China Natural Gas Announces Third Quarter 2011 Financial Results

XI'AN, China, Nov, 14, 2011 /PRNewswire-Asia/ -- China Natural Gas, Inc. ("China Natural Gas" or the "Company") (Nasdaq: CHNG), a leading provider of compressed natural gas (CNG) for vehicular fuel and pipeline natural gas for industrial, commercial and residential use in Xi'an, China, today announced its financial results for the third fiscal quarter ended September 30, 2011.

Qinan Ji, Chairman of China Natural Gas, Inc. commented: "We are pleased to share the results of our third quarter, as we believe that they demonstrate continued progress in our sector and geographic growth and forward strategic objectives. The company has successfully commenced commercial production of its Jingbian liquefied natural gas ("LNG") plant and material revenue has been realized from the sale of LNG in the third quarter, which represents a key milestone in its corporate history.

Our network of compressed natural gas, or CNG, fueling stations currently contains 38 stations, a significant presence in the markets we operate in. Our outlook for the fourth quarter of the year is promising as we continue to grow our business, and we look forward to sharing any future developments as they materialize."

Third Quarter 2011 Financial and Operating Results

Revenues in the third quarter of 2011 increased by 65.3% to $36.9 million from $22.33 million in the third quarter of 2010, mainly driven by the realization of revenue from the sale of liquefied natural gas, or LNG, which started in July 2011. Natural gas revenue from our fueling stations in the third quarter of 2011 increased by 25.7% to $19.73 million from $15.7 million in the third quarter of 2010, mainly because the average unit selling price per cubic meter increased to $0.48 (RMB 3.13) from $0.38 (RMB 2.54), net of VAT, due to the increase in the sales prices of our natural gas in Shaanxi and Henan Provinces based on regulatory changes implemented by the PRC government during the fourth quarter of 2010. Natural gas revenue from our pipelines in the third quarter of 2011 decreased by 22.6% to $1.66 million from $2.14 million in the third quarter of 2010, primarily due to the fact that the compressor station in Makou, which started to contribute revenue in August 2010, did not operate at full capacity due to an electricity quota limit set by the local government for the three months ended September 30, 2011. Our LNG production facility in Jingbian County, Shaanxi Province started operation in July 2011. Revenue from LNG was $10.84 million in the third quarter of 2011. Gasoline revenue in the third quarter of 2011 decreased to $1.51 million, down by 20.8% from $1.9 million in the same period of the prior year, which was mainly attributable to the closing of four out of eight gasoline fueling stations of ours during the fourth quarter of 2010 and the second quarter of 2011. Installation and other services revenue increased by 22.3% year-over-year to $3.16 million in the third quarter of 2011 from $2.59 million in the comparable period of 2010. In the third quarter of 2011, sales of natural gas, gasoline, and installation and other services contributed 87.3%, 4.1%, and 8.6% of the total revenues, respectively.

Gross profit in the third quarter of 2011 increased by 51.0% to $14.18 million, from $9.39 million in the same period of the prior year. Gross margin in the third quarter of 2011 was 38.4%, compared to 42.1% a year ago. The increase in gross profit was consistent with the increase in sales revenues. Gross margin decreased primarily due to lower gross margin level of our LNG business, as compared to the gross margins of those business lines making greatest contribution to revenues, and the growth rate of sales price of natural gas products being lower than that of purchase costs of natural gas.

Operating income in the third quarter of 2011 was approximately $7 million, an increase of 75.2% year-over-year from approximately $4 million in the third quarter of 2010. The change was primarily attributable to the realization of the revenue of LNG, which started in July 2011.

Income tax expense was $1,529,451 for an effective tax rate of 25.2%, as compared to an effective tax rate of 18.9% in the third quarter of 2010.

Net income in the third quarter of 2011 increased by 26.8% to $4.55 million, from $3.58 million in the third quarter of 2010. Net margin decreased to 12.3% during the three months ended September 30, 2011 from 16.1% during the three months ended September 30, 2010. Earnings per share was $0.21 per diluted share in the third quarter of 2011 compared to 0.17 in the same period of 2010.

As of September 30, 2011, the Company had $11.21 million in cash and cash equivalents, compared to $10.05 million in cash and cash equivalents at December 31, 2010. The increase was primarily attributable to the decrease in investments in construction in progress of the LNG project.

Net cash provided by operating activities was $15.75 million for the nine months ended September 30, 2011, compared to net cash provided by operations of $13.53 million for the nine months ended September30, 2010. The increase was primarily due to the increase in unearned revenue, the increase in accounts payable and accrued liabilities, and adjustments for non-cash expense items.

Conference Call

Management will hold a conference call on Tuesday, November 15, 2011 at 8:30 a.m. EST (5:30 a.m. PST) to discuss financial results from its third quarter ended September 30, 2011.

To participate in the call please dial 1-800-860-2442, or 1 412-858-4600 for international calls, approximately 10 minutes prior to the scheduled start time.

A replay of the call will be available 1 hour after the end of the conference through 9:30 a.m. November 15, 2011, EST. The number for the replay is 1-877-344-7529 or 1-412-317-0088 for international calls; the pass code for the replay is 10006741.

About China Natural Gas, Inc.

China Natural Gas ( http://www.naturalgaschina.com ) transports and sells natural gas to vehicular fueling terminals, as well as commercial, industrial and residential customers through its distribution networks in China's Shaanxi and Henan Provinces. The Company owns approximately 120 km of high-pressure pipelines and operates 26 CNG fueling stations in Shaanxi Province and 12 CNG fuelling stations in Henan Province. China Natural Gas' four primary business lines include: (1) the distribution and sale of CNG through Company-owned CNG fueling stations for hybrid (natural gas/gasoline) powered vehicles; (2) the installation, distribution and sale of piped natural gas to residential, commercial and industrial customers through Company-owned pipelines; (3) the distribution and sale of gasoline through Company-owned CNG fueling stations for hybrid (natural gas/gasoline) powered vehicles; (4) the conversion of gasoline-fueled vehicles to hybrid (natural gas/gasoline) powered vehicles through its auto conversion division; and (5) Production and sale of LNG through the Company's LNG production facility.

SAFE HARBOR: FORWARD-LOOKING STATEMENTS

This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. For example, statements about the future plans and goals of the JV with CNPC and its prospects are forward looking and subject to risks. China Natural Gas, Inc. may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 10-K, 10-Q and 8-K, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to fourth parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, risks outlined in the Company's filings with the U.S. Securities and Exchange Commission, including its registration statements on Forms S-1 and S-3, in each case as amended. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

This release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and that will contain detailed information about the company and management, as well as financial statements.