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Gold/Mining/Energy : Daugherty Resources, Inc. (nasdaq: NGAS) -- Ignore unavailable to you. Want to Upgrade?

To: Cyprian who wrote (14)	7/8/2005 1:56:43 AM
From: Cyprian	Read Replies (2) \| Respond to of 59

NGAS Resources, Inc. (NGAS:NASDAQ) Raised Price Target to $9.00 from $7.00; Maintaining Buy (1) Rating Analyst: Paul R. Ferretti (212) 218-3716 PriorBuy (1) pferretti@morganjoseph.com Date: July 6, 2005 =========================================================================== We are raising our target price for NGAS to $9.00 per share from $7.00. This upward adjustment results from two factors: it now appears that the company’s drilling inventory could total as many as 1,300 sites versus our earlier assumption of 1,000; and 2) in a recent transaction, the buyer paid an estimated $0.39 per mcf of probable and possible reserves. This compares to our admittedly conservative valuation of $0.25 in our NGAS potential asset valuation. If the old adage of “you’re worth whatever people are willing to pay for your assets” is correct, and we believe this is particularly true in the energy industry, by applying the current “going rate” for Appalachia reserves, we now estimate NGAS’ asset value potential at $11.23, up from $8.55. Assuming a 20% discount to this potential leads us to a new target price of $9.00. • We believe the company’s acreage position in the Appalachian Basin is particularly appealing in today’s high commodity pricing environment. It offers very low risk, high growth through the drill bit, and inasmuch as superior drilling success should be repeatable for the foreseeable future, it eliminates the reinvestment risks inherent in other gas companies. • The company’s drilling inventory could total as many as 1,300 locations versus our earlier estimate of 1,000. Because the incremental sites are largely associated with the Stone Mountain acquisition completed last year, and the fact that the geology is somewhat more complex, we have elected to significantly haircut the reserve potential until NGAS attains favorable drilling results. For the present time, we are giving credit to only 100 additional drilling locations. • Capital spending in 2006 could rise to $40 million compared to $30 million budgeted for this year. However, unlike this year, when $7.5 million is for pipeline expansion activities, the vast majority of 2006’s spending will be for drilling, and consequently, the company will probably drill well in excess of 200 gross wells compared to 170 in 2005. • Management hopes to increase its leasehold position in the Basin to 300,000 gross acres by yearend. Additionally, we feel the highly fragmented nature of the Basin’s ownership affords considerable acquisition opportunities for NGAS. Valuation Our estimated net asset value potential for NGAS is $11.23 per fully diluted share. Assuming a 20% discount to this potential leads us to a new target price of $9.00. We have credited the company with 280 billion cubic feet equivalent (bcfe) of reserves to be developed on its leaseholds, which we arrived at by assuming 1,100 remaining drill sites, an average net revenue interest of 85%; reserves per well of 300 million cubic feet (mmcf); and using a present value of $0.40 per thousand cubic feet (mcf). (See Table 1) While we have valued the pipeline/gathering assets at $15 million, we feel considerable earnings (and valuation) upside exists once the expansion is completed. The “Other Assets” category includes $2 million for its gold and silver mining assets in Alaska and a $3 million Canadian tax credit. We believe it likely that management will monetize these assets. We have also assumed full conversion of the company’s outstanding convertible notes, which increase the total common shares to 18 million.