Is it better to invest in good management plying its trade in a fair business, or to invest in fair management plying its trade in a good business? Most settle for the latter, some the former, but it's really a false dilemma. There's no reason you can't have both.

Few businesses are as good as energy production these days. Surging world demand — evidenced by $100-a-barrel crude — is well documented. Still, it's a volatile business and battle-tested sagacity (good management, in other words) is a requisite for long-term survival. 

Few energy companies have management as good as Natural Gas Services Group, Inc. (AMEX: NGS), a manufacturer, fabricator, seller and leaser of natural gas compressors based in Midland, Texas. Natural Gas focuses on non-conventional natural gas production such as coalbed methane, gas shales and tight gas. Major customers include Dominion Resources, Inc. (NYSE: D), Energen Corporation (NYSE: EGN), XTO Energy Inc. (NYSE: XTO) and Devon Energy Corporation (NYSE: DVN). A testament to Natural Gas’ management is its stock performance against the major indices — while the S&P 500 and Dow Jones Industrial Average have suffered 5% and 6% losses, respectively, the small-cap’s share price has appreciated 12%.

Most of Natural Gas's compressors are leased, with rental contracts providing initial terms of nine to 24 months. As of Sept. 30, 2007, the company had 1,136 natural gas compressors rented to 92 third parties, compared with 909 natural gas compressors rented to 85 third parties a year earlier.

The oil and gas equipment rental business is cyclical. The most critical factor in assessing the industry is the worldwide supply and demand for natural gas and the corresponding changes in commodity prices. On that front, inventory levels in the United States have favored crude oil over natural gas for the past three years. But many experts expect the balance of power to shift as oil becomes increasingly expensive relative to natural gas. 

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