The discussion and analysis of our financial condition and results of operations are based on, and should be read in conjunction with, our condensed consolidated financial statements and the related notes included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC.

Overview

We fabricate, manufacture, rent and sell natural gas compressors and related equipment. Our primary focus is on the rental of natural gas compressors. Our rental contracts generally provide for initial terms of six to 24 months. After the initial term of our rental contracts, most of our customers have continued to rent our compressors on a month-to-month basis. Rental amounts are paid monthly in advance and include maintenance of the rented compressors. As of March 31, 2009, we had 1,447 natural gas compressors totaling 183,776 horsepower rented to 111 third parties compared to 1,277 natural gas compressors totaling 152,261 horsepower rented to 106 third parties at March 31, 2008.

We also fabricate natural gas compressors for sale to our customers, designing compressors to meet unique specifications dictated by well pressures, production characteristics and particular applications for which compression is sought. Fabrication of compressors involves the purchase by us of engines, compressors, coolers and other components, and then assembling these components on skids for delivery to customer locations. The major components of our compressors are acquired through periodic purchase orders placed with third-party suppliers on an "as needed" basis, which presently requires a three to four month lead time with delivery dates scheduled to coincide with our estimated production schedules. Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate alternative sources available. In the past, we have not experienced any sudden and dramatic increases in the prices of the major components for our compressors. However, the occurrence of such an event could have a material adverse effect on the results of our operations and financial condition, particularly if we were unable to increase our rental rates and sales prices proportionate to any such component price increases.

We also manufacture a proprietary line of compressor frames, cylinders and parts, known as our CiP (Cylinder-in-Plane) product line. We use finished CiP component products in the fabrication of compressor units for sale or rental by us or sell the finished component products to other compressor fabricators. We also design, fabricate, sell, install and service flare stacks and related ignition and control devices for onshore and offshore incineration of gas compounds such as hydrogen sulfide, carbon dioxide, natural gas and liquefied petroleum gases. To provide customer support for our compressor and flare sales businesses, we stock varying levels of replacement parts at our Midland, Texas facility and at field service locations. We also provide an exchange and rebuild program for screw compressors and maintain an inventory of new and used compressors to facilitate this business.

We provide service and maintenance to our customers under written maintenance contracts or on an as required basis in the absence of a service contract. Maintenance agreements typically have terms of six months to one year and require payment of a monthly fee.

The oil and gas equipment rental and services industry is cyclical in nature. The most critical factor in assessing the outlook for the industry is the worldwide supply and demand for natural gas and the corresponding changes in commodity prices. As demand and prices increase, oil and gas producers increase their capital expenditures for drilling, development and production activities. Generally, the increased capital expenditures ultimately result in greater revenues and profits for services and equipment companies.

In general, we expect our overall business activity and revenues to track the level of activity in the natural gas industry, with changes in domestic natural gas production and consumption levels and prices more significantly affecting our business than changes in crude oil and condensate production and consumption levels and prices. We also believe that demand for compression services and products is driven by declining reservoir pressure in maturing natural gas producing fields and, more recently, by increased focus by producers on non-conventional natural gas production, such as coalbed methane, gas shales and tight gas, which typically requires more compression than production from conventional natural gas reservoirs.

Demand for our products and services was strong throughout previous years but began to decline in the first quarter of 2009 and will most likely continue to decline for the remainder of the year due to lower oil and natural gas prices and decreased demand for natural gas. However, we believe the long-term trend in our markets is favorable.

For fiscal year 2009, our forecasted capital expenditures will be directly dependent upon our customers' compression requirements and are not anticipated to exceed our internally generated cash flows. Any required capital will be for additions to our compressor rental fleet and/or addition or replacement of service vehicles. We believe that cash flows from operations will be sufficient to satisfy our capital and liquidity requirements through 2009. We may require additional capital to fund any unanticipated expenditures, including any acquisitions of other businesses, although that capital may not be available to us when we need it or on acceptable terms.

Results of Operations

Three months ended March 31, 2008, compared to the three months ended March 31,
2009.

The table below shows our revenues and percentage of total revenues of each of
our segments for the three months ended March 31, 2008 and March 31, 2009.

                                         Revenue
                                      (in thousands)
                               Three months ended March 31,
                                  2008                2009
Sales                     $     9,626     51 %   $  6,929   35 %
Rental                          9,010     47 %     12,788   64 %
Service and Maintenance           297      2 %        308    1 %
Total                     $    18,933            $ 20,025

Total revenue increased from $18.9 million to $20.0 million, or 5.8%, for the three months ended March 31, 2009, compared to the same period ended March 31, 2008. This was mainly the result of increased rental revenue offset by decreased sales revenue. Sales revenue decreased 28.0%, rental revenue increased 41.9%, and service and maintenance revenue increased 3.7%.

Sales revenue decreased from $9.6 million to $6.9 million, or 28.0%, for the three months ended March 31, 2009, compared to the same period ended March 31, 2008. This decrease is the result of lower demand for our products due to industry declines in capital expenditures in the fourth quarter of 2008 and the first quarter of 2009 which resulted in fewer compressor unit sales to third parties from our Tulsa and Michigan operations. Sales from outside sources included: (1) compressor unit sales, (2) flare sales, (3) parts, and (4) compressor rebuilds.

Rental revenue increased from $9.0 million to $12.8 million, or 41.9%, for the three months ended March 31, 2009, compared to the same period ended March 31, 2008. This increase was the result of additional units added to our rental fleet and rented to third parties. The company ended the period with 1,769 compressor packages in its rental fleet, up from 1,422 units at March 31, 2008. The rental fleet had a utilization of 81.8% as of March 31, 2009 compared to 89.8% utilization as of March 31, 2008. This utilization decrease partially resulted from units being returned by a major customer that performed a routine yearly evaluation of compressor needs. Additionally, the demand for smaller horsepower units has slowed due to the decline of natural gas commodity prices.

The overall operating margin percentage increased to 30.3% for the three months ended March 31, 2009, from 28.8% for the same period ended March 31, 2008. This is mainly the result of higher margins received in our rental segment. The overall margin is affected by the product mix between rental and sales, and since our rental margin is higher and rentals increased during the period, the overall margin moved higher.

Selling, general, and administrative expense increased from $1.4 million to $1.6 million or 16.8% for the three months ended March 31, 2009 as compared to the same period ended March 31, 2008. This increase is mainly due to an increase in sales commissions on rental equipment.

Depreciation and amortization expense increased from $2.1 million to $3.0 million or 39.2% for the three months ended March 31, 2009, compared to the same period ended March 31, 2008. This increase was the result of 347 new gas compressor rental units being added to the rental fleet from March 31, 2008 to March 31, 2009, thus increasing the depreciable base.

Other income, net of other expense, decreased $280,000 for the three months ended March 31, 2009, compared to the same period ended March 31, 2008. This decrease is mainly the result of decreased balances in our short-term investments generating less interest income.

Interest expense decreased 33.6% for the three months ended March 31, 2009, compared to the same period ended March 31, 2008, mainly due to decreased principal balances owed under our bank loan facility and a reduction in our interest rate on our term loan and bank line of credit.

Provision for income tax increased from $1.9 million to $2.1 million, or 6.5%, and is the result of the increase in taxable income.

Critical Accounting Policies and Practices

A discussion of our critical accounting policies is included in the Company's Form 10-K for the year ended December 31, 2008.

Recently Issued Accounting Pronouncements

On January 1, 2009, we adopted Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements," (SFAS 157) as it relates to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on at least an annual basis. SFAS 157 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions. The adoption of SFAS 157, as it relates to nonfinancial assets and nonfinancial liabilities had no impact on our consolidated financial statements. The provisions of SFAS 157 will be applied at such time a fair value measurement of a nonfinancial asset or nonfinancial liability is required, which may result in a fair value that is materially different than would have been calculated prior to the adoption of SFAS 157.

On January 1, 2009, we adopted SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51," (SFAS 160). SFAS 160 amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This standard defines a noncontrolling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. SFAS 160 requires, among other items, that a noncontrolling interest be included in the consolidated statement of financial position within equity separate from the parent's equity; consolidated net income to be reported at amounts inclusive of both the parent's and noncontrolling interest's shares and, separately, the amounts of consolidated net income attributable to the parent and noncontrolling interest all on the consolidated income statement; and if a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in net income based on such fair value. The adoption of SFAS 160 had no impact on our consolidated financial statements.

On January 1, 2009, we adopted SFAS No. 141(R), Business Combinations, which replaces SFAS No. 141, Business Combination (SFAS 141R), and requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This Statement also requires the acquirer in a business combination achieved in stages to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values. Additionally, this statement requires acquisition related costs to be expensed in the period in which the costs were incurred and the services are received instead of including such costs as part of the acquisition price. SFAS 141(R) makes various other amendments to authoritative literature intended to provide additional guidance or to confirm the guidance in that literature to that provided in this Statement. The adoption of SFAS No. 141(R) had no impact on our consolidated financial statements.

                        NATURAL GAS SERVICES GROUP, INC.


Liquidity and Capital Resources

Our working capital positions as of December 31, 2008 and March 31, 2009 are set
forth below.

                                     December 31,          March 31,
                                         2008                 2009
                                    (in thousands)       (in thousands)

Current Assets:
Cash and cash equivalents           $         1,149     $          2,741
Short-term investments                        2,300                    -
Trade accounts receivable, net               11,321               10,321
Inventory, net                               31,931               29,496
Prepaid income taxes                            244                  243
Prepaid expenses and other                       87                  195
Total current assets                         47,032               42,996

Current Liabilities:
Current portion of long-term debt             3,378                3,378
Accounts payable                              8,410                2,627
Accrued liabilities                           3,987                3,119
Current portion of tax liability                110                  171
Deferred income                                  38                  142
Total current liabilities                    15,923                9,437

Total working capital               $        31,109     $         33,559

Historically, we have funded our operations through public and private offerings of our equity securities, subordinated debt, bank borrowings and cash flow from operations. Proceeds from financing were primarily used to pay debt and to fund the manufacture and fabrication of additional units for our rental fleet of natural gas compressors.

For the three months ended March 31, 2009, we invested $5.8 million in equipment for our rental fleet and service vehicles. We financed this activity with cash flow from operations and cash on hand. In addition, we have repaid $845,000 of our existing debt.

Cash flows

At March 31, 2009, we had cash and cash equivalents of $2.7 million compared to $1.1 million at December 31, 2008. We had working capital of $33.6 million at March 31, 2009 compared to $31.1 million at December 31, 2008. At March 31, 2009, our total debt was $16.3 million of which $3.4 million was classified as current compared to $17.0 million and $3.4 million, respectively at December 31, 2008. We had positive net cash flow from operating activities of $5.8 million during the first three months of 2009 compared to $8.0 million for the first three months of 2008. The decrease was primarily from a decrease in accounts payable and accrued liabilities of $6.7 million offset by net income of $3.8 million and a decrease in inventory and work in progress of $2.5 million during the three months ended March 31, 2009.

Accounts receivable decreased $1.0 million to $10.3 million at March 31, 2009 as compared to $11.3 million at December 31, 2008. This decrease largely reflects the timing of collections and a slowdown in compressor unit sales during the first three months of 2009.

Inventory decreased $2.4 million to $29.5 million as of March 31, 2009 as compared to $31.9 million as of the year ended December 31, 2008. This decrease is mainly the result of our decreased manufacturing activity.

Long-term debt decreased $700,000 to $16.3 million at March 31, 2009, compared to $17.0 million at December 31, 2008. This decrease is mainly the result of the normal debt amortization. The current portion of long-term debt remained flat at $3.4 million at March 31, 2009 compared to December 31, 2008.

Recession strategy

For fiscal year 2009, our overall plan during the downturn in the economy is to reduce expenses in line with the lower anticipated activity, fabricate rental fleet equipment only in direct response to market requirements, emphasize marketing of our idle gas compressor units and reduce bank borrowing. Capital expenditures for the year ended December 31, 2009 are not anticipated to exceed our internal cash generating capacity. We believe that cash flows from operations will be sufficient to satisfy our capital and liquidity requirements through 2009. We may require additional capital to fund any unanticipated expenditures, including any acquisitions of other businesses. We currently have a $40 million dollar bank line of credit with an available balance of $33 million.

Senior Bank Borrowings

Revolving Line of Credit Facility. As of March 31, 2009, the amount available for revolving line of credit advances was $33.0 million. The amount we could borrow is determined by a borrowing base calculation and is based primarily upon our receivables, equipment and inventory. We had $7.0 million outstanding as of March 31, 2009 on this revolving line of credit facility, and the interest rate on that date was 4.00%.

$16.9 Million Multiple Advance Term Loan Facility. As of March 31, 2009 this term loan facility had a principal balance of $8.7 million, and the interest rate on that date was 4.00%.

As of March 31, 2009, we were in compliance with all covenants in our Loan Agreement. A default under our bank credit facility could trigger the acceleration of our bank debt so that it is immediately due and payable. Such default would have a material adverse effect on our liquidity, financial position and operations.

As of March 31, 2009, we had a long-term liability of $275,000 to Midland Development Corporation. This amount is to be recognized as income contingent upon certain staffing requirements in the future. In addition, we entered into a purchase agreement with a vendor on July 30, 2008 pursuant to which we agreed to purchase up to $4.8 million of our paint and coating requirements exclusively from the vendor. In connection with the execution of the agreement, the vendor paid us a $300,000 fee which is considered to be a discount toward future purchases from the vendor. Based on our historical paint and coating requirements, we estimate meeting the $4.8 million purchase obligation within five years. The $300,000 payment we received is recorded as a long-term liability and will decrease as the purchase commitment is fulfilled. The long-term liability remaining as of March 31, 2009 was $289,000.

Contractual Obligations and Commitments

We have contractual obligations and commitments that affect our consolidated
results of operations, financial condition and liquidity. The following table is
a summary of our significant cash contractual obligations:

                                                    Obligation Due in Period
                                                   (in thousands of dollars)
Cash
Contractual
Obligations        2009(1)        2010         2011         2012         2013         Thereafter       Total
Term loan
facility
(secured)        $   2,534     $  3,378      $ 2,816      $     -      $    -       $          -     $  8,728
Interest on
term loan
facility(2)            228          186           52            -           -                  -          466
Line of credit
(secured)                -        7,000            -            -           -                  -        7,000
Interest on
line of
credit(3)              210           93            -            -           -                  -          303
Purchase
obligations            953          956          956          956         814                  -        4,635
Other long
term debt                -            -            -            -           -                564          564
Facilities and
office leases          326          351          252          227         161                 10        1,327
 Total           $   4,251     $ 11,964      $ 4,076      $ 1,183      $  975      $         574     $ 23,023


____________________________________

(1) For the nine months remaining in 2009.
(2) Assumes an interest rate of 4.00%.
(3) Assumes an interest rate of 4.00%.

Off-Balance Sheet Arrangements

From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations. As of March 31, 2009, the off-balance sheet arrangements and transactions that we have entered into include operating lease agreements and purchase agreements. We do not believe that these arrangements are reasonably likely to materially affect our liquidity, availability of, or requirements for, capital resources.

We entered into a purchase agreement with a vendor on July 30, 2008 pursuant to which we agreed to purchase up to $4.8 million of our paint and coating requirements exclusively from the vendor. In connection with the execution of the agreement, the vendor paid us a $300,000 fee which is considered to be a discount toward future purchases from the vendor. Based on our historical paint and coating requirements, we estimate meeting the $4.8 million purchase obligation within five years. The $300,000 payment received by the Company is recorded as a long-term liability and will decrease as the purchase commitment is fulfilled. The long-term liability remaining as of March 31, 2009 was $289,000.

Special Note Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause NGS's actual results in future periods to differ materially from forecasted results. Those risks include, among other things, the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; a prolonged, substantial reduction in oil and gas prices which could cause a decline in the demand for NGS's products and services; and new governmental safety, health and environmental regulations which could require NGS to make significant capital expenditures. The forward-looking statements included in this press release are only made as of the date of this press release, and NGS undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these factors is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission.