Natural Gas Services Group, Inc. (NYSE:NGS)

CAPS Rating: 3 out of 5

The Company is a provider of small to medium horsepower compression equipment to the natural gas industry. It manufactures, fabricates and rent natural gas compressors that enhance the production of natural gas wells and provide maintenance services.


Player Avatar autodealercfo (90.44) Submitted: 9/17/2008 11:03:41 PM : Outperform Start Price: $19.06 NGS Score: -55.55

Natural Gas Services is a play on the fact that over the next several years more natural gas production in the United States will come from unconventional wells. Unconventional natural gas deposits, shale gas as an example, is formed along with the geological formation that it is enclosed in and is held in the formation by pressure from the outside. When it is released from this formation, ie drilling, it does not have the pressure to push the natural gas to the wellhead. It requires compression services to help it out of the well and on to the processing facilities. Also, not all wells are the same and even a single well will change over time. Given this, unconventional wells need compression very early in production and throughout the well life and most often needs to be at the individual wellhead. Natural Gas Services provides these small to medium purpose built compressors. Its larger competitors focus mainly on large compressors that push the natural gas along pipelines after it is produced from the well. Also, the industry trend in recent years has been to outsource the compression services to companies that have a wide range of equipment and the expertise to apply the equipment correctly to get maximum production from the wells.

NGS has managed impressive growth over the past few years and should continue for several years. It has the necessary capital to build its rental fleet currently and should within a year or two be able to self fund it's capital requirements.

Risks to this company include the dependence on a few major customers which include XTO Energy which has been been on a buying spree lately of natural gas properties and the fact that it's rental compressor terms are short and any slow down in gas production would impact the company very quickly. It mainly competes with small shops but does have competitors that are large in size and have greater financial resources than NGS.

Member Avatar autodealercfo (90.44) Submitted: 3/29/2009 10:55:52 PM
Recs: 0

NGS performed very well in 2008. However, the sudden slow down in the economy has caused a decrease in the demand for natural gas. Producers have reduced rig counts by almost 50% as natural gas prices have dropped. Gas production will still keep increasing through the first half of 2009 as wells that have already been drilled will come online as the necessary infrastructure in completed. This slow down in production will put pressure on the operating margins of NGS as the year progresses. The long term fundamentals for NGS are still strong and intact. Conventional gas wells are in decline and will require more compression services and new supply sources are unconventional and require compression services sooner and more frequently in the production life cycle.

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