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NGAS Unloads Appalachian Gathering Assets to Strengthen Bottom Line

Lexington, KY-based NGAS Resources Inc. has agreed to sell a 50% interest in most of its Appalachian gas gathering facilities to its gas processing partner, Seminole Gas Co., for $28 million. NGAS said proceeds will used to be reduce debt and strengthen its balance sheet.

NGAS said the portion of the company's gas gathering and midstream facilities covered by the purchase agreement spans 485 miles through parts of southeastern Kentucky, eastern Tennessee and western Virginia. The companies expect the sale to close by the middle of June.

Upon closing, NGAS will enter into various gas marketing and sales arrangements with Seminole Energy Services, the parent of Seminole Gas. Under the arrangements, NGAS will remain operator of the facilities and will have firm capacity rights for daily delivery of 30 MMcf of controlled gas through the system. Seminole Energy will have a six-month option to purchase NGAS' remaining 50% interest for $22 million. Under certain conditions, NGAS will have the right to require Seminole Energy to exercise its purchase option.

"This will be a significant liquidity event for our company," said NGAS CEO William S. Daugherty. "The proceeds from the sale will enable us to strengthen our balance sheet by reducing our outstanding debt and providing financial flexibility."

Daugherty added that the company has reserved "more than sufficient" firm capacity to ensure that NGAS is able to move to market its Appalachian gas production on a long-term basis.

Seminole Energy Services CEO Robert Rosene said the deal expands its existing relationship with NGAS, with which it is already partners on two other gas processing facilities. "This transaction extends our footprint in the Appalachian Basin, where we have already invested in the area's future growth," said Rosene.

NGAS on Monday afternoon reported that its 1Q2009 earnings were depressed due to declining commodity prices, despite an increase of 18% in oil and gas production volumes from horizontal drilling and an 11% increase in contract drilling revenue from completion of last year's drilling partnership for nonoperated initiatives in West Virginia.

For the quarter, the company reported a net loss of $537,000, or minus 2 cents/share, compared to net income of $163,000, or 1 cent/share, in 1Q2008.

"We initiated our horizontal drilling program over one year ago," said Daugherty. "The success of this program enabled us to deliver double-digit production growth in the first quarter, a period characterized by ongoing volatility in the commodity and financial markets."

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