Gateway Energy Reports Second Quarter 2010 Results

HOUSTON, Aug. 16 /PRNewswire-FirstCall/ -- Gateway Energy Corporation (OTC Bulletin Board: GNRG) today announced the financial results for the second quarter ended June 30, 2010. Net loss from continuing operations was $957,009, or ($0.05) per diluted share, for the second quarter 2010 compared to a net loss of $93,937 for the second quarter 2009 and a net loss of $234,393, or ($0.01) per diluted share, for the immediately preceding first quarter of 2010. Adjusted EBITDA(i) was $213,308 for the second quarter 2010 compared to $173,436 for the second quarter 2009 and $31,940 for the immediately preceding first quarter 2010.

Net income for the second quarter 2010 was negatively impacted by consent solicitation and severance expenses of $1,444,092 incurred during the successful consent solicitation conducted by Frederick M. Pevow, Jr., the Company's new Chairman, President & CEO.

Mr. Pevow commented, "Our bottom-line financial results were negatively affected by substantial consent solicitation and severance expenses, which were much higher than I ever imagined they would be five months ago. Fortunately these one-time costs are now largely behind us as we began to and expect to continue to achieve reductions in our general and administrative expenses over the next couple of quarters as we begin to implement our strategic plan."

Second Quarter 2010 Corporate Highlights

• On May 19, 2010, the former board of directors terminated Bob Panico, the previous President & CEO, and Chris Rasmussen, the previous CFO.
• On May 18 and 19, 2010, six of seven members of the previous board of directors resigned and John A. Raasch became interim President and CEO and the sole remaining director.
• On June 3, 2010, Mr. Raasch appointed five new members to the board of directors, consisting of David F. Huff, Perin Greg deGeurin, John O. Niemann, Jr., Mr. Pevow and Paul A. VanderLinden, III.
• In June 2010, Mr. Pevow was appointed as the new President and CEO and Ms. Jill R. Marlatt was appointed as Controller.

Second Quarter 2010 Operating Highlights

• Cash general and administrative expenses of approximately $400,000 were almost 40% lower than the second quarter 2009.
• In April 2010, throughput volumes resumed from the High Island A-389 system, which had been out of service since Hurricane Ike.
• The newly acquired Hickory Creek gathering system performed in-line with expectations.

Selected Financial Data:

The following table summarizes selected financial results for the reporting periods:

Results of Operations:

Second Quarter 2010 compared to Second Quarter 2009

Revenues were $1,795,963 for the quarter ended June 30, 2010 compared to $1,740,743 for the quarter ended June 30, 2009. The net increase of $55,220 was due to an increase in sales of natural gas of $256,794 and a decrease in transportation, treating and other revenue of $204,574. Revenues from sales of natural gas from the Waxahachie delivery system increased as natural gas prices were higher than the previous year (volumes are bought and sold pursuant to 'back-to-back" contracts based on monthly index prices, so higher prices do not generally result in increased margins).

Adjusted EBITDA was $213,308 for the quarter ended June 30, 2010 compared to $173,436 for the quarter ended June 30, 2009. The net increase of $39,872 was primarily due to a reduction in cash general and administrative expenses of $258,616 or 39% from the comparable period, which was partially offset by a decrease in operating margin(ii) of $238,193.

The net decrease in operating margin of $238,193 resulted primarily from the loss of temporary volumes from the East Cameron 359 system, which was substantially higher than the increases in volumes from the Hickory Creek and High Island A-389 systems. The East Cameron 359 system was used as an alternate pipeline for several producers when the Sea Robin pipeline was temporarily out of service. Sea Robin is now active and the East Cameron 359 system is no longer being used as an alternate pipeline.  

Cash general and administrative expenses were lower by $258,616 in part due to a decrease in insurance costs of approximately $100,000 from the sale of the Shipwreck and Pirate's Beach pipelines and the Crystal Beach terminal as well as decreases in personnel, accounting, tax and legal costs, and investor relations costs.

Other and interest income increased by $19,449.

Second Quarter 2010 compared to First Quarter 2010

Revenues were $1,795,963 for the second quarter 2010 compared to $1,958,500 for the preceding first quarter 2010. The net decrease of $162,537 was due to a decrease in sales of natural gas of $218,461 and an increase in transportation, treating and other revenue by $55,924. Revenues from sales of natural gas from the Waxahachie delivery system decreased as natural gas prices were sequentially lower. Transportation, treating and other revenues were sequentially higher primarily due to the resumption of volumes from High Island A-389 in April offset by a decrease in volumes from Hickory Creek due to natural (and expected) decline in natural gas production typical of newly drilled wells in the Barnett Shale.

Adjusted EBITDA was $213,308 for the quarter ended June 30, 2010 compared to $31,940 for the preceding quarter ended March 31, 2010. The increase of $181,367 was primarily due to a combination of an increase in operating margin of $67,077, a reduction in cash general and administrative expenses of $49,152, and an increase in other and interest income of $65,138.

Operating margin increased by $67,077 primarily due to the resumption of volumes from High Island A-389 in April and higher volumes from Waxahachie, partially offset by a decrease in volumes from Hickory Creek. Cash general and administrative expenses were lower by $49,152 due to the departure of the prior CFO 41 days prior to the end of the second quarter, reductions in investor relations costs, miscellaneous costs, and a timing difference between first and second quarter expenses related to the 2009 fiscal audit.

Liquidity and Capital Resources

As of June 30, 2010, the Company had available cash of $520,340 and borrowing availability of $500,000 pursuant to a $3.0 million credit facility. Absent significant acquisitions or development projects, the Company will continue to fund its operations and small growth opportunities through internally-generated funds and available cash and bank borrowings as needed. The Company is actively seeking additional outside capital to allow it to accelerate the implementation of its strategic plan, and such new capital may take several forms.  There is no guarantee that the Company will be able to raise outside capital.

About Gateway Energy

Gateway Energy Corporation owns and operates natural gas gathering, transportation and distribution systems in Texas, Texas state waters and in federal waters of the Gulf of Mexico off the Texas and Louisiana coasts. Gateway gathers offshore wellhead natural gas production and liquid hydrocarbons from producers, and then aggregates this production for processing and transportation to other pipelines. Gateway also transports gas through its onshore systems for non-affiliated shippers and through its affiliated distribution system and makes sales of natural gas to end users.

Safe Harbor Statement

Certain of the statements included in this press release, which express a belief, expectation or intention, as well as those regarding future financial performance or results (including future reductions in general and administrative expense), or which are not historical facts, are "forward-looking" statements as that term is defined in the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The words "expect", "plan", "believe", "anticipate", "project", "estimate", and similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance or events and such statements involve a number of risks, uncertainties and assumptions, including but not limited to industry conditions, prices of crude oil and natural gas, regulatory changes, general economic conditions, interest rates, competition, and other factors. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results and outcomes may differ materially from those indicated in the forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES

Operating Margin

The following table presents a reconciliation of the non-GAAP financial measures of total segment operating margin (which consists of the sum of individual segment operating margin and corporate) to the nearest comparable GAAP financial measure of operating income.

Adjusted EBITDA

Adjusted EBITDA is defined as pre-tax net income plus:

• interest expense;  
• depreciation, depletion and amortization expense;  
• non-recurring gain (loss) on sale of assets;  
• non-controlling interest;  
• accretion expense; and
• non-cash compensation expense.  

Adjusted EBITDA is a significant performance metric used by Company management, and by external users of the Company's financial statements, such as investors, commercial banks, research analysts and others, including our principal lender.

Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance, liquidity or ability to service debt obligations. Adjusted EBITDA does not include interest expense, income taxes, depreciation, depletion and amortization expense, non-recurring gain (loss) on sale of assets, minority interest, accretion expense or non-cash compensation expense. Because the Company has borrowed, and intends to borrow, money to finance their operations, interest expense is a necessary element of the Company's overall costs. Because the Company uses capital assets, depreciation and amortization are also necessary elements of the Company's overall costs. Because the Company has used, and intends to use, non-cash equity awards as part of their overall compensation package for executive officers and employees, non-cash compensation expense is a necessary element of the Company's overall costs.  Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, Company management believes that it is important to consider net income determined under GAAP, as well as Adjusted EBITDA, to evaluate the Company's financial performance.

Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this knowledge into management's decision-making processes.

(i)  Adjusted EBITDA is a non-GAAP financial measure.  Please see the note at the end of this press release regarding this non-GAAP financial measure.

(ii)  Operating margin is a non-GAAP financial.  Please see the note at the end of this press release regarding this non-GAAP financial measure.

SOURCE Gateway Energy Corporation