31/01/2019 21:45:00

National Fuel Reports First Quarter Earnings

WILLIAMSVILLE, N.Y., Jan. 31, 2019 (GLOBE NEWSWIRE) -- National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated results for the first quarter of its 2019 fiscal year.

FISCAL 2019 FIRST QUARTER SUMMARY

  • GAAP earnings of $102.7 million, or $1.18 per share, compared to $198.7 million, or $2.30 per share, in the prior year
  • Adjusted operating results of $97.5 million, or $1.12 per share, compared to $88.0 million, or $1.02 per share, in the prior year (see non-GAAP reconciliation below)
  • Consolidated Adjusted EBITDA of $219.4 million compared to $205.7 million in the prior year (see non-GAAP reconciliation on page 22)
  • E&P segment net production of 49.2 Bcfe, an increase of 23% from the prior year
  • Average natural gas prices, after the impact of hedging, of $2.61 per Mcf, down $0.11 per Mcf from the prior year
  • Average oil prices, after the impact of hedging, of $61.70 per Bbl, up $1.91 per Bbl from the prior year
  • E&P cash operating expenses averaged $1.35 per Mcfe, a decrease of $0.13 per Mcfe from the prior year
  • Gathering segment operating revenues increased $5.9 million, or 25% on higher system throughput
  • Utility segment net income increased $4.7 million, or 22%, on higher customer margins
  • Lower consolidated interest expense of $2.1 million resulting from the early refinancing of an 8.75% coupon 10-year note that was set to mature in May 2019

     
  

Three Months Ended

  

December 31,

(in thousands except per share amounts)

 

2018

 

2017

Reported GAAP Earnings

 $102,660  $198,654 

Items impacting comparability

    
Remeasurement of deferred income taxes under 2017 Tax Reform (5,000) (111,000)
Unrealized (gain) loss on hedge ineffectiveness (E&P) (6,505) 433 
Tax impact of unrealized (gain) loss on hedge ineffectiveness 1,366  (106)
Unrealized loss on other investments (Corporate / All Other) 6,347   
Tax impact of unrealized loss on other investments (1,333)  

Adjusted Operating Results

 $97,535  $87,981 
     

Reported GAAP Earnings per share

 $1.18  $2.30 

Items impacting comparability

    
Remeasurement of deferred income taxes under 2017 Tax Reform (0.06) (1.29)
Unrealized (gain) loss on hedge ineffectiveness (E&P) (0.08) 0.01 
Tax impact of unrealized (gain) loss on hedge ineffectiveness 0.02   
Unrealized loss on other investments (Corporate / All Other) 0.07   
Tax impact of unrealized loss on other investments (0.01)  

Adjusted Operating Results per share

 $1.12  $1.02 

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: “We’ve started off our 2019 fiscal year with a strong first quarter and we expect our momentum will continue through the whole year.  As we transitioned into the winter heating season, the operating teams in our Utility and Pipeline and Storage businesses have our pipeline systems ready to safely deliver natural gas to the more than 750,000 customers within our service territories and across the northeast, ensuring that homes and businesses continue to benefit from the reliability of natural gas when needed most. Our operations’ employees were also able to provide mutual aid to other northeast utilities that recently experienced operational issues on their systems.

“In our Exploration and Production and Gathering operations, both quarterly production and gathering throughput continue to grow at a healthy clip, and we’re on track to achieve our targeted production growth while also growing our earnings and cash flows. With a balanced portfolio of long-term sales and transportation contracts and line of sight on incremental transportation capacity out of the basin, we remain focused on efficiently developing both the Marcellus and Utica shale horizons across our more than 700,000-acre, fee-owned acreage position in the Western Development Area.

“As has been the case for decades, across our operations we remain focused on prudently deploying capital, driving shareholder value with the development of our integrated assets, and returning capital to shareholders through our long-standing dividend.”

FISCAL 2019 GUIDANCE

National Fuel is tightening and raising its full-year earnings guidance for fiscal 2019.  The Company is now projecting that earnings on a non-GAAP basis will be within the range of $3.45 to $3.65 per share, or $3.55 per share at the midpoint of the range. The $0.05 per share increase from the midpoint of the previous guidance range reflects the impact of actual results for the three months ended December 31, 2018, and updates to key forecast assumptions, including natural gas and oil prices. The Company is also reaffirming its guidance for its Exploration and Production segment’s fiscal 2019 net production of 210 to 230 billion cubic feet equivalent (“Bcfe”), which represents a 24 percent increase over fiscal 2018 at the midpoint of the range. Projections for consolidated and individual segment capital expenditures are also unchanged.

The revised earnings guidance range does not include the impact of certain items that impacted the comparability of earnings during the first quarter, including: (1) the remeasurement of deferred income taxes resulting from the 2017 Tax Reform Act, which reduced the Company’s income tax expense and benefited consolidated earnings in the first quarter by $0.06 per share; (2) the full year impact of the Exploration and Production segment’s unrealized gain on hedging ineffectiveness, which increased earnings by $0.06 per share in the first quarter ($3.2 million, or $0.03 per share, of the unrealized gain relates to hedge contracts that will settle during the remaining nine months ending September 30, 2019); and (3) the unrealized loss on other investments due to the change in an accounting rule discussed on page 6, which lowered earnings by $0.06 per share.  While the Company expects to record additional adjustments to one or more of these items during the remaining nine months ending September 30, 2019, the amounts of these and other potential adjustments are not reasonably determinable at this time.   As such, the Company is unable to provide earnings guidance other than on a non-GAAP basis.

Additional details on the Company's forecast assumptions and business segment guidance for fiscal 2019 are outlined in the table on page 8.

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each operating segment is summarized in a tabular form on pages 9 and 10 of this report.  It may be helpful to refer to those tables while reviewing this discussion.  Note that management defines Adjusted Operating Results as reported GAAP earnings adjusted for items impacting comparability, and Adjusted EBITDA as reported GAAP earnings before the following items: interest expense, income taxes, depreciation, depletion and amortization, other income and deductions, impairments, and other items reflected in operating income that impact comparability.

The 2017 Tax Reform Act, which was passed during the prior year first quarter, reduced the statutory federal tax rate and resulted in the remeasurement of the Company’s deferred income taxes.  For the Company’s non-rate regulated activities, the net decrease in the Company’s deferred income taxes lowered income tax expense and benefited the prior year first quarter consolidated earnings by $111.0 million, or $1.29 per share. A removal of a valuation allowance related to the remeasurement of deferred income taxes from the 2017 Tax Reform Act during the current year first quarter lowered income tax expense and benefited consolidated earnings by $5.0 million, or $0.06 per share. The remeasurement of deferred income taxes due to 2017 Tax Reform, which was a significant driver of the Company’s first quarter segment GAAP earnings when compared to the prior year, is outlined in the tables below that reconcile GAAP earnings to Adjusted Operating Results by segment.

Upstream Business

Exploration and Production Segment

The Exploration and Production segment operations are carried out by Seneca Resources Company, LLC ("Seneca").  Seneca explores for, develops and produces natural gas and oil reserves, primarily in Pennsylvania and California.

 

Three Months Ended

 

December 31,

(in thousands)

2018

 

2017

 

Variance

GAAP Earnings$38,214  $106,698  $(68,484)
Remeasurement of deferred taxes under 2017 Tax Reform$(990) $(77,300) $76,310 
Unrealized (gain) loss on hedge ineffectiveness$(6,505) $433  $(6,938)
Tax impact of unrealized (gain) loss on hedge ineffectiveness$1,366  $(106) $1,472 
Adjusted Operating Results$32,085  $29,725  $2,360 
      
Adjusted EBITDA$89,896  $80,221  $9,675 

The Exploration and Production segment’s first quarter GAAP earnings decreased $68.5 million versus the prior year, driven primarily by the impact of 2017 Tax Reform on deferred taxes discussed above and the net impact of unrealized gains and losses that were recognized due to hedge accounting ineffectiveness (see further discussion below).  Excluding these items, the Exploration and Production segment’s first quarter earnings increased $2.4 million as higher natural gas production and better realized crude oil prices were partially offset by the negative impacts of lower realized natural gas prices, lower crude oil production, and higher operating expenses.

Seneca’s first quarter net production was 49.2 billion cubic feet equivalent (“Bcfe”), an increase of 9.1 Bcfe, or 23 percent, from the prior year.  Natural gas production increased 9.7 billion cubic feet (“Bcf”), or 27 percent, due primarily to production from new Marcellus and Utica wells completed and connected to sales in Pennsylvania.  Seneca increased production by 5.7 Bcf in the EDA-Lycoming area, where development was timed to fill interstate pipeline capacity contracted on the Atlantic Sunrise project which went in service during the quarter.  Production from the WDA-Clermont area increased 3.3 Bcf due to increased Utica development.  Seneca's average realized natural gas price, after the impact of hedging and transportation costs, was $2.61 per thousand cubic feet ("Mcf"), a decrease of $0.11 per Mcf from the prior year.  The decline in Seneca’s average realized natural gas price is primarily attributable to the expiration of physical firm sales and financial hedge contracts over the past 12 months that had favorable pricing relative to firm sales and hedges settled in the current quarter, offset partially by improved realizations on unhedged production tied to NYMEX and sold into the spot markets in Pennsylvania.

Seneca’s oil production for the first quarter decreased 101 thousand barrels ("Mbbl") due largely to the impact of the sale of Seneca’s Sespe properties in California in the third quarter of fiscal 2018.  Seneca's average realized oil price, after the impact of hedging, was $61.70 per barrel ("Bbl"), an increase of $1.91 per Bbl over the prior year.  The improvement in oil price realizations was due primarily to higher market prices for West Texas Intermediate (WTI) crude oil during the quarter and stronger price differentials relative to WTI at local sales points in California. The improving local price differentials also required Seneca to record the net $6.5 million unrealized mark-to-market gain on its WTI and Brent financial swap contracts due to accounting rules on measuring hedge ineffectiveness.

Total operating expenses increased $14.4 million during the first quarter.  Lease operating and transportation (“LOE”) expense increased $2.9 million due mostly to higher gathering expenses in Appalachia resulting from the increase in natural gas production, partially offset by lower operating costs in California following the sale of Seneca’s Sespe properties.  General and Administrative (“G&A”) expense increased $1.6 million due mainly to higher personnel costs.  Depreciation, depletion and amortization (“DD&A”) expense increased $7.3 million due to the increase in production and a higher per unit depletion rate.  Property, franchise, and other taxes increased $2.8 million due to higher impact fees in Pennsylvania, which increase and decrease along with natural gas index prices on a calendar year basis.  On a per unit of production basis, cash operating expenses (total operating expenses excluding DD&A) were $1.35 per thousand cubic feet equivalent (“Mcfe”), a decrease of $0.13 per Mcfe from the prior year.

Midstream Businesses

Pipeline and Storage Segment

The Pipeline and Storage segment’s operations are carried out by National Fuel Gas Supply Corporation (“Supply Corporation”) and Empire Pipeline, Inc. (“Empire”).  The Pipeline and Storage segment provides natural gas transportation and storage services to affiliated and non-affiliated companies through an integrated system of pipelines and underground natural gas storage fields in western New York and Pennsylvania.

 

Three Months Ended

 

December 31,

(in thousands)

2018

 

2017

 

Variance

GAAP Earnings$25,102  $38,462  $(13,360)
Remeasurement of deferred taxes under 2017 Tax Reform$  $(14,100) $14,100 
Adjusted Operating Results$25,102  $24,362  $740 
      
Adjusted EBITDA$47,824  $50,417  $(2,593)

The Pipeline and Storage segment’s first quarter GAAP earnings decreased $13.4 million versus the prior year, driven primarily by the impact of 2017 Tax Reform on deferred taxes discussed above.  Excluding this item, the Pipeline and Storage segment’s first  quarter earnings increased $0.7 million as higher operating revenues, lower interest expense and a lower effective tax rate were partially offset by higher operating expenses.  Operating revenues increased $1.8 million versus the prior year due primarily to other revenues recorded during the quarter for funds received relating to the early termination of a transportation contract. Operation and Maintenance (“O&M”) expense increased $4.0 million over the prior year due primarily to an increase in compressor and facility maintenance activity during the quarter, higher long term incentive compensation expense, and the impact in the prior year of the reversal of a reserve for preliminary engineering and survey costs relating to projects in development. The combined $0.7 million increase in DD&A expense and property, franchise and other taxes was due to projects and new facilities placed in service over the past year.

The 2017 Tax Reform Act lowered the Company’s statutory federal income tax rate from a blended 24.5 percent in fiscal 2018 to 21 percent in fiscal 2019, which decreased income tax expense by $0.8 million.  Other tax items, due mostly to permanent book to tax differences, lowered income tax expense by another $1.6 million.

Gathering Segment

The Gathering segment’s operations are carried out by National Fuel Gas Midstream Company, LLC’s limited liability companies. The Gathering segment constructs, owns and operates natural gas gathering pipelines and compression facilities in the Appalachian region which currently delivers Seneca’s gross Appalachian production to the interstate pipeline system.

 

Three Months Ended

 

December 31,

(in thousands)

2018

 

2017

 

Variance

GAAP Earnings$14,183  $45,400  $(31,217)
Remeasurement of deferred taxes under 2017 Tax Reform$(500) $(34,900) $34,400 
Adjusted Operating Results$13,683  $10,500  $3,183 
      
Adjusted EBITDA$25,948  $20,813  $5,135 

The Gathering segment’s first quarter GAAP earnings decreased $31.2 million versus the prior year, driven primarily by the impact of 2017 Tax Reform on deferred taxes discussed above.  Excluding this item, the $3.2 million increase in the Gathering segment’s first quarter earnings was due mainly to higher operating revenues, offset partially by higher operating expenses. Operating revenues increased $5.9 million, or 25 percent, due primarily to an 11.5 Bcf increase in throughput from Seneca’s Appalachian natural gas production. The Trout Run gathering system throughput increased 6.7 Bcf as Seneca increased production during the quarter to fill its new interstate pipeline capacity on the Atlantic Sunrise project. Throughput on the Covington and Clermont gathering systems increased 1.4 Bcf and 4.1 Bcf, respectively.

Operating expenses increased $1.3 million during the first quarter. O&M expense increased $0.7 million due largely to the operation of additional compression facilities along the Covington gathering system, which were acquired from affiliate Seneca in March 2018, and an increase in facilities and related maintenance activity at the Trout Run gathering system.  DD&A expense increased $0.6 million due to an increase in plant assets in-service during the quarter ended December 31, 2018.

Downstream Businesses

Utility Segment

The Utility segment operations are carried out by National Fuel Gas Distribution Corporation (“Distribution”), which sells or transports natural gas to customers located in western New York and northwestern Pennsylvania.

 

Three Months Ended

 

December 31,

(in thousands)

2018

 

2017

 

Variance

GAAP Earnings$25,649  $20,993  $4,656 
Remeasurement of deferred taxes under 2017 Tax Reform$  $  $ 
Adjusted Operating Results$25,649  $20,993  $4,656 
      
Adjusted EBITDA$57,569  $54,150  $3,419 

The $4.7 million increase in the Utility segment’s first quarter GAAP earnings was due primarily to higher margin (operating revenues less purchased gas expense), lower interest expense and a lower effective tax rate.  The increase in the Utility’s margin was largely attributable to the impacts of higher usage and weather on residential and commercial customer margins. Also contributing to the increase were revenues relating to the recovery of the segment’s increased capital investment in its distribution system under a system modernization mechanism. Interest expense decreased $0.9 million due primarily to the Company’s early refinancing of an 8.75 percent coupon 10-year note that was set to mature in May 2019.

The 2017 Tax Reform Act lowered the Company’s statutory federal income tax rate from a blended 24.5 percent in fiscal 2018 to 21 percent in fiscal 2019, which decreased income tax expense $1.0 million from the prior year first quarter.  In accordance with state regulatory orders, the Utility segment has been recording a refund provision to return the net effect of the 2017 Tax Reform Act to its customers.  The estimated refund provision recorded for the quarter ended December 31, 2018, was $0.5 million lower than the refund provision recorded for the quarter ended December 31, 2017.

Energy Marketing Segment

The Energy Marketing segment's operations are carried out by National Fuel Resources, Inc. (“NFR”).  NFR markets natural gas to industrial, wholesale, commercial, public authority, and residential customers primarily in western and central New York and northwestern Pennsylvania, offering competitively priced natural gas to its customers.

 

Three Months Ended

 

December 31,

(in thousands)

2018

 

2017

 

Variance

GAAP Earnings$(302) $1,046  $(1,348)
Remeasurement of deferred taxes under 2017 Tax Reform$(198) $200  $(398)
Adjusted Operating Results$(500) $1,246  $(1,746)
      
Adjusted EBITDA$(721) $1,804  $(2,525)

The Energy Marketing segment’s first quarter GAAP earnings decreased $1.3 million versus the prior year, driven partly by the impact of 2017 Tax Reform on deferred taxes discussed above.  Excluding this item, the Energy Marketing segment’s first quarter net loss of $0.5 million was a decrease of $1.7 million over the prior year earnings of $1.2 million.  The decrease is due largely to lower margins (operating revenues less purchased gas costs).  NFR’s customer margins were negatively impacted by stronger natural gas prices at local purchase points relative to NYMEX-based customer sales contracts. The average cost per Mcf of gas purchased on a spot basis at local purchase points increased 42 percent during the quarter, compared to the average increase in NYMEX monthly settlement prices of 24 percent.

Corporate and All Other

Corporate and All Other operations had a combined loss of $0.2 million for the current year first quarter, which was $13.7 million lower than the loss of $13.9 million for prior year first quarter.  The decrease in the loss was primarily attributable to the impact of the 2017 Tax Reform Act, which resulted in a remeasurement of deferred income taxes that increased prior quarter income tax expense by $15.1 million. A removal of a valuation allowance related to the 2017 Tax Reform Act during the quarter ended December 31, 2018, resulted in an adjustment to Corporate and All Other’s remeasured deferred income taxes and lowered current quarter income tax expense by $3.3 million. This increase in earnings was partially offset by the impact of $6.3 million of unrealized losses on investments in equity securities recorded during the quarter. Unrealized gains and losses on investments in equity securities are now recognized in earnings following the adoption of authoritative accounting guidance effective October 1, 2018.  These unrealized gains and losses had been previously recorded as other comprehensive income.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, February 1, 2019, at 11 a.m. Eastern Time to discuss this announcement.  There are two ways to access this call.  For those with Internet access, visit the NFG Investor Relations News & Events page at National Fuel’s website at investor.nationalfuelgas.com.  For those without Internet access, audio access is also provided by dialing (toll-free) 833-287-0795, using conference ID number “7996513”.  For those unable to listen to the live conference call, an audio replay will be available approximately two hours following the teleconference at the same website link and by phone at (toll-free) 800-585-8367 using conference ID number “7996513”.  Both the webcast and a telephonic replay will be available until the close of business on Friday, February 8, 2019.

National Fuel is an integrated energy company reporting financial results for five operating segments: Exploration and Production, Pipeline and Storage, Gathering, Utility, and Energy Marketing.  Additional information about National Fuel is available at www.nationalfuelgas.com.

Certain statements contained herein, including statements identified by the use of the words “anticipates,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “predicts,” “projects,” “believes,” “seeks,” “will,” “may” and similar expressions, and statements which are other than statements of historical facts, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The Company’s expectations, beliefs and projections contained herein are expressed in good faith and are believed to have a reasonable basis, but there can be no assurance that such expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors, the following are important factors that could cause actual results to differ materially from those discussed in the forward-looking statements: delays or changes in costs or plans with respect to Company projects or related projects of other companies, including difficulties or delays in obtaining necessary governmental approvals, permits or orders or in obtaining the cooperation of interconnecting facility operators; governmental/regulatory actions, initiatives and proceedings, including those involving rate cases (which address, among other things, target rates of return, rate design and retained natural gas), environmental/safety requirements, affiliate relationships, industry structure, and franchise renewal; changes in laws, regulations or judicial interpretations to which the Company is subject, including those involving derivatives, taxes, safety, employment, climate change, other environmental matters, real property, and exploration and production activities such as hydraulic fracturing; financial and economic conditions, including the availability of credit, and occurrences affecting the Company’s ability to obtain financing on acceptable terms for working capital, capital expenditures and other investments, including any downgrades in the Company’s credit ratings and changes in interest rates and other capital market conditions; changes in the price of natural gas or oil; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; factors affecting the Company’s ability to successfully identify, drill for and produce economically viable natural gas and oil reserves, including among others geology, lease availability, title disputes, weather conditions, shortages, delays or unavailability of equipment and services required in drilling operations, insufficient gathering, processing and transportation capacity, the need to obtain governmental approvals and permits, and compliance with environmental laws and regulations; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide other post-retirement benefits; changes in price differentials between similar quantities of natural gas or oil sold at different geographic locations, and the effect of such changes on commodity production, revenues and demand for pipeline transportation capacity to or from such locations; other changes in price differentials between similar quantities of natural gas or oil having different quality, heating value, hydrocarbon mix or delivery date; the cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company; uncertainty of oil and gas reserve estimates; significant differences between the Company’s projected and actual production levels for natural gas or oil; changes in demographic patterns and weather conditions; changes in the availability, price or accounting treatment of derivative financial instruments; changes in laws, actuarial assumptions, the interest rate environment and the return on plan/trust assets related to the Company’s pension and other post-retirement benefits, which can affect future funding obligations and costs and plan liabilities; changes in economic conditions, including global, national or regional recessions, and their effect on the demand for, and customers’ ability to pay for, the Company’s products and services; the creditworthiness or performance of the Company’s key suppliers, customers and counterparties; the impact of potential information technology, cybersecurity or data security breaches; economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities or acts of war; significant differences between the Company’s projected and actual capital expenditures and operating expenses; or increasing costs of insurance, changes in coverage and the ability to obtain insurance. The Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date thereof.

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

GUIDANCE SUMMARY

As discussed on page 2, the Company is revising its earnings guidance for fiscal 2019.  Additional details on the Company's forecast assumptions and business segment guidance for fiscal 2019 are outlined in the table below.

The revised earnings guidance range does not include the impact of certain items that impacted the comparability of earnings during the first quarter, including: (1) the remeasurement of deferred income taxes resulting from the 2017 Tax Reform Act, which reduced the Company’s income tax expense and benefited consolidated earnings in the first quarter by $0.06 per share; (2) the full year impact of the Exploration and Production segment’s unrealized gain on hedging ineffectiveness, which increased earnings by $0.06 per share in the first quarter ($3.2 million, or $0.03 per share, of the unrealized gain relates to hedge contracts that will settle during the remaining nine months ending September 30, 2019); and (3) the unrealized loss on other investments due to the change in an accounting rule discussed on page 6, which lowered earnings by $0.06 per share.  While the Company expects to record additional adjustments to one or more of these items during the remaining nine months ending September 30, 2019, the amounts of these and other potential adjustments are not reasonably determinable at this time.  As such, the Company is unable to provide earnings guidance other than on a non-GAAP basis.

 

Updated FY 2019 Guidance

 

Previous FY 2019 Guidance

Consolidated Earnings per Share

$3.45 to $3.65

 

$3.35 to $3.65

Consolidated Effective Tax Rate

24% to 25% ~25%
    

Capital Expenditures (Millions)

   
  Exploration and Production$460 - $495 $460 - $495
  Pipeline and Storage$120 - $150 $120 - $150
  Gathering$55 - $65 $55 - $65
  Utility

$90 - $100

 

$90 - $100

  Consolidated Capital Expenditures

$725 - $810

 

$725 - $810

    

Exploration & Production Segment Guidance

   
    

  Commodity Price Assumptions

   
  NYMEX natural gas price (winter | summer)$3.25 /MMBtu | $2.75 /MMBtu $3.00 /MMBtu | $2.65 /MMBtu
  Appalachian basin spot price (winter | summer)$2.75 /MMBtu | $2.25 /MMBtu $2.50 /MMBtu | $2.00 /MMBtu
  NYMEX (WTI) crude oil price$55.00 /Bbl $70.00 /Bbl
  California oil price (% of WTI)102% 100%
    

  Production (Bcfe)

   
  East Division - Appalachia194 to 214 194 to 214
  West Division - California

~ 16

 

~ 16

  Total Production

210 to 230

 

210 to 230

    

  E&P Operating Costs ($/Mcfe)

   
  LOE$0.85 - $0.90 $0.85 - $0.90
  G&A$0.25 - $0.35 $0.25 - $0.35
  DD&A$0.70 - $0.75 $0.70 - $0.75
    

Other Business Segment Guidance (Millions)

   
  Gathering Segment Revenues$130 - $140 $130 - $140
  Pipeline and Storage Segment Revenues~$285 ~$285

NATIONAL FUEL GAS COMPANY

RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS

QUARTER ENDED DECEMBER 31, 2018

(Unaudited)

              
 

Upstream

 

Midstream Businesses

 

Downstream Businesses

    
              
 Exploration & Pipeline &     Energy Corporate /  
(Thousands of Dollars)Production Storage Gathering Utility Marketing All Other Consolidated*
              

First quarter 2018 GAAP earnings

$106,698  $38,462  $45,400  $20,993  $1,046  $(13,945) $198,654 

Items impacting comparability:

             
Remeasurement of deferred taxes under 2017 Tax Reform(77,300) (14,100) (34,900)   200  15,100  (111,000)
Unrealized loss on hedge ineffectiveness433            433 
Tax impact of unrealized loss on hedge ineffectiveness(106)           (106)

First quarter 2018 adjusted operating results

29,725  24,362  10,500  20,993  1,246  1,155  87,981 
              

Drivers of adjusted operating results**

             
              

Upstream Revenues

             
Higher (lower) natural gas production19,897            19,897 
Higher (lower) crude oil production(4,563)           (4,563)
Higher (lower) realized natural gas prices, after hedging(3,563)           (3,563)
Higher (lower) realized crude oil prices, after hedging825            825 
              

Midstream Revenues

             
Higher (lower) operating revenues  1,339  4,421        5,760 
              

Downstream Margins***

             
Impact of higher usage and weather      1,739      1,739 
System modernization tracker revenues      889      889 
Lower (higher) refund provision on tax rate change      413      413 
Higher (lower) marketing margins        (1,827)   (1,827)
              

Operating Expenses

             
Lower (higher) lease operating and transportation expenses(2,201)           (2,201)
Lower (higher) operating expenses(1,068) (2,991) (549)       (4,608)
Lower (higher) property, franchise and other taxes(2,109)           (2,109)
Lower (higher) depreciation / depletion(5,493)   (446)       (5,939)
              

Other Income (Expense)

             
(Higher) lower interest expense159  445  (28) 713  5  274  1,568 
              

Income Taxes

             
Impact of tax rate reduction due to 2017 Tax Reform1,593  796  586  1,007  (30) (218) 3,734 
Lower (higher) income tax expense / effective tax rate(1,184) 1,635  (600) (30) 162  103  86 
              
All other / rounding67  (484) (201) (75) (56) 202  (547)

First quarter 2019 adjusted operating results

32,085  25,102  13,683  25,649  (500) 1,516  97,535 
              
Remeasurement of deferred taxes under 2017 Tax Reform990    500    198  3,312  5,000 
Unrealized gain on hedge ineffectiveness6,505            6,505 
Tax impact of unrealized gain on hedge ineffectiveness(1,366)           (1,366)
Unrealized (loss) on other investments          (6,347) (6,347)
Tax impact of unrealized loss on other investments          1,333  1,333 

First quarter 2019 GAAP earnings

$38,214  $25,102  $14,183  $25,649  $(302) $(186) $102,660 
              
* Amounts do not reflect intercompany eliminations             
** Operating results have been calculated using the 24.5% federal statutory rate effective for the 2018 fiscal year. The impact of the change to a 21% federal statutory rate for the 2019 fiscal year is broken out separately under the caption "Income Taxes".
*** Downstream margin defined as operating revenues less purchased gas expense.

NATIONAL FUEL GAS COMPANY

RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE

QUARTER ENDED DECEMBER 31, 2018

(Unaudited)

              
 

Upstream

 

Midstream Businesses

 

Downstream Businesses

    
              
 Exploration & Pipeline &     Energy Corporate /  
 Production Storage Gathering Utility Marketing All Other Consolidated*
              

First quarter 2018 GAAP earnings per share

$1.24  $0.45  $0.53  $0.24  $0.01  $(0.17) $2.30 

Items impacting comparability:

             
Remeasurement of deferred taxes under 2017 Tax Reform(0.90) (0.16) (0.40)     0.17  (1.29)
Unrealized loss on hedge ineffectiveness0.01            0.01 
Tax impact of unrealized loss on hedge ineffectiveness             
Rounding(0.01) (0.01) (0.01)   0.01  0.02   

First quarter 2018 adjusted operating results per share

0.34  0.28  0.12  0.24  0.02  0.02  1.02 
              

Drivers of adjusted operating results**

             
              

Upstream Revenues

             
Higher (lower) natural gas production0.23            0.23 
Higher (lower) crude oil production(0.05)           (0.05)
Higher (lower) realized natural gas prices, after hedging(0.04)           (0.04)
Higher (lower) realized crude oil prices, after hedging0.01            0.01 
              

Midstream Revenues

             
Higher (lower) operating revenues  0.02  0.05        0.07 
              

Downstream Margins***

             
Impact of higher usage and weather      0.02      0.02 
System modernization tracker revenues      0.01      0.01 
Lower (higher) refund provision on tax rate change             
Higher (lower) marketing margins        (0.02)   (0.02)
              

Operating Expenses

             
Lower (higher) lease operating and transportation expenses(0.03)           (0.03)
Lower (higher) operating expenses(0.01) (0.03) (0.01)       (0.05)
Lower (higher) property, franchise and other taxes(0.02)           (0.02)
Lower (higher) depreciation / depletion(0.06)   (0.01)       (0.07)
              

Other Income (Expense)

             
(Higher) lower interest expense  0.01    0.01      0.02 
              

Income Taxes

             
Impact of tax rate reduction due to 2017 Tax Reform0.02  0.01  0.01  0.01      0.05 
Lower (higher) income tax expense / effective tax rate(0.01) 0.02  (0.01)        
              
All other / rounding(0.01) (0.02) 0.01  0.01  (0.01) (0.01) (0.03)

First quarter 2019 adjusted operating results per share

0.37  0.29  0.16  0.30  (0.01) 0.01  1.12 
              
Remeasurement of deferred taxes under 2017 Tax Reform0.01    0.01      0.04  0.06 
Unrealized gain on hedge ineffectiveness0.08            0.08 
Tax impact of unrealized gain on hedge ineffectiveness(0.02)           (0.02)
Unrealized (loss) on other investments          (0.07) (0.07)
Tax impact of unrealized loss on other investments          0.01  0.01 
Rounding    (0.01)   0.01     

First quarter 2019 GAAP earnings per share

$0.44  $0.29  $0.16  $0.30  $  $(0.01) $1.18 
              
* Amounts do not reflect intercompany eliminations             
** Operating results have been calculated using the 24.5% federal statutory rate effective for the 2018 fiscal year. The impact of the change to a 21% federal statutory rate for the 2019 fiscal year is broken out separately under the caption "Income Taxes".
*** Downstream margin defined as operating revenues less purchased gas expense.

     
     

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

     
(Thousands of Dollars, except per share amounts)    
 Three Months Ended 
 December 31, 
 (Unaudited) 

SUMMARY OF OPERATIONS

2018 2017 
Operating Revenues:    
Utility and Energy Marketing Revenues$272,092  $225,725  
Exploration and Production and Other Revenues163,937  140,450  
Pipeline and Storage and Gathering Revenues54,218  53,480  
 490,247  419,655  
Operating Expenses:    
Purchased Gas138,660  94,034  
Operation and Maintenance:    
  Utility and Energy Marketing43,915  44,080  
  Exploration and Production and Other32,795  35,083  
  Pipeline and Storage and Gathering24,934  20,311  
Property, Franchise and Other Taxes24,005  20,848  
Depreciation, Depletion and Amortization64,255  55,830  
 328,564  270,186  
     
Operating Income161,683  149,469  
     
Other Income (Expense):    
Other Income (Deductions)(9,602) (3,503) 
Interest Expense on Long-Term Debt(25,439) (28,087) 
Other Interest Expense(1,073) (502) 
     
Income Before Income Taxes125,569  117,377  
     
Income Tax Expense (Benefit)22,909  (81,277) 
     
Net Income Available for Common Stock$102,660  $198,654  
     
Earnings Per Common Share    
Basic$1.19  $2.32  
Diluted$1.18  $2.30  
     

Weighted Average Common Shares:

    
Used in Basic Calculation86,032,729 85,630,296 
Used in Diluted Calculation86,708,814 86,325,537 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
  
 December 31, September 30,

(Thousands of Dollars)

 2018  2018
    

ASSETS

   
Property, Plant and Equipment$10,604,089  $10,439,839 
Less - Accumulated Depreciation, Depletion and Amortization 5,520,472   5,462,696 
Net Property, Plant and Equipment 5,083,617   4,977,143 
    
Current Assets:   
Cash and Temporary Cash Investments 109,754   229,606 
Hedging Collateral Deposits 2,784   3,441 
Receivables - Net 192,604   141,498 
Unbilled Revenue 74,497   24,182 
Gas Stored Underground 30,336   37,813 
Materials and Supplies - at average cost 34,947   35,823 
Unrecovered Purchased Gas Costs 8,700   4,204 
Other Current Assets 69,219   68,024 
Total Current Assets 522,841   544,591 
    
Other Assets:   
Recoverable Future Taxes 114,219   115,460 
Unamortized Debt Expense 15,412   15,975 
Other Regulatory Assets 111,611   112,918 
Deferred Charges 42,994   40,025 
Other Investments 129,715   132,545 
Goodwill 5,476   5,476 
Prepaid Post-Retirement Benefit Costs 84,609   82,733 
Fair Value of Derivative Financial Instruments 34,244   9,518 
Other 42,190   102 
Total Other Assets 580,470   514,752 
Total Assets$6,186,928  $6,036,486 
    

CAPITALIZATION AND LIABILITIES

   
Capitalization:   
Comprehensive Shareholders' Equity   
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and   
Outstanding - 86,270,957 Shares and 85,956,814 Shares, Respectively$86,271  $85,957 
Paid in Capital 817,076   820,223 
Earnings Reinvested in the Business 1,172,334   1,098,900 
Accumulated Other Comprehensive Loss (28,690)  (67,750)
Total Comprehensive Shareholders' Equity 2,046,991   1,937,330 
Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs 2,131,880   2,131,365 
Total Capitalization 4,178,871   4,068,695 
    
Current and Accrued Liabilities:   
Notes Payable to Banks and Commercial Paper     
Current Portion of Long-Term Debt     
Accounts Payable 127,926   160,031 
Amounts Payable to Customers    3,394 
Dividends Payable 36,663   36,532 
Interest Payable on Long-Term Debt 30,016   19,062 
Customer Advances 7,351   13,609 
Customer Security Deposits 23,842   25,703 
Other Accruals and Current Liabilities 191,172   132,693 
Fair Value of Derivative Financial Instruments 2,112   49,036 
Total Current and Accrued Liabilities 419,082   440,060 
    
Deferred Credits:   
Deferred Income Taxes 598,285   512,686 
Taxes Refundable to Customers 366,448   370,628 
Cost of Removal Regulatory Liability 214,842   212,311 
Other Regulatory Liabilities 150,337   146,743 
Pension and Other Post-Retirement Liabilities 40,842   66,103 
Asset Retirement Obligations 104,343   108,235 
Other Deferred Credits 113,878   111,025 
Total Deferred Credits 1,588,975   1,527,731 
Commitments and Contingencies     
Total Capitalization and Liabilities$6,186,928  $6,036,486 

     
     

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

  Three Months Ended
  December 31,

(Thousands of Dollars)

 2018 2017
     
Operating Activities:    
Net Income Available for Common Stock $102,660  $198,654 
Adjustments to Reconcile Net Income to Net Cash

Provided by Operating Activities:

    
Depreciation, Depletion and Amortization 64,255  55,830 
Deferred Income Taxes 64,175  (94,676)
Stock-Based Compensation 5,311  3,905 
Other 2,182  3,678 
Change in:    
Receivables and Unbilled Revenue (101,541) (83,357)
Gas Stored Underground and Materials and Supplies 8,353  10,337 
Unrecovered Purchased Gas Costs (4,496) (3,164)
Other Current Assets (1,195) 3,591 
Accounts Payable 1,502  13,173 
Amounts Payable to Customers (3,394) 251 
Customer Advances (6,258) 2,697 
Customer Security Deposits (1,861) 2,131 
Other Accruals and Current Liabilities 38,412  11,532 
Other Assets (42,400) (5,275)
Other Liabilities (21,333) (21,775)
Net Cash Provided by Operating Activities $104,372  $97,532 
     
Investing Activities:    
Capital Expenditures $(177,567) $(142,613)
Other (2,549) 2,612 
Net Cash Used in Investing Activities $(180,116) $(140,001)
     
Financing Activities:    
Reduction of Long-Term Debt $  $(307,047)
Dividends Paid on Common Stock (36,532) (35,500)
Net Repurchases of Common Stock (8,233) (1,501)
Net Cash Used in Financing Activities $(44,765) $(344,048)
     
Net Decrease in Cash, Cash Equivalents, and Restricted Cash (120,509) (386,517)
Cash, Cash Equivalents, and Restricted Cash at October 1 233,047  557,271 
Cash, Cash Equivalents, and Restricted Cash at December 31 $112,538  $170,754 

       

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

       

SEGMENT OPERATING RESULTS AND STATISTICS

(UNAUDITED)

       

UPSTREAM BUSINESS

       
       
 Three Months Ended 
(Thousands of Dollars, except per share amounts)December 31, 

EXPLORATION AND PRODUCTION SEGMENT

2018 2017 Variance 
Total Operating Revenues$162,876  $139,141  $23,735  
       
Operating Expenses:      
Operation and Maintenance:      
General and Administrative Expense15,198  13,602  1,596  
Lease Operating and Transportation Expense42,562  39,647  2,915  
All Other Operation and Maintenance Expense2,353  2,535  (182) 
Property, Franchise and Other Taxes6,362  3,569  2,793  
Depreciation, Depletion and Amortization34,700  27,425  7,275  
 101,175  86,778  14,397  
       
Operating Income61,701  52,363  9,338  
       
Other Income (Expense):      
Other Income (Deductions)278  3  275  
Other Interest Expense(13,163) (13,374) 211  
       
Income Before Income Taxes48,816  38,992  9,824  
Income Tax Expense (Benefit)10,602  (67,706) 78,308  
Net Income$38,214  $106,698  $(68,484) 
       
Net Income Per Share (Diluted)$0.44  $1.24  $(0.80) 
       

      

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

      

SEGMENT OPERATING RESULTS AND STATISTICS

(UNAUDITED)

      

MIDSTREAM BUSINESSES

      
      
 Three Months Ended
(Thousands of Dollars, except per share amounts)December 31,

PIPELINE AND STORAGE SEGMENT

2018 2017 Variance
Revenues from External Customers$54,218  $53,310  $908 
Intersegment Revenues22,851  21,985  866 
Total Operating Revenues77,069  75,295  1,774 
      
Operating Expenses:     
Purchased Gas304  106  198 
Operation and Maintenance21,633  17,672  3,961 
Property, Franchise and Other Taxes7,308  7,100  208 
Depreciation, Depletion and Amortization11,114  10,596  518 
 40,359  35,474  4,885 
      
Operating Income36,710  39,821  (3,111)
      
Other Income (Expense):     
Other Income (Deductions)1,926  1,645  281 
Interest Expense(7,286) (7,876) 590 
      
Income Before Income Taxes31,350  33,590  (2,240)
Income Tax Expense (Benefit)6,248  (4,872) 11,120 
Net Income$25,102  $38,462  $(13,360)
      
Net Income Per Share (Diluted)$0.29  $0.45  $(0.16)
      
      
 Three Months Ended
 December 31,

GATHERING SEGMENT

2018 2017 Variance
Revenues from External Customers$  $170  $(170)
Intersegment Revenues29,690  23,665  6,025 
Total Operating Revenues29,690  23,835  5,855 
      
Operating Expenses:     
Operation and Maintenance3,711  2,984  727 
Property, Franchise and Other Taxes31  38  (7)
Depreciation, Depletion and Amortization4,679  4,088  591 
 8,421  7,110  1,311 
      
Operating Income21,269  16,725  4,544 
      
Other Income (Expense):     
Other Income (Deductions)43  316  (273)
Interest Expense(2,377) (2,340) (37)
      
Income Before Income Taxes18,935  14,701  4,234 
Income Tax Expense (Benefit)4,752  (30,699) 35,451 
Net Income$14,183  $45,400  $(31,217)
      
Net Income Per Share (Diluted)$0.16  $0.53  $(0.37)
      

      

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

      

SEGMENT OPERATING RESULTS AND STATISTICS

(UNAUDITED)

      

DOWNSTREAM BUSINESSES

      
      
 Three Months Ended
(Thousands of Dollars, except per share amounts)December 31,

UTILITY SEGMENT

2018 2017 Variance
Revenues from External Customers$220,012  $187,089  $32,923 
Intersegment Revenues2,645  2,182  463 
Total Operating Revenues222,657  189,271  33,386 
      
Operating Expenses:     
Purchased Gas111,880  81,924  29,956 
Operation and Maintenance43,155  43,317  (162)
Property, Franchise and Other Taxes10,053  9,880  173 
Depreciation, Depletion and Amortization13,290  13,325  (35)
 178,378  148,446  29,932 
      
Operating Income44,279  40,825  3,454 
      
Other Income (Expense):     
Other Income (Deductions)(6,216) (6,691) 475 
Interest Expense(5,893) (6,837) 944 
      
Income Before Income Taxes32,170  27,297  4,873 
Income Tax Expense6,521  6,304  217 
Net Income$25,649  $20,993  $4,656 
      
Net Income Per Share$0.30  $0.24  $0.06 
      
      
 Three Months Ended
 December 31,

ENERGY MARKETING SEGMENT

2018 2017 Variance
Revenues from External Customers$52,080  $38,636  $13,444 
Intersegment Revenues332  126  206 
Total Operating Revenues52,412  38,762  13,650 
      
Operating Expenses:     
Purchased Gas51,516  35,445  16,071 
Operation and Maintenance1,617  1,513  104 
Depreciation, Depletion and Amortization70  69  1 
 53,203  37,027  16,176 
      
Operating Income (Loss)(791) 1,735  (2,526)
      
Other Income (Expense):     
Other Income (Deductions)45  13  32 
Interest Expense(5) (11) 6 
      
Income (Loss) Before Income Taxes(751) 1,737  (2,488)
Income Tax Expense (Benefit)(449) 691  (1,140)
Net Income (Loss)$(302) $1,046  $(1,348)
      
Net Income (Loss) Per Share (Diluted)$  $0.01  $(0.01)
      

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

      

SEGMENT OPERATING RESULTS AND STATISTICS

(UNAUDITED)

      
 Three Months Ended
(Thousands of Dollars, except per share amounts)December 31,

ALL OTHER

2018 2017 Variance
Total Operating Revenues$1,007  $1,096  $(89)
Operating Expenses:     
Operation and Maintenance261  314  (53)
Property, Franchise and Other Taxes135  144  (9)
Depreciation, Depletion and Amortization212  139  73 
 608  597  11 
      
Operating Income399  499  (100)
Other Income (Expense):     
Other Income (Deductions)138  62  76 
      
Income Before Income Taxes537  561  (24)
Income Tax Expense153  1,280  (1,127)
Net Income (Loss)$384  $(719) $1,103 
      
Net Income (Loss) Per Share (Diluted)$  $(0.01) $0.01 
      
      
 Three Months Ended
 December 31,

CORPORATE

2018 2017 Variance
Revenues from External Customers$54  $213  $(159)
Intersegment Revenues1,165  1,000  165 
Total Operating Revenues1,219  1,213  6 
Operating Expenses:     
Operation and Maintenance2,797  3,407  (610)
Property, Franchise and Other Taxes116  117  (1)
Depreciation, Depletion and Amortization190  188  2 
 3,103  3,712  (609)
      
Operating Loss(1,884) (2,499) 615 
      
Other Income (Expense):     
Other Income (Deductions)22,879  32,468  (9,589)
Interest Expense on Long-Term Debt(25,439) (28,087) 2,648 
Other Interest Expense(1,044) (1,383) 339 
      
Income (Loss) before Income Taxes(5,488) 499  (5,987)
Income Tax Expense (Benefit)(4,918) 13,725  (18,643)
Net Loss$(570) $(13,226) $12,656 
      
Net Loss Per Share (Diluted)$(0.01) $(0.16) $0.15 
      
      
 Three Months Ended
 December 31,

INTERSEGMENT ELIMINATIONS

2018 2017 Variance
Intersegment Revenues$(56,683) $(48,958) $(7,725)
Operating Expenses:     
Purchased Gas(25,040) (23,441) (1,599)
Operation and Maintenance(31,643) (25,517) (6,126)
 (56,683) (48,958) (7,725)
      
Operating Income     
      
Other Income (Expense):     
Other Income (Deductions)(28,695) (31,319) 2,624 
Interest Expense28,695  31,319  (2,624)
Net Income$  $  $ 
      
Net Income Per Share (Diluted)$  $  $ 

      

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

      

SEGMENT INFORMATION (Continued)

(Thousands of Dollars)
      
 Three Months Ended
 December 31,
 (Unaudited)
     Increase
 2018 2017 (Decrease)
      

Capital Expenditures:

     
Exploration and Production$120,214 

(1)(2)

$74,725 

(3)(4)

$45,489 
Pipeline and Storage29,964 

(1)(2)

22,274 

(3)(4)

7,690 
Gathering8,790 

(1)(2)

12,931 

(3)(4)

(4,141)
Utility15,923 

(1)(2)

16,535 

(3)(4)

(612)
Energy Marketing20  18  2 
Total Reportable Segments174,911  126,483  48,428 
All Other  1  (1)
Corporate17  29  (12)
Total Capital Expenditures$174,928  $126,513  $48,415 

(1) Capital expenditures for the three months ended December 31, 2018, include accounts payable and accrued liabilities related to capital expenditures of $66.1 million, $12.9 million, $4.4 million, and $2.8 million in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Utility segment, respectively.  These amounts have been excluded from the Consolidated Statement of Cash Flows at December 31, 2018, since they represent non-cash investing activities at that date.

(2) Capital expenditures for the three months ended December 31, 2018, exclude capital expenditures of $51.3 million, $21.9 million, $6.1 million and $9.5 million in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Utility segment, respectively.  These amounts were in accounts payable and accrued liabilities at September 30, 2018 and paid during the three months ended December 31, 2018.  These amounts were excluded from the Consolidated Statement of Cash Flows at September 30, 2018, since they represented non-cash investing activities at that date.  These amounts have been included in the Consolidated Statement of Cash Flows at December 31, 2018.

(3) Capital expenditures for the three months ended December 31, 2017, include accounts payable and accrued liabilities related to capital expenditures of $37.1 million, $10.7 million, $4.7 million, and $3.6 million in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Utility segment, respectively.  These amounts have been excluded from the Consolidated Statement of Cash Flows at December 31, 2017, since they represent non-cash investing activities at that date.

(4) Capital expenditures for the three months ended December 31, 2017, exclude capital expenditures of $36.5 million, $25.1 million, $3.9 million and $6.7 million in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Utility segment, respectively.  These amounts were in accounts payable and accrued liabilities at September 30, 2017 and paid during the three months ended December 31, 2017.  These amounts were excluded from the Consolidated Statement of Cash Flows at September 30, 2017, since they represented non-cash investing activities at that date.  These amounts have been included in the Consolidated Statement of Cash Flows at December 31, 2017.

          

DEGREE DAYS

         
          
       Percent Colder
       (Warmer) Than:

Three Months Ended December 31

Normal 2018 2017   Normal (1) Last Year (1)
          
Buffalo, NY2,253 2,325 2,227 3.2  4.4
Erie, PA2,044 2,030 2,029 (0.7) 0.0
          

(1) Percents compare actual 2018 degree days to normal degree days and actual 2018 degree days to actual 2017 degree days.

       

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

       

EXPLORATION AND PRODUCTION INFORMATION

       
  Three Months Ended
  December 31,
      Increase
  2018 2017 (Decrease)
       

Gas Production/Prices:

      
Production (MMcf)      
Appalachia 45,305  35,414  9,891 
West Coast 502  695  (193)
Total Production 45,807  36,109  9,698 
       
Average Prices (Per Mcf)      
Appalachia $2.93  $2.35  $0.58 
West Coast 6.73  5.00  1.73 
Weighted Average 2.97  2.40  0.57 
Weighted Average after Hedging 2.61  2.72  (0.11)
       

Oil Production/Prices:

      
Production (Thousands of Barrels)      
Appalachia 1  1   
West Coast 571  672  (101)
Total Production 572  673  (101)
       
Average Prices (Per Barrel)      
Appalachia $66.31  $43.85  $22.46 
West Coast 65.71  57.88  7.83 
Weighted Average 65.71  57.86  7.85 
Weighted Average after Hedging 61.70  59.79  1.91 
       
Total Production (Mmcfe) 49,239  40,147  9,092 
       

Selected Operating Performance Statistics:

      
General & Administrative Expense per Mcfe (1) $0.31  $0.34  $(0.03)
Lease Operating and Transportation Expense per Mcfe (1)(2) $0.86  $0.99  $(0.13)
Depreciation, Depletion & Amortization per Mcfe (1) $0.70  $0.68  $0.02 
       

(1) Refer to page 14 for the General and Administrative Expense, Lease Operating and Transportation Expense and Depreciation, Depletion, and Amortization Expense for the Exploration and Production segment.

(2)  Amounts include transportation expense of $0.54 per Mcfe for both the three months ended December 31, 2018 and December 31, 2017.

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

       

EXPLORATION AND PRODUCTION INFORMATION

 

Hedging Summary for Remaining Nine Months of Fiscal 2019

Volume

  

Average Hedge Price

Oil Swaps      
Brent 558,000 BBL $63.52 / BBL
NYMEX 801,000 BBL $53.42 / BBL

Total

 

1,359,000

 

BBL

 

$

57.57 / BBL

       
Gas Swaps      
NYMEX 60,120,000 MMBTU $2.93 / MMBTU
DAWN 5,400,000 MMBTU $3.00 / MMBTU
Fixed Price Physical Sales 51,914,991 MMBTU $2.68 / MMBTU

Total

 

117,434,991

 

MMBTU

 

$

2.82 / MMBTU

       

Hedging Summary for Fiscal 2020

 

Volume

  

Average Hedge Price

Oil Swaps      
Brent 864,000 BBL $63.51 / BBL
NYMEX 324,000 BBL $50.52 / BBL

Total

 

1,188,000

 

BBL

 

$

59.96 / BBL

       
Gas Swaps      
NYMEX 18,640,000 MMBTU $3.04 / MMBTU
DAWN 7,200,000 MMBTU $3.00 / MMBTU
Fixed Price Physical Sales 45,045,882 MMBTU $2.34 / MMBTU

Total

 

70,885,882

 

MMBTU

 

$

2.59 / MMBTU

       

Hedging Summary for Fiscal 2021

 

Volume

  

Average Hedge Price

Oil Swaps      
Brent 576,000 BBL $64.48 / BBL
NYMEX 156,000 BBL $51.00 / BBL

Total

 

732,000

 

BBL

 

$

61.61 / BBL

       
Gas Swaps      
NYMEX 4,840,000 MMBTU $3.01 / MMBTU
  DAWN 600,000 MMBTU $3.00 / MMBTU
Fixed Price Physical Sales 41,487,601 MMBTU $2.22 / MMBTU

Total

 

46,927,601

 

MMBTU

 

$

2.31 / MMBTU

       

Hedging Summary for Fiscal 2022

 

Volume

  

Average Hedge Price

Oil Swaps      
Brent 300,000 BBL $60.07 / BBL
NYMEX 156,000 BBL $51.00 / BBL

Total

 

456,000

 

BBL

 

$

56.97 / BBL

       
Fixed Price Physical Sales 40,579,694 MMBTU $2.23 / MMBTU
       

Hedging Summary for Fiscal 2023

 

Volume

  

Average Hedge Price

       
Fixed Price Physical Sales 37,102,311 MMBTU $2.26 / MMBTU
       

Hedging Summary for Fiscal 2024

 

Volume

  

Average Hedge Price

       
Fixed Price Physical Sales 20,948,498 MMBTU $2.25 / MMBTU
       

Hedging Summary for Fiscal 2025

 

Volume

  

Average Hedge Price

       
Fixed Price Physical Sales 2,293,200 MMBTU $2.18 / MMBTU

       

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

       
       

Pipeline & Storage Throughput - (millions of cubic feet - MMcf)

       
  Three Months Ended
  December 31,
      Increase
  2018 2017 (Decrease)
Firm Transportation - Affiliated 35,700  34,841  859 
Firm Transportation - Non-Affiliated 156,201  171,860  (15,659)
Interruptible Transportation 916  882  34 
  192,817  207,583  (14,766)
       

Gathering Volume - (MMcf)

      
  Three Months Ended
  December 31,
      Increase
  2018 2017 (Decrease)
Gathered Volume - Affiliated 54,688  43,162  11,526 
       
       

Utility Throughput - (MMcf)

      
  Three Months Ended
  December 31,
      Increase
  2018 2017 (Decrease)
Retail Sales:      
Residential Sales 19,780  17,847  1,933 
Commercial Sales 2,846  2,596  250 
Industrial Sales 204  144  60 
  22,830  20,587  2,243 
Off-System Sales   22  (22)
Transportation 22,270  21,427  843 
  45,100  42,036  3,064 
       

Energy Marketing Volume

      
  Three Months Ended
  December 31,
      Increase
  2018 2017 (Decrease)
Natural Gas (MMcf) 12,419  11,979  440 
       

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES

In addition to financial measures calculated in accordance with generally accepted accounting principles (GAAP), this press release contains information regarding Adjusted Operating Results and Adjusted EBITDA, which are non-GAAP financial measures.  The Company believes that these non-GAAP financial measures are useful to investors because they provide an alternative method for assessing the Company's ongoing operating results and for comparing the Company’s financial performance to other companies.  The Company's management uses these non-GAAP financial measures for the same purpose, and for planning and forecasting purposes.  The presentation of non-GAAP financial measures is not meant to be a substitute for financial measures in accordance with GAAP.

Management defines Adjusted Operating Results as reported GAAP earnings before items impacting comparability.  The following table reconciles National Fuel's reported GAAP earnings to Adjusted Operating Results for the three months ended December 31, 2018 and 2017:

  Three Months Ended
  December 31,

(in thousands except per share amounts)

 2018 2017

Reported GAAP Earnings

 $102,660  $198,654 

Items impacting comparability

    
Remeasurement of deferred income taxes under 2017 Tax Reform (5,000) (111,000)
Unrealized (gain) loss on hedge ineffectiveness (E&P) (6,505) 433 
Tax impact of unrealized (gain) loss on hedge ineffectiveness 1,366  (106)
Unrealized loss on other investments (Corporate/All Other) 6,347   
Tax impact of unrealized loss on other investments (1,333)  

Adjusted Operating Results

 $97,535  $87,981 
     

Reported GAAP Earnings per share

 $1.18  $2.30 

Items impacting comparability

    
Remeasurement of deferred income taxes under 2017 Tax Reform (0.06) (1.29)
Unrealized (gain) loss on hedge ineffectiveness (E&P) (0.08) 0.01 
Tax impact of unrealized (gain) loss on hedge ineffectiveness 0.02   
Unrealized loss on other investments (Corporate/All Other) 0.07   
Tax impact of unrealized loss on other investments (0.01)  

Adjusted Operating Results per share

 $1.12  $1.02 

Management defines Adjusted EBITDA as reported GAAP earnings before the following items:  interest expense, income taxes, depreciation, depletion and amortization, other income and deductions, impairments, and other items reflected in operating income that impact comparability.  The following tables reconcile National Fuel's reported GAAP earnings to Adjusted EBITDA for the three months ended December 31, 2018 and 2017:

  Three Months Ended
  December 31,
  2018 2017

(in thousands)

    

Reported GAAP Earnings

 $102,660  $198,654 
Depreciation, Depletion and Amortization 64,255  55,830 
Other (Income) Deductions 9,602  3,503 
Interest Expense 26,512  28,589 
Income Taxes 22,909  (81,277)
Unrealized (Gain) Loss on Hedge Ineffectiveness (6,505) 433 

Adjusted EBITDA

 $219,433  $205,732 
     

Adjusted EBITDA by Segment

    
Pipeline and Storage Adjusted EBITDA $47,824  $50,417 
Gathering Adjusted EBITDA 25,948  20,813 
Total Midstream Businesses Adjusted EBITDA 73,772  71,230 
Exploration and Production Adjusted EBITDA 89,896  80,221 
Utility Adjusted EBITDA 57,569  54,150 
Energy Marketing Adjusted EBITDA (721) 1,804 
Corporate and All Other Adjusted EBITDA (1,083) (1,673)

Total Adjusted EBITDA

 $219,433  $205,732 

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES

 SEGMENT ADJUSTED EBITDA

  Three Months Ended
  December 31,

(in thousands)

 2018 2017

Exploration and Production Segment

    
Reported GAAP Earnings $38,214  $106,698 
Depreciation, Depletion and Amortization 34,700  27,425 
Other (Income) Deductions (278) (3)
Interest Expense 13,163  13,374 
Income Taxes 10,602  (67,706)
Unrealized (Gain) Loss on Hedge Ineffectiveness (6,505) 433 
Adjusted EBITDA $89,896  $80,221 
     

Pipeline and Storage Segment

    
Reported GAAP Earnings $25,102  $38,462 
Depreciation, Depletion and Amortization 11,114  10,596 
Other (Income) Deductions (1,926) (1,645)
Interest Expense 7,286  7,876 
Income Taxes 6,248  (4,872)
Adjusted EBITDA $47,824  $50,417 
     

Gathering Segment

    
Reported GAAP Earnings $14,183  $45,400 
Depreciation, Depletion and Amortization 4,679  4,088 
Other (Income) Deductions (43) (316)
Interest Expense 2,377  2,340 
Income Taxes 4,752  (30,699)
Adjusted EBITDA $25,948  $20,813 
     

Utility Segment

    
Reported GAAP Earnings $25,649  $20,993 
Depreciation, Depletion and Amortization 13,290  13,325 
Other (Income) Deductions 6,216  6,691 
Interest Expense 5,893  6,837 
Income Taxes 6,521  6,304 
Adjusted EBITDA $57,569  $54,150 
     

Energy Marketing Segment

    
Reported GAAP Earnings $(302) $1,046 
Depreciation, Depletion and Amortization 70  69 
Other (Income) Deductions (45) (13)
Interest Expense 5  11 
Income Taxes (449) 691 
Adjusted EBITDA $(721) $1,804 
     

Corporate and All Other

    
Reported GAAP Earnings $(186) $(13,945)
Depreciation, Depletion and Amortization 402  327 
Other (Income) Deductions 5,678  (1,211)
Interest Expense (2,212) (1,849)
Income Taxes (4,765) 15,005 
Adjusted EBITDA $(1,083) $(1,673)

Analyst Contact:

Kenneth E. Webster

716-857-7067

Media Contact:

Karen L. Merkel

716-857-7654

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