NEW YORK, NY — (MARKET WIRE) — 02/03/05 — Prospect Energy Corporation (NASDAQ: PSEC)(“Prospect”) announced today that it has agreed to provide up to $4.8million of senior secured debt financing to Natural Gas Systems, Inc.(OTC BB: NGSY) (“NGS”), an oil and gas production company based in Houston,Texas.
NGS has a strategy of focusing on acquiring mature, well-established oiland gas fields and re-developing them through the application of technologyand capital. The $4.8 million facility from Prospect is to provide NGSwith funds to further develop its onshore Delhi and Tullos Urania oil andgas producing fields in central and northern Louisiana and to repay certainoutstanding debt. Certain of the funds are also expected to be used by NGSto acquire additional oil and gas fields, including additional interests inthe Tullos Urania Field.
NGS has made an initial draw of $3.0 million of the $4.8 million facility,which has a term of five years. Prospect’s debt is secured by a first lienon NGS’s working interests in the Delhi and Tullos Urania fields. Prospectwill earn a cash coupon on its loan, and NGS has delivered warrants toProspect exercisable into as much as 5% of the common stock of NGS.
“Developing this relationship with Prospect is an important milestone forNGS,” stated Robert Herlin, President of NGS. “The funding will allow usto add to our asset base in northern Louisiana and implement a developmentprogram to take advantage of the considerable resources in the Delhi andTullos fields. Furthermore, we are now positioned to pursue similaropportunities.”
“In the past, the NGS team has been successful in finding underdevelopedonshore oil and gas properties and improving their production outputefficiencies,” said John Barry, Prospect’s Chairman and CEO. “Asimportant, NGS’s cash flow coverage and collateral coverage meet our creditstandards as debt investors. We see NGS as a core relationship for us, andwe expect to provide additional capital as the company continues to acquireand develop new fields. More broadly, if we can continue makinginvestments with credit quality similar to that of Gas Solutions, UnityVirginia Holdings and NGS — and we believe we can — we believe ourshareholders will benefit from strong cash flow generated by a high qualityportfolio.”
About Natural Gas Systems Inc. (NGS)
NGS acquires established crude oil and natural gas properties and exploitsthem through the application of conventional and specialized technology.NGS targets established, shallow oil and gas fields, preferably withexisting road, pipeline and storage infrastructure, and reservoirs with lowpermeability (referred to as “tight” reservoirs in which oil or gas flow isinhibited). NGS develops incremental value by bringing undrained orpartially drained areas of the reservoirs into production and byaccelerating existing production. NGS seeks to accelerate productionthrough work-overs to clean sand, water and paraffin from wells;re-completions into other reservoirs; optimization of production facilities(including installation of compression facilities); development drilling;and selective use of lateral drilling as an alternative to hydraulicfracturing.
NGS owns 100% of the working interest in the unitized Delhi Field innorthern Louisiana which encompasses 13,636 acres. Since being discoveredin the 1940s, the Delhi Field has produced more than 200 million barrels ofoil, plus substantial quantities of natural gas, from approximately 450wells completed in reservoirs less than 3,500 feet. Due to previouslydepressed commodity prices, roughly 90% of the field’s wells had beenplugged and abandoned prior to their acquisition by NGS in 2003, andproduction from the field had declined to a minimal level. Following itspurchase, NGS initiated a plan to re-develop the Delhi Field by restoringwells to production, re-completing wells in previously tested reservoirs,and re-entering plugged and abandoned wells to produce previously testedreservoirs. NGS has substantially increased production, and the fieldpresently has eight producing wells. An additional 35 wells remain shut-inand available for re-development. In addition, NGS has an extensivedevelopment drilling program for 2005.
NGS also owns 100% of the working interest in approximately 140 producingoil wells, 20 water disposal wells and 100 shut-in wells in the TullosUrania Field in central Louisiana. Cumulative production from all thewells in the field since its discovery in 1925 is approximately 50 millionbarrels of oil from a depth of approximately 1,700 feet. Currentproduction is constrained due to the lack of additional water re-injectioncapacity and mechanical issues. NGS acquired the facility in 2004 and hasinitiated a program of repairing such wells and returning them toproduction and increasing produced water re-injection capacity to increaseoil production.
About Prospect Energy Corporation
Prospect Energy Corporation (www.prospectstreet.com/) is a closed-endinvestment company that lends to and invests in energy-related businessesand assets. Prospect Energy’s investment objective is to generate bothcurrent income and long-term capital appreciation through debt and equityinvestments. Since completing its initial public offering in July 2004,the company has invested in Gas Solutions, an East Texas gas gathering andprocessing business, and in Unity Virginia Holding, a Virginia coal miningoperation.
Prospect Energy has elected to be treated as a business development companyunder the Investment Company Act of 1940 (“1940 Act”). Accordingly, we arerequired to comply with a series of regulatory requirements under the 1940Act as well as applicable NASDAQ, state, and federal rules and regulations.In addition, we have elected to be treated as a regulated investmentcompany under the Internal Revenue Code of 1986 (“Code”). The Codespecifies certain quarterly asset diversification and annual source ofincome requirements. To the extent we remain in compliance with theapplicable provisions of the Code, we will not be required to paycorporate-level taxes on any income that we earn. To the extent we do notqualify as elected, corporate-level taxes may be imposed upon our netincome.
This press release contains forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995. Forward-lookingstatements involve risks and uncertainties, including, but not limited to,statements as to our future operating results; our business prospects andthe prospects of our portfolio companies; the impact of investments that weexpect to make; the dependence of our future success on the general economyand its impact on the industries in which we invest; the ability of ourportfolio companies to achieve their objectives; our expected financingsand investments; the adequacy of our cash resources and working capital;and the timing of cash flows, if any, from the operations of our portfoliocompanies.
We may use words such as “anticipates,” “believes,” “expects,” “intends,””will,” “should,” “may,” “hope” and similar expressions to identifyforward-looking statements. Such statements are based on currentlyavailable operating, financial and competitive information and are subjectto various risks and uncertainties that could cause actual results todiffer materially from our historical experience and our presentexpectations. Undue reliance should not be placed on such forward-lookingstatements as such statements speak only as of the date on which they aremade. We do not undertake to update our forward-looking statements unlessrequired by law.
Contact:Please send investment proposals to:Prospect Energy CorporationJohn Barryjbarry@prospectstreet.com212-448-0702Grier Eliasekgrier@prospectstreet.com212-448-0702