Natural Gas Services Group
Annual Report 2011

Plain-text annual report

2011 ANNUAL REPORT 2011 Letter To Our Shareholders Fellow NGSG Shareholders, 2011 was a year of growth in a challenging atmosphere. Against a backdrop of stagnant natural gas prices NGSG was able to grow our rental fleet and, along with it, rental and sales revenues. Fleet utilization grew to 75% at year-end and our sales segment showed improvement with a significant contribution coming from production flare revenues. On the challenging side, competitive pressures held price increases to a lower level than desired and field operating costs continued to climb due to higher labor and maintenance costs. In spite of all this, NGSG's margins and growth rates continued to outperform our industry as a whole. Total revenues for NGSG in 2011 were $65.2 million, a 21% increase over 2010 with operating income growing by 31% to $14.9 million. Sales, general and administrative expenses fell to 9% of revenue and net income increased 39% to $9.8 million. I’d also like to highlight the fact that our rental revenues in the fourth quarter of 2011 were at a record high level. This performance was primarily driven by our ability to quickly reorient our rental operations towards the emerging oil shale and liquids-oriented plays. As our customers shifted away from dry natural gas drilling and production towards oil and liquids areas and activities and its associated gas, NGSG followed suit. We continued to place equipment into Stephen C. Taylor Chairman of the Board, President & Chief Executive Officer, Natural Gas Service Group, Inc. the Barnett Shale, but also saw increasing volumes of associated gas business in the Granite Wash of Texas and Oklahoma and the Utica Shale in Ohio. As an indication of the speed at which we moved into these new operating areas; at year-end 2011 approximately 20% of our active rental fleet was installed in oil shale areas whereas in 2009 we had no exposure at all. Reorienting a material portion of our fleet while moving into new operating areas within two years attests to our ability all. Reorienting a material portion of our fleet while moving into new operating areas within two years attests to our ability to quickly identify trends and effectively and profitably act on them. With oil prices at a record price differential with respect to natural gas we expect the trend towards liquids and associated gas production to continue. Now that 2012 is here we have seen a further deterioration in the price of natural gas. The very warm weather across the country this winter upset the supply/demand balance that prevailed during most of 2011 and has sent commodity prices down almost a third just since the beginning of the year to a ten year low. Along with this, the gas-directed rig count is also at its lowest level in ten years and storage levels are running at least 30% higher than last year. From this it is obvious that the dry-gas (non-liquids associated) markets will not provide any potential for growth this year and our challenge will be to continue our penetration of the liquids oriented markets while maintaining our preferred position in the traditional dry-gas areas of operation. The newer operations we have established over the past couple of years hold a promise of future growth and we are currently evaluating other geographic areas for additional expansion. Our strategy is solid, our ability to execute proven and we look forward to delivering added value and performance for our shareholders and employees this year. We were also happy to welcome two new directors to our board this year with both of them having extensive experience in the oil and gas operating and service businesses. Ken Huseman, President and CEO of Basin Energy Services and David Bradshaw, former Chairman and CEO of Tipperary Corporation, joined us in 2011 and will be able to bring additional industry knowledge and insight to NGSG. As always, we invite you to NGSG’s Annual Shareholders Meeting to be held in Midland, TX on June 13, 2012 at 8:30 am at the DoubleTree Hotel at Midland Plaza. Sincerely, Stephen Taylor Chairman, President and Chief Executive Officer Cover Illustration: New NGSG wellhead compressors moving from the Midland fabrication facility to the Granite Wash of Texas. EXECUTIVE OFFICERS & DIRECTORS Stephen C. Taylor Chairman of the Board, President and Chief Executive Officer John W. Chisholm Director, Founder, Wellogix, Inc.; President, CEO, Chairman of the Board, Flotek Industries David L. Bradshaw Director, Oil and Gas Investor, Former Chairman and CEO, Tipperary Corporation G. Larry Lawrence Vice President and Chief Financial Officer William F. Hughes Director , Co-Owner, The Whole Wheatery, LLC Kenneth V. Huseman Director, President and CEO, Basic Energy Services James R. Hazlett Vice President –Technical Services Services Charles G. Curtis Director, Retired, Former President and Chief Executive President and Chief Executive Officer of Curtis One Inc. dba Roll Stair Independent Auditors BDO USA, LLP 333 Clay St., Suite 4700 Houston, Texas 77002 Telephone: (713)-659-6551 Fax: (713)-659-3238 Investor Relations Leann M. Conner Natural Gas Services Group Investor Relations Coordinator Telephone: (432) 262-2700 Fax: (432) 262-2701 Legal Counsel David A. Thayer Jones & Keller, P.C. 1999 Broadway, Suite #3150 Denver, Colorado 80202 Telephone: (303) 785-1623 Fax: (303) 573-8133 Annual Meeting of Shareholders June 13, 2012 8:30 A.M. CDT DoubleTree Hotel 117 West Wall Street Midland, Texas 79701 Transfer Agent & Registrar Computershare Trust Company, Inc., Golden, Colorado About Natural Gas Services Group, Inc. Headquartered in Midland, TX, Natural Gas Services Group (NGS) maintains a growing rental fleet of high quality rotary screw and reciprocating wellhead compressors in the 50-500 horsepower range. At the end of 2011 the rental fleet totaled 2120 compressor units…the largest rental compressor fleet in the U.S. dedicated to the small-medium horsepower, wellhead market and the third largest overall. Repair and maintenance services for rental fleet units is horsepower, wellhead market and the third largest overall. Repair and maintenance services for rental fleet units is provided through a network of district offices in Midland, Bridgeport and Godley, TX, Farmington, NM, Vernal, UT, Tulsa, OK, and Lewiston, MI, including the Appalachian and South Texas areas. Rental compressor fabrication facilities are located in Midland, TX. NGS designs, fabricates and sells custom engineered rotary screw and reciprocating compressor packages through our Engineered Products line in Tulsa, OK. This custom equipment ranges up to 2,500 horsepower per unit and can be natural gas engine or electric motor driven. NGS also designs, manufactures and fabricates a proprietary reciprocating compressor product line. The CiP (Cylinders in Plane) reciprocating compressor is a unique and efficient, small horsepower design that is utilized in our rental fleet and sold to compressor packagers, distributors and end-users throughout North America. Additionally, the Company designs, fabricates, sells, installs and services technologically advanced and patented industrial flare and ignition systems through our Flare King product line for use in onshore and offshore oil and natural gas production facilities. NGS is a public company listed on the New York Stock Exchange (NYSE:NGS). Headquarters 508 West Wall Street, Suite 550 Midland, Texas 79701 (432) 262-2700 (432) 262-2701 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 Texas Bldg 107 PR 1420 Bridgeport, Texas 76426 (940) 683-5322 (940) 683-5113 fax 4721 N. Hwy 171 Cleburne, Texas 76033 (817) 645-5559 (817) 645-6809 fax Oklahoma 575 Bird Creek Avenue Catoosa, Oklahoma 74015 (918) 266-3330 (918) 971-1818 fax Utah 1380 South 1300 East Naples, Utah 84078 (432)-262-2700 West Texas 12301 W. CR 125 Odessa, Texas 79765 (432) 262-2700 (432) 561-5480 fax 

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