Gas Natural Inc. Reports 17% Increase in Consolidated Net income for First Quarter of 2011

- Natural Gas Operations segment net income grew 14.1% to $4.3 million from the 2010 first quarter

- Operating income in Natural Gas Operations grew to 51.0% of gross margin from 49.9% year-over-year, due to improved operational efficiency and strong performance in the Maine utility

- First quarter 2011 volumes delivered increased 14.7%

News provided by

Gas Natural Inc.

May 11, 2011, 06:29 ET

GREAT FALLS, Mont., May 11, 2011 /PRNewswire/ -- Gas Natural Inc. (NYSE Amex: EGAS) (the "Company" or "Gas Natural"), a natural gas utility company serving approximately 63,500 customers in six states, reported financial results for the first quarter ended March 31, 2011.

Consolidated net income for the first quarter of 2011 was $4.3 million, or $0.52 per diluted share, compared with net income of $3.7 million, or $0.61 per diluted share, for the first quarter of 2010. The $0.6 million, or 16.7%, increase in net income was primarily due to strong continued growth in the Maine market where the Company has been successful in increasing its market share and was augmented by colder weather. Lower earnings per share reflect a 2.2 million increase in weighted average outstanding shares as a result of the Company's successful equity raise in the fourth quarter of 2010.

Richard M. Osborne, Gas Natural's chairman and chief executive officer, commented, "We were encouraged by the continued growth in our Maine utility and expect to continue to invest in that market in order to expand our customer base. We believe our markets will continue to be receptive to natural gas as a clean, more economical alternative to the other fuel options. In addition to customer growth, our focus has been on improving our operational efficiency and expanding our margins."

Natural Gas Operations Segment

Gas Natural Inc. annually distributes over 30 billion cubic feet of natural gas to approximately 63,500 customers through regulated utilities operating in Montana, Wyoming, Ohio, Pennsylvania, Maine and North Carolina. The Company acquired its Ohio and Pennsylvania operations in January 2010, its Cut Bank, Montana utility in 2009, and in April 2011, acquired 140 miles of pipeline in Ohio and 60 miles in northern Kentucky for future growth opportunities.

(in thousands)		Three Months Ended March 31,
		2011	2010
Natural Gas Operations
	Operating revenue	$38,220	$31,506
	Gas purchased	24,717	19,621
	Gross Margin	13,503	11,885
	Operating expenses	6,616	5,957
	Operating income	6,887	5,928
	Other income	195	173

	Income before interest and taxes	7,082	6,101

	Interest (expense)	(387)	(568)

	Income before income taxes	6,695	5,533
	Income tax (expense)	(2,436)	(1,801)

	Net income	$4,259	$3,732

The Natural Gas Operations segment contributed net income of $4.3 million in the first quarter of 2011, compared with net income of $3.7 million in the first quarter of 2010. The $527,000, or 14.1%, increase was attributed to strong net income growth of $377,000, or 76.8%, from the Maine utility and the Ohio operations which increased $142,000.

Operating income for the period ended March 31, 2011, was $6.9 million, or 51.0% of gross margin, compared with $5.9 million, or 49.9% of gross margin, for the first quarter of 2010. The higher margin reflects improved efficiency levels at the Ohio Companies and market share gains in the Maine utility.

Interest expense decreased $181,000 during the first quarter of 2011 due lower debt levels at the Ohio operations, as some outstanding debt was repaid in November 2010.

The income tax expense rate for the Natural Gas Operations segment was 36.4% in the first quarter of 2011 compared with 32.6% in the first quarter of 2010. The prior year period benefited from a $190,000 income tax adjustment related to the true-up of income tax expense.

Total volumes in the first quarter of 2011 increased 1,363 MMcf to 10,639 MMcf as the Company continues to see customer growth, particularly from its Maine operations, and is benefiting from the Ohio companies.

Marketing and Production Operations Segment

The Marketing and Production segment reported net income of $86,000 in the first quarter of 2011, up from net loss of $79,000 for the first quarter of 2010. In the first quarter of 2011, the Company incurred a loss of $63,000 on an equity investment in Kykuit, an exploration company operating in Montana, compared with a loss of $194,000 in the prior year period. Also impacting the prior year period was a $460,000 expense as a result of the conclusion of litigation relating to a gas supply contract that expired in October 2008.

Pipeline Operations Segment

The Pipeline Operations segment generated net income of $37,000 in the first quarter of 2011, consistent with the $36,000 reported in the first quarter of 2010.

Balance Sheet and Cash Management

Cash and marketable securities at March 31, 2011, were $13.4 million compared with $13.3 million at December 31, 2010. The cash balances reflect the proceeds from an underwritten public offering completed in 2010 that raised net proceeds of approximately $19.0 million after deducting underwriting discounts, commissions, and offering expenses. In 2011, the Company plans to use a portion of the proceeds of the offering to expand its utility operations.

Cash provided by operating activities was $11.5 million in the 2011 first quarter compared with $9.9 million for the same period in 2010. The increase was primarily the result of working capital requirements and a $3.5 million increase in refundable costs of gas purchases due to timing.

Capital expenditures for the first quarter of 2011 were $2.8 million compared with $1.1 million for the prior year period, and were focused on expanding operations in its growth oriented utilities of Maine and North Carolina. Gas Natural expects capital expenditures in 2011 to be approximately $15 million.

In addition to cash and marketable securities, the Company maintains a $20 million credit facility with approximately $9.0 million of availability as of the end of the 2011 first quarter.

Subsequent the close of the first quarter of 2011, on May 3, 2011, Gas Natural and its Ohio subsidiaries, Northeast Ohio Natural Gas Corp, Orwell Natural Gas Company and Brainard Gas Corp. issued a $15.334 million 5.38% Senior Secured Guaranteed Fixed Rate Note due June 1, 2017. Additionally, Great Plains Natural Gas, the intermediate holding company for Northeast Ohio Natural Gas, issued a $3.0 million 4.12% Senior Secured Guaranteed Floating Rate Note due May 3, 2014. Both notes were placed with SunLife Assurance Company of Canada. The use of proceeds for both notes are to repay and extinguish existing amortizing bank debt and other existing indebtedness, fund $3.4 million for the 2011 capital program for Orwell Natural Gas and Northeast Ohio Natural Gas, establish two debt service reserve accounts, replenish the Company's treasuries for the previously announced repayment of maturing bank debt for the Issuers in late 2010, and transaction expenses.

About Gas Natural Inc.

Gas Natural Inc. distributes and sells natural gas to end-use residential, commercial, and industrial customers. It distributes approximately 30 billion cubic feet of natural gas to approximately 63,500 customers through regulated utilities operating in Montana, Wyoming, Ohio, Pennsylvania, Maine and North Carolina. The Company markets approximately 1.3 billion cubic feet of natural gas to commercial and industrial customers in Montana and Wyoming on an unregulated basis. The Company also has ownership interests in 160 natural gas producing wells and gas gathering assets. In addition, the Company owns the Shoshone interstate and the Glacier gathering pipelines located in Montana and Wyoming. The Company's Montana public utility was originally incorporated in 1909 and is headquartered in Great Falls, Montana.

The Company's toll-free number is 800-570-5688. The Company's address is 1 First Avenue South, Great Falls, Montana 59401 and its website is www.ewst.com.

Safe Harbor Regarding Forward-Looking Statements

The Company is including the following cautionary statement in this release to make applicable and to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, Gas Natural Inc. Forward-looking statements are all statements other than statements of historical fact, including, without limitation, those that are identified by the use of the words "anticipates," "estimates," "expects," "intends," "plans," "predicts," "believes" and similar expressions. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed. Factors that may affect forward-looking statements and the Company's business generally include but are not limited to the Company's ability to successfully integrate the operations of the companies it has recently acquired and consummate additional acquisitions, the Company's continued ability to make dividend payments, the Company's ability to implement its business plan, fluctuating energy commodity prices, the possibility that regulators may not permit the Company to pass through all of its increased costs to its customers, changes in the utility regulatory environment, wholesale and retail competition, the Company's ability to satisfy its debt obligations, including compliance with financial covenants, weather conditions, litigation risks, and various other matters, many of which are beyond the Company's control, the risk factors and cautionary statements made in the Company's public filings with the Securities and Exchange Commission, and other factors that the Company is currently unable to identify or quantify, but may exist in the future. Gas Natural Inc. expressly undertakes no obligation to update or revise any forward-looking statement contained herein to reflect any change in Gas Natural Inc.'s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

For more information contact:


Bronwyn ("BG") Davis	Kevin J. Degenstein
Phone: (440) 974-3770	Phone: (406) 791-7500
Email: [email protected]	Email: [email protected]

FINANCIAL TABLES FOLLOW Gas Natural Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)
	Three Months Ended
	March 31,

	2011	2010
REVENUE:
Natural gas operations	$ 38,219,583	$ 31,506,160
Marketing and production	1,825,502	3,118,323
Pipeline operations	106,324	108,602
Total revenues	40,151,409	34,733,085
COST OF SALES:
Gas purchased	24,716,908	19,620,814
Marketing and production	1,399,407	2,591,411
Total cost of sales	26,116,315	22,212,225

GROSS MARGIN	14,035,094	12,520,860

OPERATING EXPENSES
Distribution, general, and administrative	4,657,320	3,904,909
Maintenance	285,227	291,329
Depreciation and amortization	1,035,077	949,462
Accretion	34,610	29,100
Taxes other than income	853,965	1,006,283
Total operating expenses	6,866,199	6,181,083

OPERATING INCOME	7,168,895	6,339,777

LOSS FROM UNCONSOLIDATED AFFILIATE	(62,957)	(20,014)
OTHER INCOME (EXPENSE)	115,680	(231,401)
INTEREST EXPENSE	(413,179)	(592,784)

INCOME FROM OPERATIONS BEFORE INCOME TAXES	6,808,439	5,495,578

INCOME TAX EXPENSE	(2,533,685)	(1,832,636)

NET INCOME	$ 4,274,754	$ 3,662,942

EARNINGS PER SHARE - BASIC	$ 0.52	$ 0.61

EARNINGS PER SHARE - DILUTED	$ 0.52	$ 0.61

WEIGHTED AVERAGE DIVIDENDS DECLARED PER COMMON SHARE	$ 0.14	$ 0.14

WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC	8,150,239	5,973,851

WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED	8,158,079	5,980,627

Please refer to the notes as filed on Form 10-Q that are an integral part of these financial statements.

Gas Natural Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
		March 31,	December 31,
		2011	2010
	ASSETS
	Current Assets:
	Cash and cash equivalents	$ 13,104,237	$ 13,026,585
	Marketable securities	304,875	274,950
	Accounts receivable
	Trade, less allowance for doubtful accounts of
	$326,534 and $354,719, respectively	9,477,385	9,593,840
	Related parties	479,255	559,384
	Unbilled gas	4,031,852	5,724,346
	Note receivable - related parties - current portion	9,733	9,565
	Inventory
	Natural gas and propane	1,102,216	5,876,710
	Materials and supplies	1,693,767	1,414,367
	Prepaid income taxes	-	1,601,798
	Prepayments and other	706,587	912,959
	Recoverable cost of gas purchases	1,020,653	2,628,824
	Deferred tax asset	103,203	114,362
	Total current assets	32,033,763	41,737,690

	Property, Plant and Equipment, Net	77,856,138	76,134,401

	Other Assets
	Note receivable - related parties, less current portion	43,167	45,665
	Deferred tax assets - less current portion	1,804,264	1,804,264
	Regulatory assets
	Property taxes	802,513	873,197
	Income taxes	452,645	452,645
	Rate case costs	79,107	64,271
	Debt issuance costs	474,199	485,244
	Goodwill	14,607,952	14,607,952
	Customer relationships	656,458	662,167
	Investment in unconsolidated affiliate	748,859	640,216
	Other assets	218,399	220,224
	Total other assets	19,887,563	19,855,845
	*TOTAL ASSETS*	$ 129,777,464	$ 137,727,936

	Please refer to the notes as filed on Form 10-Q that are an integral part of these financial statements.

Gas Natural Inc. and Subsidiaries Consolidated Balance Sheets, Continued (Unaudited)
	March 31,	December 31,
	2011	2010
LIABILITIES AND CAPITALIZATION
Current Liabilities:
Checks in excess of amounts on deposit	$ 401,287	$ 532,145
Line of credit	11,000,000	18,149,999
Accounts payable
Trade	7,864,061	9,200,297
Related parties	213,488	417,543
Notes payable, current portion	878,996	910,917
Notes payable - related parties, current portion	49,361	49,361
Accrued liabilities
Income taxes	884,811	-
Taxes other than income	2,541,294	2,961,853
Deferred payments from levelized billing	1,521,137	2,916,408
Property tax settlement - current portion	242,120	242,120
Related parties	391,599	413,399
Other current liabilities	1,612,730	1,919,231
Overrecovered gas purchases	412,977	1,203,191
Total current liabilities	28,013,861	38,916,464

Long Term Liabilities:
Deferred investment tax credits	192,176	197,441
Asset retirement obligation	1,581,477	1,546,867
Customer advances for construction	938,517	949,434
Regulatory liability for income taxes	83,161	83,161
Regulatory liability for gas costs	76,514	131,443
Property tax settlement, less current portion	243,008	243,008
Total	3,114,853	3,151,354


Notes Payable, Less Current Portion	21,737,708	21,958,616

Commitments and Contingencies (see note 11)	-	-

Stockholders' Equity:
Preferred stock; $.15 par value, 1,500,000 shares authorized,
no shares outstanding	-	-
Common stock; $.15 par value, 15,000,000 shares authorized,
8,150,926 and 8,149,801 shares outstanding
at March 31, 2011, and December 31, 2010, respectively	1,222,639	1,222,470
Capital in excess of par value	41,926,227	41,910,067
Accumulated other comprehensive income	65,356	46,590
Retained earnings	33,696,820	30,522,375
Total stockholders' equity	76,911,042	73,701,502

TOTAL CAPITALIZATION	98,648,750	95,660,118

*TOTAL LIABILITIES AND CAPITALIZATION*	$ 129,777,464	$ 137,727,936

Please refer to the notes as filed on Form 10-Q that are an integral part of these financial statements.

Gas Natural Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited
	Three Months Ended
	March 31,
	2011	2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 4,274,754	$ 3,662,942
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization	1,035,077	949,462
Accretion expense	34,610	29,100
Stock-based compensation	16,329	22,174
Gain on sale of marketable securities	-	(26,609)
Loss on sale of fixed assets	6,948	-
Loss from unconsolidated affiliate	62,957	20,014
Investment tax credit	(5,265)	(5,265)
Deferred income taxes	-	1,510,504
Changes in assets and liabilities:
Accounts receivable, including related parties	196,584	5,932,813
Unbilled gas	1,692,493	(339,831)
Natural gas and propane inventories	4,774,494	4,653,044
Accounts payable, including related parties	(1,639,066)	(2,681,235)
Recoverable/refundable cost of gas purchases	817,957	(2,701,968)
Prepayments and other	206,372	105,608
Other assets	1,384,764	(5,482)
Other liabilities	(1,314,320)	(1,240,797)
Net cash provided by operating activities	11,544,688	9,884,474
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures	(2,811,832)	(1,133,127)
Proceeds from sale of marketable securities	-	301,897
Proceeds from sale of fixed assets	4,000	-
Proceeds from related party note	2,329	2,329
Purchase of Cut Bank shares	-	(97,667)
Cash acquired in acquisitions	-	144,203
Investment in unconsolidated affiliate	(132,000)	(52,500)
Other investments	(10,183)	-
Customer advances for construction	(10,917)	56,899
Contributions in aid of construction	(5,362)	24,813
Net cash used in investing activities	(2,963,965)	(753,153)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit	2,500,000	3,700,000
Repayments of lines of credit	(9,650,000)	(10,752,098)
Repayments of long-term debt	(252,796)	(234,229)
Repayments of other short-term borrowings	-	(444,808)
Dividends paid	(1,100,275)	(819,444)
Net cash used in financing activities	(8,503,071)	(8,550,579)

NET INCREASE IN CASH AND CASH EQUIVALENTS	77,652	580,742

CASH AND CASH EQUIVALENTS:
Beginning of period	13,026,585	2,752,168
End of period	$ 13,104,237	$ 3,332,910

Please refer to the notes as filed on Form 10-Q that are an integral part of these financial statements.

Gas Natural Inc. and Subsidiaries Consolidated Statements of Cash Flows Continued (Unaudited)
	Three Months Ended
	March 31,

	2011	2010

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$ 275,200	$ 174,188
Cash paid for income taxes	$ 52,303	$ 50,000

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Shares issued to purchase Ohio Companies	$ -	$ 17,073,084
Construction expenditures included in accounts payable	$ 119,778	$ 200,286
Capitalized interest	$ 1,423	$ 1,777
Accrued dividends	$ 366,775	$ 273,191

Gas Natural Inc. and Subsidiaries Segments of Operations (Unaudited)
Three Months Ended March 31, 2011
		Marketing
	Natural Gas	and	Pipeline	Corporate
	Operations	Production	Operations	and Other	Eliminations	Consolidated
OPERATING REVENUES:
Natural gas operations	$ 38,309,893	$ -	$ -	$ -	$ (90,310)	$ 38,219,583
Marketing and Production	-	4,340,252	-	-	(2,514,750)	1,825,502
Pipeline operations	-	-	106,324	-	-	106,324
Total operating revenue	38,309,893	4,340,252	106,324	-	(2,605,060)	40,151,409

COST OF SALES:
Gas purchased	24,807,218	-	-	-	(90,310)	24,716,908
Marketing and production	-	3,914,157	-	-	(2,514,750)	1,399,407
Total Cost of Sales	24,807,218	3,914,157	-	-	(2,605,060)	26,116,315
GROSS MARGIN	$ 13,502,675	$ 426,095	$ 106,324	$ -	$ -	$ 14,035,094

OPERATING INCOME:	$ 6,886,867	$ 226,598	$ 64,000	$ (8,570)	$ -	$ 7,168,895

NET INCOME	$ 4,259,125	$ 85,782	$ 36,802	$ (106,955)	$ -	$ 4,274,754

Total Assets	109,712,728	5,238,233	721,458	78,454,162	(64,349,117)	$ 129,777,464
Goodwill	14,607,952	-	-	-	-	$ 14,607,952

Three Months Ended March 31, 2010
		Marketing
	Natural Gas	and	Pipeline	Corporate
	Operations	Production	Operations	and Other	Eliminations	Consolidated
OPERATING REVENUES:
Natural gas operations	$ 31,584,769	$ -	$ -	$ -	$ (78,609)	$ 31,506,160
Marketing and Production	-	5,483,312	-	-	(2,364,989)	3,118,323
Pipeline operations	-	-	108,602	-	-	108,602
Total operating revenue	31,584,769	5,483,312	108,602	-	(2,443,598)	34,733,085

COST OF SALES:
Gas purchased	19,699,423	-	-	-	(78,609)	19,620,814
Marketing and production	-	4,956,400	-	-	(2,364,989)	2,591,411
Total Cost of Sales	19,699,423	4,956,400	-	-	(2,443,598)	22,212,225
GROSS MARGIN	$ 11,885,346	$ 526,912	$ 108,602	$ -	$ -	$ 12,520,860

OPERATING INCOME:	$ 5,928,490	$ 350,156	$ 63,652	$ (2,521)	$ -	$ 6,339,777

NET INCOME	$ 3,731,295	$ (78,950)	$ 36,235	$ (25,638)	$ -	$ 3,662,942

Total Assets	107,073,699	5,527,569	749,855	63,249,099	(58,543,369)	$ 118,056,853
Goodwill	13,813,626	-	-	-	-	$ 13,813,626

Gas Natural Inc. and Subsidiaries Natural Gas Operations *(unaudited)*
Utility Throughput
				Three Months Ended March 31,
(in million cubic feet (MMcf))				2010	2009

	Full Service Distribution
		Residential		2,164	1,837
		Commercial		1,950	1,599
		Industrial		40	45
			Total full service	4,154	3,481

	Transportation			2,684	2,046
	Bucksport			3,801	3,749

			Total Volumes	10,639	9,276

Degree Days
		Three Months Ended		Percent (Warmer) Colder
		March 31,		2011 Compared to
	Normal	2011	2010	Normal	2010
Great Falls, MT	3,224	3,662	2,921	13.59%	25.37%
Cody, WY	3,030	3,277	3,079	8.15%	6.43%
Bangor, ME	3,735	3,808	3,101	1.95%	22.80%
Elkin, NC	2,117	2,096	2,113	(0.99%)	(0.80%)
Youngstown, OH	3,259	3,308	2,971	1.50%	11.34%