National Fuel Reports First Quarter Earnings

Business Wire

WILLIAMSVILLE, N.Y.--(BUSINESS WIRE)--

National Fuel Gas Company (National Fuel or the Company) ( NFG ) today announced consolidated earnings for the first quarter of its 2014 fiscal year (the quarter ended December 31, 2013).

HIGHLIGHTS

  • Earnings for the first quarter of fiscal 2014 of $82.3 million, or $0.97 per share, increased $14.4 million, or $0.16 per share, compared to $67.9 million, or $0.81 per share, for the prior years first quarter. The increase is due to higher earnings across all segments.
  • Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) for the first quarter of fiscal 2014 were $253.7 million compared to $203.5 million for the prior years first quarter, an increase of 25%.
  • Seneca Resources Corporations (Seneca) first quarter production of natural gas and crude oil was 37.1 billion cubic feet equivalent (Bcfe), or 404 million cubic feet equivalent (MMcfe) per day, an increase of 12.6 Bcfe or approximately 51%, over the prior years first quarter.
  • The Company is reiterating its previous fiscal 2014 production guidance range of 145 to 165 Bcfe. This represents a 20% to 37% increase over fiscal 2013 production.
  • The Company is revising its GAAP earnings guidance range for fiscal 2014 to a range of $3.20 to $3.40 per share. The previous earnings guidance had been a range of $3.10 to $3.40 per share. This guidance assumes a flat NYMEX price of $4.00 per MMBtu for natural gas and $90 per Bbl for crude oil for unhedged production for the remainder of the fiscal year.
  • A conference call is scheduled for Friday, February 7, 2014, at 11 a.m. Eastern Time.

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: National Fuels financial and operating results for the first quarter reflect the quality of our assets and the focused work of our employees. Growth across all of our business segments contributed to a 21 percent increase in consolidated earnings over the prior years first quarter.

Seneca Resources delivered significant growth, increasing production 51 percent compared to the prior years first quarter and 12 percent compared to the fourth quarter of last year. Notwithstanding Senecas tremendous operating performance, ongoing volatility in natural gas prices in the Appalachian region dampened Senecas financial results. Since these regional pricing issues are expected to persist for the next few years, Seneca and our midstream subsidiaries continue to evaluate long-term solutions to help deliver natural gas to markets with more stable pricing that correlates more closely with long-term NYMEX pricing. To that end, during the quarter, Seneca acquired long-term firm transportation capacity on Tennessee Gas Pipelines Niagara Expansion project, which is designed to export Marcellus Shale production to Canada, in part by using new capacity that our Supply Corporation will build and lease to Tennessee.

Our Utility employees remained focused on safe and reliable service during a winter that has been much colder than recent years, and our midstream subsidiaries have easily handled the increased throughput resulting from our ongoing pipeline capacity expansion. Combined with Senecas substantial production growth, fiscal 2014 is off to a strong start.

EXPLORATION AND PRODUCTION SEGMENT OPERATIONS UPDATE

Senecas activities during the first quarter were primarily focused on multi-well pads in DCNR Tract 100 in Lycoming County, Pa., in the Eastern Development Area (EDA) and its Greater Clermont Area in Elk and Cameron counties, located in its Western Development Area (WDA).

Recently, Seneca brought 6 new wells on line in Tract 100 with 24-hour peak production rates that averaged 15.6 million cubic feet (MMcf) per day per well. These wells, which were spud in early fiscal 2013, had an average lateral length of 4,872 feet. Each well was completed using a reduced cluster spacing (RCS) design, averaging 32 stages per well with an average of 10 stages completed per day. The estimated capital cost to drill and complete each of these wells averaged $6.9 million.

In its Greater Clermont Area, Seneca drilled all 9 wells on its first multi-well development pad in the WDA. These wells had an average lateral length of approximately 5,600 feet, and will be completed prior to the Clermont Gathering System going in service, which is targeted to occur in the fourth quarter of fiscal 2014.

Today, Seneca has two horizontal drilling rigs operating in the WDA, with one currently located on a 6-well development pad in the Greater Clermont Area, and the other drilling the first of 5 delineation wells scheduled for fiscal 2014. A third rig, located in the EDA, remains focused on development drilling in Lycoming County.

SUMMARY OF RESULTS

National Fuel had consolidated earnings for the quarter ended December 31, 2013, of $82.3 million, or $0.97 per share, compared to the prior years first quarter of $67.9 million, or $0.81 per share, an increase of $14.4 million or $0.16 per share. Higher earnings across all segments contributed to the increase. (Note: All references to earnings per share are to diluted earnings per share and all amounts used in the discussion of earnings are after tax unless otherwise noted.)

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each segment is summarized in a tabular form at pages 8 and 9 of this report. It may be helpful to refer to those tables while reviewing this discussion.

Upstream Business

Exploration and Production Segment

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

The Exploration and Production segments earnings in the first quarter of fiscal 2014 of $31.1 million, or $0.37 per share, increased $4.4 million, or $0.05 per share, when compared with the prior years first quarter.

Overall production of natural gas and crude oil for the current quarter of 37.1 Bcfe increased approximately 12.6 Bcfe, or 51.4 percent, compared to the prior years first quarter. Production from Senecas Appalachia properties increased approximately 64.4 percent and accounted for the entire 12.6 Bcfe increase, largely because of Senecas strong well results in Lycoming County. California production of 5.0 Bcfe was consistent with the prior years first quarter.

Lower commodity prices realized after hedging also impacted earnings. The weighted average natural gas price received by Seneca (after hedging) for the quarter ended December 31, 2013, was $3.70 per thousand cubic feet (Mcf), a decrease of $0.49 per Mcf compared to the prior years first quarter. The weighted average crude oil price realized after hedging for the quarter ended December 31, 2013, was $94.00 per Bbl, a decrease of $2.69 per Bbl compared to the prior years first quarter.

On a per unit basis, depletion decreased $0.20 per thousand cubic feet equivalent (Mcfe) due to higher natural gas reserve balances at December 31, 2013, compared to the prior years first quarter. On a per unit basis, lease operating and transportation expenses (LOE) at $0.95 per Mcfe decreased $0.10 per Mcfe compared to the prior years first quarter due to higher production. General and administrative expenses (G&A) decreased $0.18 per Mcfe compared to the prior years first quarter also due to higher production. Earnings were also impacted by higher interest expense due to a higher outstanding debt balance.

Midstream Businesses

Pipeline and Storage Segment

The Pipeline and Storage segments 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.

The Pipeline and Storage segments earnings of $19.1 million, or $0.23 per share, for the quarter ended December 31, 2013, increased $2.2 million, or $0.03 per share, when compared with the same period in the prior fiscal year. The increase in earnings is mainly due to higher non-affiliated transportation revenues from the Northern Access and Line N 2012 Expansion projects, which were placed in service in the prior years first quarter, and lower operating expenses due to lower pension and other post retirement benefit costs. Earnings were reduced by a lower allowance for funds used during construction due to the completion of the expansion projects mentioned above.

Gathering Segment

The Gathering segments operations are carried out by National Fuel Gas Midstream Corporations (Midstream) subsidiary limited liability companies. The Gathering segment constructs, owns and operates natural gas pipeline gathering and processing facilities in the Appalachian region and currently provides the critical gathering infrastructure for transporting Senecas Marcellus Shale production to the interstate pipeline system.

The Gathering segments earnings of $6.1 million, or $0.07 per share, for the quarter ended December 31, 2013, increased $4.2 million, or $0.05 per share, when compared with the same period in the prior fiscal year. The increase in earnings is mainly due to higher gathering revenues from Midstreams Trout Run gathering system in Lycoming County, Pa.

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.

The Utility segments earnings of $24.2 million, or $0.28 per share, for the quarter ended December 31, 2013, increased $1.3 million, or $0.01 per share, when compared with the same period in the prior fiscal year. Colder weather in Pennsylvania was a major reason for the increase in earnings in the current years first quarter. Temperatures in Pennsylvania were 11.2 percent colder in the quarter ended December 31, 2013, than in the prior years first quarter. In New York, the impact of weather variations on earnings is mitigated by that jurisdictions weather normalization clause. Lower interest expense (mainly due to a lower outstanding debt balance) and regulatory true-up adjustments also contributed to higher earnings in the Utility segment. Higher operating expenses, consisting mostly of higher pension related costs, which were the result of the settlement of the rate proceeding in New York, reduced earnings in the current years first quarter.

Energy Marketing Segment

National Fuel Resources, Inc. (NFR) comprises the Companys Energy Marketing segment. 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.

The Energy Marketing segments earnings for the quarter ended December 31, 2013, of $1.6 million increased $1.1 million compared to the prior years first quarter earnings of $0.5 million. The increase in earnings is due to the impact of recording unbilled revenues and related margins as of December 31, 2013. In prior periods, revenues and related purchased gas costs for the Energy Marketing segment were recorded when billed, resulting in a one month lag.

Corporate and All Other

The Corporate and All Other category primarily includes corporate operations. The category also includes the remaining operations of Senecas Northeast division that markets high quality hardwoods from Appalachian land holdings.

The Corporate and All Other category earnings of $0.1 million, for the quarter ended December 31, 2013, compares to a loss of $1.0 million for the prior years first quarter. The increase in the earnings is largely due to the receipt of insurance proceeds and higher proceeds from the sale of certain timber stumpage tracts by Senecas land and timber division in the current years first quarter.

EARNINGS GUIDANCE

The Company is revising its GAAP earnings guidance range for fiscal 2014 to a range of $3.20 to $3.40 per share. The previous earnings guidance had been a range of $3.10 to $3.40 per share. This guidance includes forecast oil and gas production for fiscal 2014 in the range between 145 to 165 Bcfe, hedges currently in place and a flat NYMEX price of $4.00 per MMBtu for natural gas and $90 per Bbl for crude oil for unhedged production for the remainder of the fiscal year.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, February 7, 2014, 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 investor relations page at National Fuels website at investor.nationalfuelgas.com. For those without Internet access, access is also provided by dialing (toll-free) 1-866-383-8009, using passcode 80323087. For those unable to listen to the live conference call, a replay will be available at approximately 3 p.m. Eastern Time at the same website link and by phone at (toll-free) 1-888-286-8010, using passcode 73413175. Both the webcast and telephonic replay will be available until the close of business on Friday, February 14, 2014.

National Fuel is an integrated energy company with $6.3 billion in assets comprised of the following 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 Companys 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: factors affecting the Companys 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; 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; governmental/regulatory actions, initiatives and proceedings, including those involving rate cases (which address, among other things, allowed rates of return, rate design and retained natural gas), environmental/safety requirements, affiliate relationships, industry structure, and franchise renewal; changes in the price of natural gas or oil; changes in price differential 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 and oil having different quality, heating value, hydrocarbon mix or delivery date; impairments under the SECs full cost ceiling test for natural gas and oil reserves; uncertainty of oil and gas reserve estimates; significant differences between the Companys 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; 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; financial and economic conditions, including the availability of credit, and occurrences affecting the Companys ability to obtain financing on acceptable terms for working capital, capital expenditures and other investments, including any downgrades in the Companys credit ratings and changes in interest rates and other capital market conditions; changes in economic conditions, including global, national or regional recessions, and their effect on the demand for, and customers ability to pay for, the Companys products and services; the creditworthiness or performance of the Companys key suppliers, customers and counterparties; economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities, acts of war, cyber attacks or pest infestation; significant differences between the Companys projected and actual capital expenditures and operating expenses; changes in laws, actuarial assumptions, the interest rate environment and the return on plan/trust assets related to the Companys pension and other post-retirement benefits, which can affect future funding obligations and costs and plan liabilities; the cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide other post-retirement benefits; 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
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
QUARTER ENDED DECEMBER 31, 2013
 
 
Upstream Midstream Businesses Downstream Businesses
 
Exploration & Pipeline & Energy Corporate /
(Thousands of Dollars)   Production     Storage     Gathering     Utility     Marketing     All Other     Consolidated*
 
First quarter 2013 GAAP earnings $ 26,680 $ 16,933 $ 1,942 $ 22,878 $ 495 $ (984 ) $ 67,944
 
Drivers of operating results
Higher (lower) crude oil prices (1,248 ) (1,248 )
Higher (lower) natural gas prices (10,413 ) (10,413 )
Higher (lower) natural gas production 34,319 34,319
Higher (lower) crude oil production 91 91
Derivative mark to market adjustments 1,204 1,204
Lower (higher) lease operating and transportation expenses (6,159 ) (6,159 )
Lower (higher) depreciation / depletion (12,472 ) (799 ) (13,271 )
 
Higher (lower) transportation and storage revenues 3,682 3,682
Higher (lower) gathering and processing revenues 5,786 5,786
Lower (higher) operating expenses 1,310 1,660 (2,416 ) (393 ) 161
Lower (higher) property, franchise and other taxes (653 ) (653 )
 
Regulatory true-up adjustments 1,093 1,093
Colder weather 1,907 1,907
 
Higher (lower) margins 1,153 505 1,658
 
Higher (lower) AFUDC** (1,534 ) (1,534 )
 
(Higher) lower interest expense (1,319 ) 922 (397 )
 
Lower (higher) income tax expense / effective tax rate (778 ) (899 ) (660 ) (2,337 )
 
All other / rounding   535       (704 )     (122 )     (169 )     (44 )     923       419  
First quarter 2014 GAAP earnings
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