 1303 West Texas (918) 971-1818 fax (918) 266-3330 Catoosa, Oklahoma 74015 5725 Bird Creek Avenue Oklahoma (940) 683-5113 fax (940) 683-5322 Bridgeport, Texas 76426 Bldg 107 PR 1420 North Texas (505) 632-1364 fax (505) 632-4566 Bloomfield, New Mexico 87413 3900 N. 1st New Mexico (989) 786-5182 fax (989) 786-3788 Lewiston, Michigan 49756 3690 CR 491 Michigan www.ngsgi.com (432) 563-5567 fax (432) 563-3974 Midland, Texas 79701 508 West Wall Street, Suite 550 Headquarters Offices www.ngsgi.com N A T U R A L G A S S E R V I C E S G R O U P , I N C . A N N U A L RE P O R T 2 0 0 7 ABOUT NGS Headquartered in Midland, TX, NGS main- horsepower per unit and can be natural gas tains a rapidly growing rental fleet of high engine or electric motor driven. quality rotary screw and reciprocating com- pressors in the 50-500 horsepower range. At the end of 2007 our rental fleet totaled over 1,350 compressor units…the largest rental compressor fleet in our U.S. market segment. We provide repair and maintenance services on our rental fleet units through our network of district offices in Midland, TX, Farmington, NGS manufactures our own proprietary re- ciprocating compressor product line. The CiP (Cylinders in Plane) reciprocating compressor is a unique and efficient, small horsepower de- sign that is utilized in our rental fleet and sold to compressor packagers, distributors and end-users throughout North America. NM, Bridgeport, TX, Tulsa, OK, and Lewiston, The Company designs, fabricates, sells, in- MI. We maintain rental compressor fabrication stalls and services technologically advanced facilities in Midland, TX and Lewiston, MI. and patented industrial flare and ignition sys- We design, fabricate and sell highly engi- neered rotary screw compressor packages through our SCS Engineered Products line in Tulsa, OK. This equipment ranges up to 1500 tems through our Flare King product line for use in onshore and offshore oil and natural gas production facilities. Executive Officers and Directors Stephen C. Taylor Chairman of the Board, President and Chief Executive Officer Natural Gas Services Group, Inc. Earl R. Wait Vice President – Accounting and Treasurer, Natural Gas Services Group, Inc. Jim Hazlett Vice President – Technical Services, Natural Gas Services Group, Inc. Paul Hensley Director, Natural Gas Services Group, Inc. Senior Vice President of Technology Alan A. Baker Director, Natural Gas Services Group, Inc. Former President, Chairman and Chief Executive Officer of Halliburton Company’s Energy Services Group Charles G. Curtis Director, Natural Gas Services Group, Inc. Retired, Former President and Chief Executive Officer of Curtis One Inc., dba Roll Stair William F. Hughes, Jr. Director, Natural Gas Services Group, Inc. Co-owner, The Whole Wheatery, LLC Gene A. Strasheim Director, Natural Gas Services Group, Inc. Retired, Former Chief Financial Officer, Skyline Electronics Products Richard L. Yadon Director, Natural Gas Services Group, Inc. Owner and Operator, Yadeco Pipe & Equipment President and Owner, Midland Pipe & Equipment, Inc. John W. Chisholm Director, Natural Gas Services Group, Inc. Founder, Wellogix, Inc. Independent Auditors Hein + Associates, LLP 14755 Preston Rd, Suite 320 Dallas, Texas 75254 Legal Counsel Lynch, Chappell and Alsup Midland, Texas Investor Relations Creative Options Communications 110 N. Milam Street PMB Box 115 Fredericksburg, Texas 78624 (972) 355-6070 www.jdcreativeoptions.com Transfer Agent & Registrar Computershare Trust Company, Inc. Golden, Colorado Annual Meeting of Shareholders Date: May 28, 2008, 9:00 A.M. CST Hilton Hotel – Midland 117 West Wall Street Midland, Texas 79701 Form 10-K Filing Earl R. Wait Vice President – Accounting and Treasurer, Natural Gas Services Group, Inc. Headquarters 508 West Wall Street, Suite 550 Midland, Texas 79701 (432) 563-3974 (432) 563-5567 fax www.ngsgi.com Michigan 3690 CR 491 Lewiston, Michigan 49756 (989) 786-3788 (989) 786-5182 fax New Mexico 3900 N. 1st Bloomfield, New Mexico 87413 (505) 632-4566 (505) 632-1364 fax North Texas Bldg 107 PR 1420 Bridgeport, Texas 76426 (940) 683-5322 (940) 683-5113 fax Oklahoma 5725 Bird Creek Avenue Catoosa, Oklahoma 74015 (918) 266-3330 (918) 971-1818 fax West Texas 4925 SCR 1303 Odessa, Texas 79765 (432) 617-5051 (432) 617-5050 fax www.ngsgi.com Offices Headquarters 508 West Wall Street, Suite 550 Midland, Texas 79701 (432) 563-3974 (432) 563-5567 fax www.ngsgi.com Michigan 3690 CR 491 Lewiston, Michigan 49756 (989) 786-3788 (989) 786-5182 fax New Mexico 3900 N. 1st Bloomfield, New Mexico 87413 (505) 632-4566 (505) 632-1364 fax North Texas Bldg 107 PR 1420 Bridgeport, Texas 76426 (940) 683-5322 (940) 683-5113 fax Oklahoma 5725 Bird Creek Avenue Catoosa, Oklahoma 74015 (918) 266-3330 (918) 971-1818 fax West Texas 4925 SCR 1303 Odessa, Texas 79765 (432) 617-5051 (432) 617-5050 fax $ 19.61 $ 16.69 $ 18.78 $ 13.98 $ 19.65 $ 13.81 $ 14.81 $ 12.68 High Low $ 16.43 $16.69 $ 18.00 $ 22.80 High $ 12.76 $ 12.01 $ 13.77 $ 16.57 Low $ 39.99 $ 36.00 $ 11.85 $ 11.11 High $ 15.67 $ 11.55 $ 9.51 $ 9.08 Low Fourth Quarter Third Quarter Second Quarter First Quarter 2007 2006 2005 Stock Data 18,269 12,114 1.01 21,739 12,278 30,437 72,489 $ $ $ $ $ $ 16,076 11,472 0.66 25,935 7,588 23,536 62,729 $ $ $ $ $ $ 3,789 8,481 0.52 16,184 4,446 16,609 49,311 $ $ $ $ $ $ 2007 2006 2005 Cash Flow Provided by Operations Weighted Average Shares Outstanding (Fully Diluted) Earnings Per Diluted Share Capital Expenditures–Rental Fleet Net Income Rental Revenue Total Revenue (In thousands, except for per share data) Financial Highlights 

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