China Natural Gas Announces First Quarter 2011 Financial Results

Qinan Ji, Chairman and CEO of China Natural Gas, Inc. commented: "During the first quarter, we continued to diligently grow and expand our business. The total number of fueling stations that we operated was 38. We also continued to make progress with the preparation for production of our liquefied natural gas (LNG) facility in Shaanxi Province and we were also actively expanding in other regions including Henan and Hubei Province. The successful expansion of our CNG fueling station business in Xi'an and Henan Province has been a significant factor driving our revenue growth and results of operations for the quarter. We intend to continue to increase the number of CNG fueling stations in Xi'an and Henan Province, and we anticipate the growth of our CNG fueling stations and our LNG facility coming online continue to add to both our top-line and bottom-line growth."

First Quarter 2011 Results

Revenue in the first quarter of 2011 increased by 24.5% to $24.11 million from $19.37 million in the first quarter of 2010, driven by the net increase of 2 in the number of fueling stations , and the growth in unit sales price, as well as an increase in the number of residential and commercial pipeline customers from 110,713 to 115,787 over the period. Sales revenue of natural gas grew by 31.5% year-over-year to $20.35 million, from $15.48 million in the first quarter of 2010. Gasoline revenue in the first quarter of 2011 decreased by 11.0% to $1.31 million, from $1.47 million in the same period of the prior year, mainly because 4 gasoline stations were closed during the fourth quarter of 2010, though 1 of them were reopened in the first quarter of 2011. Installation and automobile conversion services revenue grew by 1.7% year-over-year to $2.45 million, from $2.41 million a year ago. In the first quarter of 2011, sales of natural gas, gasoline, and installation and automobile conversion services contributed 84.4%, 5.4%, and 10.2% of total revenue, respectively.

Gross profit in the first quarter of 2011 increased 6.9% to $9.72 million from $9.09 million in the same period of the prior year. Gross margin in the first quarter of 2011 was 40.3%, compared to 47.0% a year ago. Gross margin decreased primarily due to the increase in average procurement prices increased at a higher proportion to prior prices than that of the increase in sales prices,

Operating income in the first quarter of 2011 was $3.23 million, a decrease of 26.4% year-over-year from $4.39 million, largely impacted by the increase in procurement costs and operating expenses in the first quarter of 2011 by approximately $1.78 million as compared to the same period of the prior year.

Income tax expense was $0.96 million at an effective tax rate of 27.8%, as compared to an effective tax rate of 18.6% in the first quarter of 2010. The increase was primarily because certain start-up, non-operational entities incurred a considerable amount of selling and management expenses for the first quarter of 2011, materially reducing of income before tax, the denominator in the calculation of effective income tax rate.

Net income in the first quarter of 2011 decreased by 37.8% to $2.49 million, or $0.12 per diluted share, from $4 million, or $0.19 per diluted share, in the first quarter of 2010.

As of March 31, 2011, the Company had $8.93 million of cash and cash equivalents on hand, compared to $10.05 million of cash and cash equivalents as of December 31, 2010. The decrease was primarily attributable to the construction of the LNG plant, and market development initiatives.

Net cash provided by operating activities was $2.46 million for the first quarter of 2011, as compared to net cash provided by operations of $4.85 million for the first quarter of 2010. The primary reason for the change was the correlating decrease in net income, the increase in accounts receivables, higher balance of inventories, the increase in other assets and the reduction in unearned revenue (customer prepayments).

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; and (4) the conversion of gasoline-fueled vehicles to hybrid (natural gas/gasoline) powered vehicles through its auto conversion division.

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.

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