WILLIAMSVILLE, N.Y., April 30, 2020 (GLOBE NEWSWIRE) -- National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated results for the second quarter of its 2020 fiscal year and for the six months ended March 31, 2020.
FISCAL 2020 SECOND QUARTER SUMMARY
GAAP net loss of $106.1 million, or $1.23 per share, compared to GAAP net income of $90.6 million, or $1.04 per share, in the prior year, which includes a $129.3 million after-tax impairment of oil and gas properties and a $56.8 million deferred tax valuation allowance described in further detail in this release
Adjusted operating results of $84.2 million, or $0.97 per share, compared to $92.9 million, or $1.07 per share, in the prior year (see non-GAAP reconciliation on page 2)
Adjusted EBITDA of $231.1 million, an increase of $5.3 million from $225.8 million in the prior year (non-GAAP reconciliation on page 24)
E&P segment net production of 59.8 Bcfe, an increase of 11 Bcfe, or 23% from the prior year, including the impact of approximately 2.7 Bcf of curtailments due to sustained low natural gas prices in Appalachia
Average natural gas prices, after the impact of hedging, of $2.12 per Mcf, down $0.46 per Mcf from the prior year
Average oil prices, after the impact of hedging, of $58.23 per Bbl, down $2.78 per Bbl from the prior year
Gathering revenues of $35.3 million, an increase of $5.9 million, or 20%, on higher throughput from the E&P segment
Pipeline & Storage revenues of $79.2 million, an increase of $6.9 million, or 10%, from the prior year, largely driven by the successful resolution of a National Fuel Gas Supply Corporation rate proceeding
Reducing fiscal 2020 consolidated capital expenditure guidance to a range of $680 to $740 million, a decrease of $30 million from the midpoint of the Company's previous guidance range
MANAGEMENT COMMENTS ON COMPANY’S COVID-19 RESPONSE
David P. Bauer, President and Chief Executive Officer of National Fuel Gas Company, stated: “As we confront the challenges of the COVID-19 pandemic, I am proud to say that National Fuel has continued to safely and reliably provide natural gas service to our over 743,000 utility customers in western New York and northwestern Pennsylvania, operate our extensive network of transportation, compression and gathering infrastructure, and produce essential natural gas supplies.
The continuity of our operations is a direct result of the dedication and hard work of our over 2,000 employees. During this unprecedented situation, National Fuel has remained committed to our workforce - the bedrock of our Company - and has not instituted any furloughs or workforce reductions. With a large portion of our employees now working remotely, we have implemented a number of initiatives to provide the flexibility needed to address this new normal, including additional paid time off to address child care needs, and encouraging the use of alternative work schedules.
With respect to our in-field workforce and customer service representatives, all of whom provide essential services to our communities each and every day, we have adopted appropriate social distancing measures and have provided necessary personal protective equipment in line with directives from federal, state, and local agencies. As this public health crisis evolves, the health and well-being of our employees and our communities will remain our number one priority, and National Fuel will continue to monitor developments affecting our stakeholders in order to take appropriate steps to mitigate the impacts of the COVID-19 virus.”
RECONCILIATION OF GAAP EARNINGS TO ADJUSTED OPERATING RESULTS
Three Months Ended
Six Months Ended
March 31,
March 31,
(in thousands except per share amounts)
2020
2019
2020
2019
Reported GAAP Earnings
$
(106,068
)
$
90,595
$
(19,477
)
$
193,256
Items impacting comparability:
Impairment of oil and gas properties (E&P)
177,761
—
177,761
—
Tax impact of impairment of oil and gas properties
(48,503
)
—
(48,503
)
—
Deferred tax valuation allowance
56,770
—
56,770
—
Remeasurement of deferred income taxes under 2017 Tax Reform
—
—
—
(5,000
)
Mark-to-market adjustments due to hedge ineffectiveness (E&P)
—
6,742
—
237
Tax impact of mark-to-market adjustments due to hedge ineffectiveness
—
(1,416
)
—
(50
)
Unrealized (gain) loss on other investments (Corporate / All Other)
5,414
(3,831
)
6,433
2,516
Tax impact of unrealized (gain) loss on other investments
(1,137
)
805
(1,351
)
(528
)
Adjusted Operating Results
$
84,237
$
92,895
$
171,633
$
190,431
Reported GAAP Earnings Per Share
$
(1.23
)
$
1.04
$
(0.23
)
$
2.23
Items impacting comparability:
Impairment of oil and gas properties, net of tax (E&P)
1.49
—
1.49
—
Deferred tax valuation allowance
0.66
—
0.66
—
Remeasurement of deferred income taxes under 2017 Tax Reform
—
—
—
(0.06
)
Mark-to-market adjustments due to hedge ineffectiveness, net of tax (E&P)
—
0.06
—
—
Unrealized (gain) loss on other investments, net of tax (Corporate / All Other)
0.05
(0.03
)
0.06
0.02
Rounding
—
—
—
0.01
Adjusted Operating Results Per Share
$
0.97
$
1.07
$
1.98
$
2.20
MANAGEMENT COMMENTS ON SECOND QUARTER RESULTS
Mr. Bauer added: “Low commodity prices continued to serve as a headwind during the quarter, weighing on our results and requiring the Company to write down the value of its oil and gas reserves in our Exploration and Production segment. Operationally, however, our results were in line with our expectations, driven by the strong performance of our Pipeline and Storage and Gathering businesses, both of which saw significant earnings growth. In these uncertain times, our diversified business model continues to function as designed, providing National Fuel with stability through a consistent, predictable base of cash flows and a strong balance sheet.”
FISCAL 2020 GUIDANCE AND BUSINESS UPDATE
National Fuel is revising its fiscal 2020 earnings guidance to reflect revised commodity price assumptions for the balance of the fiscal year, and the results of the fiscal second quarter. The Company is now projecting that earnings, excluding items impacting comparability, will be within the range of $2.75 to $2.95 per share, or $2.85 per share at the midpoint of the range.
The Company is assuming that NYMEX natural gas prices will average $2.05 per MMBtu for the remainder of fiscal 2020, unchanged from the previous guidance, while also lowering its Appalachian spot price forecast to $1.65 per MMBtu. Additionally, the Company is now assuming that WTI oil prices will average $22.50 per barrel (Bbl) for the remainder of fiscal 2020, a decrease of $32.50 per Bbl from the $55.00 assumed in the previous guidance. These price assumptions are intended to reflect the current NYMEX forward markets for natural gas and oil and consider the impact of local sales point differentials.
The Exploration and Production segment is lowering its fiscal 2020 net production guidance to a range of 230 to 240 Bcfe, which reflects the impacts of curtailments during the second quarter and estimated curtailments for the month of April. During the second quarter, Seneca executed approximately 12.6 Bcf of new NYMEX swap contracts and fixed price physical firm sales for fiscal 2020. The Company currently has financial hedges and fixed price physical firm sales contracts in place on approximately 72% of Seneca’s remaining expected fiscal 2020 natural gas production that, on average, lock-in a price realization after the cost of transportation of $2.16 per Mcf.
In addition, the Company is lowering its consolidated capital expenditure guidance to a range of $680 to $740 million, a $30 million decrease from the midpoint of the Company’s prior guidance range. The Company’s other guidance assumptions remain largely unchanged from the previous guidance.
Additional details on the Company's updated forecast assumptions and business segment guidance for fiscal 2020 are outlined in the table on page 8.
DISCUSSION OF SECOND QUARTER RESULTS BY SEGMENT
The following earnings discussion of each operating segment for the quarter ended March 31, 2020 is summarized in a tabular form on pages 9 and 10 of this report (earnings drivers for the six months ended March 31, 2020 are summarized on pages 11 and 12). It may be helpful to refer to those tables while reviewing this discussion. As of the quarter ended September 30, 2019, the Company is no longer reporting the Energy Marketing operations as a reportable segment. The Energy Marketing operations have been included in the All Other category in the disclosures and tables that follow below. Prior year segment information has been restated to reflect this change in presentation.
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.
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
March 31,
(in thousands)
2020
2019
Variance
GAAP Earnings
$
(175,275
)
$
21,873
$
(197,148
)
Impairment of oil and gas properties, net of tax
129,258
—
129,258
Deferred tax valuation allowance
60,463
—
60,463
Mark-to-market adjustments due to hedge ineffectiveness, net of tax
—
5,326
(5,326
)
Adjusted Operating Results
$
14,446
$
27,199
$
(12,753
)
Adjusted EBITDA
$
79,846
$
83,580
$
(3,734
)
Seneca’s second quarter GAAP earnings decreased $197.1 million versus the prior year, which includes the impact of a non-cash, pre-tax impairment of Seneca’s oil and natural gas reserves, and the recognition of a valuation allowance that reduced the deferred tax asset related to certain state-level net operating loss and credit carryforwards that may not be realized.
During the second quarter, Seneca recorded a non-cash, pre-tax impairment charge of $177.8 million ($129.3 million after-tax) to write-down the value of Seneca’s oil and natural gas reserves under the full cost method of accounting. The full cost method of accounting requires that Seneca perform a quarterly “ceiling test” to compare the present value of future revenues from its oil and natural gas reserves based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the 12-month period prior to the end of the reporting period (“the ceiling”) with the book value of those reserves at the balance sheet date. If the book value of the reserves exceeds the ceiling, a non-cash impairment charge must be recorded in order to reduce the book value of the reserves to the calculated ceiling. It is anticipated that the current low commodity price environment will lead to impairments during the remainder of fiscal 2020 and likely in the first quarter of fiscal 2021 as well.
During the quarter ended March 31, 2020, the Company recorded a full valuation allowance in the amount of $60.5 million against certain state deferred tax assets based on its conclusion, considering all available evidence (both positive and negative), that it was more likely than not that these deferred tax assets would not be realized. A significant item of objective negative evidence considered was a projected three-year cumulative pre-tax loss primarily due to the non-cash impairments of Seneca’s oil and gas reserves noted above. Changes in judgment regarding future realization of these deferred tax assets may result in a reversal of all or a portion of the valuation allowance.
Excluding these items noted above, as well as the net impact of non-cash mark-to-market adjustments recorded in the prior year relating to hedge ineffectiveness (see table above), Seneca’s second quarter earnings decreased $12.8 million as the positive impact of higher production was more than offset by the negative impacts of lower realized natural gas and crude oil prices, higher operating expenses, higher interest expense, and a higher effective tax rate.
Seneca produced 59.8 Bcfe during the second quarter, an increase of 11.0 Bcfe, or 23%, from the prior year. Natural gas production increased 10.7 Bcf, or 24%, due primarily to production from new Marcellus and Utica wells completed and connected to sales in Appalachia. Net production increased 5.4 Bcf to 26.6 Bcf in Seneca’s Western Development Area and 5.4 Bcf to 29.0 Bcf in the Eastern Development Area. Seneca curtailed an estimated 2.7 Bcf of net natural gas production during the second quarter due to lower spot pricing at local sales points in Pennsylvania. Oil production for the second quarter increased 42,000 Bbls from the prior year as new production continues to come on-line from Seneca’s development of the Pioneer and 17N assets in the Midway Sunset area of California, as well as the Coalinga assets.
Seneca's average realized natural gas price, after the impact of hedging and transportation costs, was $2.12 per Mcf, a decrease of $0.46 per Mcf from the prior year. This decline was largely due to lower NYMEX prices and lower spot pricing at local sales points in Pennsylvania. Seneca's average realized oil price, after the impact of hedging, was $58.23 per Bbl, a decrease of $2.78 per Bbl compared to the prior year. The decline in oil price realizations was due primarily to lower market prices for crude oil during the quarter and reduced price differentials at local sales points in California.
The increase in Seneca’s operating expenses was largely due to higher production during the quarter. Lease operating and transportation (“LOE”) expense, which increased $5.8 million, includes the fees paid to the Company’s Gathering segment for gathering and compression services used to connect Seneca’s Marcellus and Utica production to sales points along interstate pipelines. In addition to higher production, the $9.2 million increase in depreciation, depletion and amortization (“DD&A”) expense was also due to a higher DD&A rate. Seneca’s general and administrative (“G&A”) costs were relatively flat despite the increased production. On a unit of production basis, G&A expenses during the quarter decreased $0.06 per Mcfe to $0.29 per Mcfe.
The increase in Seneca’s effective tax rate, excluding the impact of the valuation allowance recorded at March 31, 2020 discussed above, was largely driven by the prior year impact of the Enhanced Oil Recovery tax credit, which was not available in the current 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
March 31,
(in thousands)
2020
2019
Variance
GAAP Earnings
$
22,087
$
17,749
$
4,338
Adjusted EBITDA
$
49,102
$
41,281
$
7,821
The Pipeline and Storage segment’s second quarter GAAP earnings increased $4.3 million versus the prior year primarily driven by higher operating revenues and lower operation and maintenance (“O&M”) expenses, partially offset by higher DD&A expense. The increase in operating revenues of $6.9 million, or 10%, was largely due to an increase in Supply Corporation's transportation and storage rates effective February 1, 2020, in accordance with Supply Corporation's rate case settlement in principle coupled with new demand charges for transportation service from Supply Corporation's Line N to Monaca expansion project, which was placed in service on November 1, 2019. O&M expense decreased $0.9 million primarily due to lower compressor and facility maintenance costs, partially offset by an increase in pipeline integrity costs. The increase in DD&A expense of $2.1 million was primarily attributable to an increase in Supply Corporation's depreciation rates associated with its rate case settlement in principle.
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 deliver Seneca’s gross Appalachian production to the interstate pipeline system.
Three Months Ended
March 31,
(in thousands)
2020
2019
Variance
GAAP Earnings
$
19,898
$
12,690
$
7,208
Deferred tax valuation allowance
(3,769
)
—
(3,769
)
Adjusted Operating Results
$
16,129
$
12,690
$
3,439
Adjusted EBITDA
$
29,541
$
24,598
$
4,943
The Gathering segment’s second quarter GAAP earnings increased $7.2 million versus the prior year. Earnings were positively impacted by $3.8 million as a result of the Gathering segment's recognition of an income tax benefit that was recorded as an offset to the valuation allowance described above in the Exploration and Production segment. This offset is a result of the Gathering and Exploration and Production segments’ subsidiaries filing a combined state tax return. Taxable income generated in the Gathering segment is used to offset taxable losses in the Exploration and Production segment, which provided the opportunity to reduce the valuation allowance recorded in the Exploration and Production segment. Excluding this item, the Gathering segment’s earnings increased $3.4 million. The increase was primarily driven by higher operating revenues, which were partially offset by higher O&M expense and a modest increase in DD&A expense. Operating revenues increased $5.9 million, or 20%, primarily due to an 11.0 Bcf increase in gathered volumes from Seneca’s Appalachian natural gas production. The $1.0 million increase in O&M expense was due to an increase in compressor station operating and preventative maintenance activity during the current quarter. The $0.6 million increase in DD&A expense was due primarily to a higher average total value of plant assets in service versus the prior year.
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
March 31,
(in thousands)
2020
2019
Variance
GAAP Earnings
$
31,499
$
35,589
$
(4,090
)
Adjusted EBITDA
$
73,192
$
78,688
$
(5,496
)
The Utility segment’s second quarter GAAP earnings decreased $4.1 million over the prior year primarily driven by a decline in customer margin (operating revenues less purchased gas sold) and higher O&M expense. The $1.5 million decrease in customer margin was due primarily to warmer weather in Distribution's Pennsylvania service territory, partially offset by higher revenues earned through the Company’s system modernization tracking mechanism and the positive impact of adjustments related to regulatory rate and cost recovery mechanisms subject to annual reconciliation. Weather in Distribution's Pennsylvania service territory was 17.5% warmer on average than last year, resulting in a decrease in residential and transportation customer throughput and revenues. The impact of weather variations on earnings in Distribution's New York service territory is largely mitigated by that jurisdiction's weather normalization clause. The $3.3 million increase in O&M expense was primarily attributable to higher personnel costs as well as a higher accrual for bad debt expense given the economic backdrop in the Company's service territory.
Corporate and All Other
The Company’s operations that are included in Corporate and All Other, which now include the Company’s energy marketing business, generated a combined loss of $4.3 million in the current year second quarter, which was a $7.0 million decrease from the combined earnings of $2.7 million generated in the prior-year second quarter. The decrease in earnings was driven primarily by higher unrealized losses on investment securities in the current quarter compared to unrealized gains on investment securities in the prior year second quarter.
EARNINGS TELECONFERENCE
The Company will host a conference call on Friday, May 1, 2020, at 8:30 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 “9349819”. 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 “9349819”. Both the webcast and a telephonic replay will be available until the close of business on Friday, May 8, 2020.
National Fuel is an integrated energy company reporting financial results for four operating segments: Exploration and Production, Pipeline and Storage, Gathering, and Utility. 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: impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; changes in the price of natural gas or oil; 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; the length and severity of the recent COVID-19 pandemic, including its impacts across our businesses on demand, operations, global supply chains and liquidity; 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; 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; delays or changes in costs or plans with respect to Company projects or related projects of other companies, including disruptions due to COVID-19, as well as 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 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; the impact of information technology disruptions, cybersecurity or data security breaches; 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; 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; 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 2020. Additional details on the Company's forecast assumptions and business segment guidance are outlined in the table below.
While the Company expects to incur additional ceiling test impairment charges in the remaining quarters of fiscal 2020 and likely in the first quarter of fiscal 2021 as well, the amount of these charges is not reasonably determinable at this time. The amount of any ceiling test charge is determined at the end of the applicable quarter and will depend on many factors, including additions to or subtractions from proved reserves, fluctuations in oil and gas prices, and income tax effects related to the differences between the book and tax basis of the Company’s oil and gas properties. Some or all of these factors are likely to be significant. Because the expected ceiling test impairment charges and other potential items impacting comparability are not reasonably determinable at this time, the Company is unable to provide earnings guidance other than on a non-GAAP basis that excludes these items.
Updated FY 2020 Guidance
Previous FY 2020 Guidance
Consolidated Earnings per Share, excluding items impacting comparability
$2.75 to $2.95
$2.95 to $3.15
Consolidated Effective Tax Rate
~ 26%
~ 25%
Capital Expenditures (Millions)
Exploration and Production
$375 - $395
$375 - $410
Pipeline and Storage
$175 - $195
$180 - $215
Gathering
$50 - $60
$50 - $60
Utility
$80 - $90
$90 - $100
Consolidated Capital Expenditures
$680 - $740
$695 - $785
Exploration & Production Segment Guidance
Commodity Price Assumptions
NYMEX natural gas price
$2.05 /MMBtu
$2.05 /MMBtu
Appalachian basin spot price
$1.65 /MMBtu
$1.70 /MMBtu
NYMEX (WTI) crude oil price
$22.50 /Bbl
$55.00 /Bbl
California oil price premium (% of WTI)
90
%
104
%
Production (Bcfe)
East Division - Appalachia
214 to 224
219 to 229
West Division - California
~ 16
~ 16
Total Production
230 to 240
235 to 245
E&P Operating Costs ($/Mcfe)
LOE
$0.85 - $0.89
$0.85 - $0.89
G&A
$0.27 - $0.30
$0.27 - $0.30
DD&A
$0.70 - $0.74
$0.73 - $0.77
Other Business Segment Guidance (Millions)
Gathering Segment Revenues
$135 - $140
$135 - $145
Pipeline and Storage Segment Revenues
~ $305
$290 - $295
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
QUARTER ENDED MARCH 31, 2020
(Unaudited)
Upstream
Midstream
Downstream
Exploration &
Pipeline &
Corporate /
(Thousands of Dollars)
Production
Storage
Gathering
Utility
All Other
Consolidated*
Second quarter 2019 GAAP earnings
$
21,873
$
17,749
$
12,690
$
35,589
$
2,694
$
90,595
Items impacting comparability:
Mark-to-market adjustments due to hedge ineffectiveness
6,742
6,742
Tax impact of mark-to-market adjustments due to hedge ineffectiveness
(1,416
)
(1,416
)
Unrealized (gain) loss on other investments
(3,831
)
(3,831
)
Tax impact of unrealized (gain) loss on other investments
805
805
Second quarter 2019 adjusted operating results
27,199
17,749
12,690
35,589
(332
)
92,895
Drivers of adjusted operating results**
Upstream Revenues
Higher (lower) natural gas production
21,887
21,887
Higher (lower) crude oil production
2,030
2,030
Higher (lower) realized natural gas prices, after hedging
(20,168
)
(20,168
)
Higher (lower) realized crude oil prices, after hedging
(1,332
)
(1,332
)
Midstream Revenues
Higher (lower) operating revenues
5,456
4,660
10,116
Downstream Margins***
Impact of usage and weather
(3,814
)
(3,814
)
System modernization tracker revenues
1,689
1,689
Regulatory revenue adjustments
615
615
Higher (lower) energy marketing margins
604
604
Operating Expenses
Lower (higher) lease operating and transportation expenses
(4,573
)
(4,573
)
Lower (higher) operating expenses
(395
)
705
(751
)
(2,880
)
415
(2,906
)
Lower (higher) depreciation / depletion
(7,306
)
(1,630
)
(479
)
(9,415
)
Other Income (Expense)
(Higher) lower other deductions
(365
)
(483
)
(848
)
(Higher) lower interest expense
(486
)
(608
)
(1,094
)
Income Taxes
Lower (higher) income tax expense / effective tax rate
(1,646
)
(2
)
2
343
24
(1,279
)
All other / rounding
(399
)
292
7
(43
)
(27
)
(170
)
Second quarter 2020 adjusted operating results
14,446
22,087
16,129
31,499
76
84,237
Items impacting comparability:
Impairment of oil and gas properties
(177,761
)
(177,761
)
Tax impact of impairment of oil and gas properties
48,503
48,503
Deferred tax valuation allowance
(60,463
)
3,769
(76
)
(56,770
)
Unrealized gain (loss) on other investments
(5,414
)
(5,414
)
Tax impact of unrealized gain (loss) on other investments
1,137
1,137
Second quarter 2020 GAAP earnings
$
(175,275
)
$
22,087
$
19,898
$
31,499
$
(4,277
)
$
(106,068
)
* Amounts do not reflect intercompany eliminations
** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.
*** 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 MARCH 31, 2020
(Unaudited)
Upstream
Midstream
Downstream
Exploration &
Pipeline &
Corporate /
Production
Storage
Gathering
Utility
All Other
Consolidated*
Second quarter 2019 GAAP earnings per share
$
0.25
$
0.20
$
0.15
$
0.41
$
0.03
$
1.04
Items impacting comparability:
Mark-to-market adjustments due to hedge ineffectiveness, net of tax
0.06
0.06
Unrealized (gain) loss on other investments, net of tax
(0.03
)
(0.03
)
Second quarter 2019 adjusted operating results per share
0.31
0.20
0.15
0.41
—
1.07
Drivers of adjusted operating results**
Upstream Revenues
Higher (lower) natural gas production
0.25
0.25
Higher (lower) crude oil production
0.02
0.02
Higher (lower) realized natural gas prices, after hedging
(0.23
)
(0.23
)
Higher (lower) realized crude oil prices, after hedging
(0.02
)
(0.02
)
Midstream Revenues
Higher (lower) operating revenues
0.06
0.05
0.11
Downstream Margins***
Impact of usage and weather
(0.04
)
(0.04
)
System modernization tracker revenues
0.02
0.02
Regulatory revenue adjustments
0.01
0.01
Higher (lower) energy marketing margins
0.01
0.01
Operating Expenses
Lower (higher) lease operating and transportation expenses
(0.05
)
(0.05
)
Lower (higher) operating expenses
—
0.01
(0.01
)
(0.03
)
—
(0.03
)
Lower (higher) depreciation / depletion
(0.08
)
(0.02
)
(0.01
)
(0.11
)
Other Income (Expense)
(Higher) lower other deductions
—
(0.01
)
(0.01
)
(Higher) lower interest expense
(0.01
)
(0.01
)
(0.02
)
Income Taxes
Lower (higher) income tax expense / effective tax rate
(0.02
)
—
—
—
—
(0.02
)
All other / rounding
—
0.01
0.01
(0.01
)
—
0.01
Second quarter 2020 adjusted operating results per share
0.17
0.25
0.19
0.36
—
0.97
Items impacting comparability:
Impairment of oil and gas properties, net of tax
(1.49
)
(1.49
)
Deferred tax valuation allowance
(0.70
)
0.04
—
(0.66
)
Unrealized gain (loss) on other investments, net of tax
(0.05
)
(0.05
)
Earnings per share impact of diluted shares
(0.01
)
0.01
—
Second quarter 2020 GAAP earnings per share
$
(2.03
)
$
0.26
$
0.23
$
0.36
$
(0.05
)
$
(1.23
)
* Amounts do not reflect intercompany eliminations
** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.
*** Downstream margin defined as operating revenues less purchased gas expense.
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
SIX MONTHS ENDED MARCH 31, 2020
(Unaudited)
Upstream
Midstream
Downstream
Exploration &
Pipeline &
Corporate /
(Thousands of Dollars)
Production
Storage
Gathering
Utility
All Other
Consolidated*
Six months ended March 31, 2019 GAAP earnings
$
60,087
$
42,851
$
26,872
$
61,237
$
2,209
$
193,256
Items impacting comparability:
Remeasurement of deferred taxes under 2017 Tax Reform
(990
)
(500
)
(3,510
)
(5,000
)
Mark-to-market adjustments due to hedge ineffectiveness
237
237
Tax impact of mark-to-market adjustments due to hedge ineffectiveness
(50
)
(50
)
Unrealized (gain) loss on other investments
2,516
2,516
Tax impact of unrealized (gain) loss on other investments
(528
)
(528
)
Six months ended March 31, 2019 adjusted operating results
59,284
42,851
26,372
61,237
687
190,431
Drivers of adjusted operating results**
Upstream Revenues
Higher (lower) natural gas production
40,427
40,427
Higher (lower) crude oil production
3,487
3,487
Higher (lower) realized natural gas prices, after hedging
(32,792
)
(32,792
)
Higher (lower) realized crude oil prices, after hedging
(754
)
(754
)
Midstream Revenues
Higher (lower) operating revenues
1,625
8,688
10,313
Downstream Margins***
Impact of usage and weather
(3,678
)
(3,678
)
System modernization tracker revenues
2,033
2,033
Regulatory revenue adjustments
1,550
1,550
Higher (lower) energy marketing margins
891
891
Operating Expenses
Lower (higher) lease operating and transportation expenses
(11,082
)
(11,082
)
Lower (higher) operating expenses
(1,016
)
1,260
(2,038
)
(2,707
)
674
(3,827
)
Lower (higher) property, franchise and other taxes
1,187
(1,215
)
(28
)
Lower (higher) depreciation / depletion
(14,770
)
(2,017
)
(843
)
(17,630
)
Other Income (Expense)
(Higher) lower other deductions
(713
)
(916
)
1,004
(625
)
(Higher) lower interest expense
(1,192
)
412
272
(717
)
(1,225
)
Income Taxes
Lower (higher) income tax expense / effective tax rate
(2,980
)
(2,458
)
(213
)
(443
)
(266
)
(6,360
)
All other / rounding
(664
)
650
(165
)
90
591
502
Six months ended March 31, 2020 adjusted operating results
38,422
40,192
32,073
58,082
2,864
171,633
Items impacting comparability:
Impairment of oil and gas properties
(177,761
)
(177,761
)
Tax impact of impairment of oil and gas properties
48,503
48,503
Deferred tax valuation allowance
(60,463
)
3,769
(76
)
(56,770
)
Unrealized gain (loss) on other investments
(6,433
)
(6,433
)
Tax impact of unrealized gain (loss) on other investments
1,351
1,351
Six months ended March 31, 2020 GAAP earnings
$
(151,299
)
$
40,192
$
35,842
$
58,082
$
(2,294
)
$
(19,477
)
* Amounts do not reflect intercompany eliminations
** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.
*** Downstream margin defined as operating revenues less purchased gas expense.
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
SIX MONTHS ENDED MARCH 31, 2020
(Unaudited)
Upstream
Midstream
Downstream
Exploration &
Pipeline &
Corporate /
Production
Storage
Gathering
Utility
All Other
Consolidated*
Six months ended March 31, 2019 GAAP earnings per share
$
0.69
$
0.49
$
0.31
$
0.71
$
0.03
$
2.23
Items impacting comparability:
Remeasurement of deferred taxes under 2017 Tax Reform
(0.01
)
(0.01
)
(0.04
)
(0.06
)
Mark-to-market adjustments due to hedge ineffectiveness, net of tax
—
—
Unrealized (gain) loss on other investments, net of tax
0.02
0.02
Rounding
0.01
0.01
Six months ended March 31, 2019 adjusted operating results per share
0.68
0.49
0.30
0.71
0.02
2.20
Drivers of adjusted operating results**
Upstream Revenues
Higher (lower) natural gas production
0.47
0.47
Higher (lower) crude oil production
0.04
0.04
Higher (lower) realized natural gas prices, after hedging
(0.38
)
(0.38
)
Higher (lower) realized crude oil prices, after hedging
(0.01
)
(0.01
)
Midstream Revenues
Higher (lower) operating revenues
0.02
0.10
0.12
Downstream Margins***
Impact of usage and weather
(0.04
)
(0.04
)
System modernization tracker revenues
0.02
0.02
Regulatory revenue adjustments
0.02
0.02
Higher (lower) energy marketing margins
0.01
0.01
Operating Expenses
Lower (higher) lease operating and transportation expenses
(0.13
)
(0.13
)
Lower (higher) operating expenses
(0.01
)
0.01
(0.02
)
(0.03
)
0.01
(0.04
)
Lower (higher) property, franchise and other taxes
0.01
(0.01
)
—
Lower (higher) depreciation / depletion
(0.17
)
(0.02
)
(0.01
)
(0.20
)
Other Income (Expense)
(Higher) lower other deductions
(0.01
)
(0.01
)
0.01
(0.01
)
(Higher) lower interest expense
(0.01
)
—
—
(0.01
)
(0.02
)
Income Taxes
Lower (higher) income tax expense / effective tax rate
(0.03
)
(0.03
)
—
(0.01
)
—
(0.07
)
All other / rounding
(0.01
)
0.01
—
—
—
—
Six months ended March 31, 2020 adjusted operating results per share
0.44
0.46
0.37
0.67
0.04
1.98
Items impacting comparability:
Impairment of oil and gas properties, net of tax
(1.49
)
(1.49
)
Deferred tax valuation allowance
(0.70
)
0.04
—
(0.66
)
Unrealized gain (loss) on other investments, net of tax
(0.06
)
(0.06
)
Earnings per share impact of diluted shares
0.01
(0.01
)
—
Six months ended March 31, 2020 GAAP earnings per share
$
(1.75
)
$
0.46
$
0.42
$
0.67
$
(0.03
)
$
(0.23
)
* Amounts do not reflect intercompany eliminations
** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.
*** 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
Six Months Ended
March 31,
March 31,
(Unaudited)
(Unaudited)
SUMMARY OF OPERATIONS
2020
2019
2020
2019
Operating Revenues:
Utility and Energy Marketing Revenues
$
282,634
$
357,654
$
510,660
$
629,747
Exploration and Production and Other Revenues
156,542
146,467
323,735
310,403
Pipeline and Storage and Gathering Revenues
51,919
48,423
100,888
102,641
491,095
552,544
935,283
1,042,791
Operating Expenses:
Purchased Gas
118,270
195,037
210,542
333,697
Operation and Maintenance:
Utility and Energy Marketing
51,725
48,559
94,981
92,475
Exploration and Production and Other
39,959
40,141
76,652
72,936
Pipeline and Storage and Gathering
27,305
27,249
53,190
52,182
Property, Franchise and Other Taxes
22,743
22,535
45,887
46,540
Depreciation, Depletion and Amortization
77,912
65,664
152,830
129,918
Impairment of Oil and Gas Producing Properties
177,761
—
177,761
—
515,675
399,185
811,843
727,748
Operating Income (Loss)
(24,580
)
153,359
123,440
315,043
Other Income (Expense):
Other Income (Deductions)
(17,480
)
(5,919
)
(20,520
)
(15,521
)
Interest Expense on Long-Term Debt
(25,270
)
(25,273
)
(50,713
)
(50,713
)
Other Interest Expense
(1,892
)
(1,787
)
(3,443
)
(2,860
)
Income (Loss) Before Income Taxes
(69,222
)
120,380
48,764
245,949
Income Tax Expense
36,846
29,785
68,241
52,693
Net Income (Loss) Available for Common Stock
$
(106,068
)
$
90,595
$
(19,477
)
$
193,256
Earnings (Loss) Per Common Share
Basic
$
(1.23
)
$
1.05
$
(0.23
)
$
2.24
Diluted
$
(1.23
)
$
1.04
$
(0.23
)
$
2.23
Weighted Average Common Shares:
Used in Basic Calculation
86,561,066
86,290,047
86,469,258
86,159,932
Used in Diluted Calculation
86,561,066
86,767,673
86,469,258
86,738,809
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
September 30,
(Thousands of Dollars)
2020
2019
ASSETS
Property, Plant and Equipment
$
11,559,528
$
11,204,838
Less - Accumulated Depreciation, Depletion and Amortization
6,003,658
5,695,328
Net Property, Plant and Equipment
5,555,870
5,509,510
Current Assets:
Cash and Temporary Cash Investments
111,655
20,428
Hedging Collateral Deposits
10,728
6,832
Receivables - Net
172,011
139,956
Unbilled Revenue
44,715
18,758
Gas Stored Underground
8,860
36,632
Materials and Supplies - at average cost
48,113
40,717
Unrecovered Purchased Gas Costs
—
2,246
Other Current Assets
100,188
97,054
Total Current Assets
496,270
362,623
Other Assets:
Recoverable Future Taxes
115,934
115,197
Unamortized Debt Expense
13,151
14,005
Other Regulatory Assets
161,800
167,320
Deferred Charges
56,855
33,843
Other Investments
137,044
144,917
Goodwill
5,476
5,476
Prepaid Post-Retirement Benefit Costs
71,381
60,517
Fair Value of Derivative Financial Instruments
94,797
48,669
Other
81
80
Total Other Assets
656,519
590,024
Total Assets
$
6,708,659
$
6,462,157
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders' Equity
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and
Outstanding - 86,561,532 Shares and 86,315,287 Shares, Respectively
$
86,562
$
86,315
Paid in Capital
835,444
832,264
Earnings Reinvested in the Business
1,176,870
1,272,601
Accumulated Other Comprehensive Loss
(18,917
)
(52,155
)
Total Comprehensive Shareholders' Equity
2,079,959
2,139,025
Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs
2,134,964
2,133,718
Total Capitalization
4,214,923
4,272,743
Current and Accrued Liabilities:
Notes Payable to Banks and Commercial Paper
230,000
55,200
Current Portion of Long-Term Debt
—
—
Accounts Payable
106,938
132,208
Amounts Payable to Customers
17,213
4,017
Dividends Payable
37,654
37,547
Interest Payable on Long-Term Debt
18,508
18,508
Customer Advances
615
13,044
Customer Security Deposits
14,999
16,210
Other Accruals and Current Liabilities
150,239
139,600
Fair Value of Derivative Financial Instruments
7,652
5,574
Total Current and Accrued Liabilities
583,818
421,908
Deferred Credits:
Deferred Income Taxes
777,299
653,382
Taxes Refundable to Customers
360,331
366,503
Cost of Removal Regulatory Liability
224,546
221,699
Other Regulatory Liabilities
157,371
142,367
Pension and Other Post-Retirement Liabilities
126,959
133,729
Asset Retirement Obligations
128,779
127,458
Other Deferred Credits
134,633
122,368
Total Deferred Credits
1,909,918
1,767,506
Commitments and Contingencies
—
—
Total Capitalization and Liabilities
$
6,708,659
$
6,462,157
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
(Thousands of Dollars)
2020
2019
Operating Activities:
Net Income (Loss) Available for Common Stock
$
(19,477
)
$
193,256
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Impairment of Oil and Gas Producing Properties
177,761
—
Depreciation, Depletion and Amortization
152,830
129,918
Deferred Income Taxes
104,883
90,468
Stock-Based Compensation
7,580
10,731
Other
9,800
7,997
Change in:
Receivables and Unbilled Revenue
(58,248
)
(130,377
)
Gas Stored Underground and Materials and Supplies
20,086
29,093
Unrecovered Purchased Gas Costs
2,246
(1,556
)
Other Current Assets
(3,134
)
10,438
Accounts Payable
(5,465
)
10,226
Amounts Payable to Customers
13,196
12,069
Customer Advances
(12,429
)
(13,176
)
Customer Security Deposits
(1,211
)
(7,184
)
Other Accruals and Current Liabilities
9,076
48,028
Other Assets
(10,359
)
(38,686
)
Other Liabilities
3,857
(10,410
)
Net Cash Provided by Operating Activities
$
390,992
$
340,835
Investing Activities:
Capital Expenditures
$
(395,486
)
$
(386,579
)
Other
4,167
(2,616
)
Net Cash Used in Investing Activities
$
(391,319
)
$
(389,195
)
Financing Activities:
Changes in Notes Payable to Banks and Commercial Paper
$
174,800
$
—
Dividends Paid on Common Stock
(75,197
)
(73,197
)
Net Repurchases of Common Stock
(4,153
)
(8,864
)
Net Cash Provided by (Used in) Financing Activities
$
95,450
$
(82,061
)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
95,123
(130,421
)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
27,260
233,047
Cash, Cash Equivalents, and Restricted Cash at March 31
$
122,383
$
102,626
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
UPSTREAM BUSINESS
Three Months Ended
Six Months Ended
(Thousands of Dollars, except per share amounts)
March 31,
March 31,
EXPLORATION AND PRODUCTION SEGMENT
2020
2019
Variance
2020
2019
Variance
Total Operating Revenues
$
155,560
$
146,102
$
9,458
$
321,499
$
308,978
$
12,521
Operating Expenses:
Operation and Maintenance:
General and Administrative Expense
17,429
17,113
316
32,809
32,312
497
Lease Operating and Transportation Expense
51,730
45,941
5,789
102,531
88,503
14,028
All Other Operation and Maintenance Expense
3,084
2,900
184
6,041
5,252
789
Property, Franchise and Other Taxes
3,471
3,310
161
8,171
9,673
(1,502
)
Depreciation, Depletion and Amortization
45,136
35,888
9,248
89,284
70,588
18,696
Impairment of Oil and Gas Producing Properties
177,761
—
177,761
177,761
—
177,761
298,611
105,152
193,459
416,597
206,328
210,269
Operating Income (Loss)
(143,051
)
40,950
(184,001
)
(95,098
)
102,650
(197,748
)
Other Income (Expense):
Non-Service Pension and Post-Retirement Benefit Costs
(395
)
(4
)
(391
)
(790
)
(8
)
(782
)
Interest and Other Income
208
279
(71
)
441
562
(121
)
Interest Expense
(14,163
)
(13,548
)
(615
)
(28,220
)
(26,711
)
(1,509
)
Income (Loss) Before Income Taxes
(157,401
)
27,677
(185,078
)
(123,667
)
76,493
(200,160
)
Income Tax Expense
17,874
5,804
12,070
27,632
16,406
11,226
Net Income (Loss)
$
(175,275
)
$
21,873
$
(197,148
)
$
(151,299
)
$
60,087
$
(211,386
)
Net Income (Loss) Per Share (Diluted)
$
(2.03
)
$
0.25
$
(2.28
)
$
(1.75
)
$
0.69
$
(2.44
)
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
MIDSTREAM BUSINESSES
Three Months Ended
Six Months Ended
(Thousands of Dollars, except per share amounts)
March 31,
March 31,
PIPELINE AND STORAGE SEGMENT
2020
2019
Variance
2020
2019
Variance
Revenues from External Customers
$
51,919
$
48,421
$
3,498
$
100,888
$
102,639
$
(1,751
)
Intersegment Revenues
27,326
23,918
3,408
50,577
46,769
3,808
Total Operating Revenues
79,245
72,339
6,906
151,465
149,408
2,057
Operating Expenses:
Purchased Gas
(3
)
510
(513
)
(10
)
813
(823
)
Operation and Maintenance
22,014
22,907
(893
)
42,945
44,540
(1,595
)
Property, Franchise and Other Taxes
8,132
7,641
491
16,487
14,949
1,538
Depreciation, Depletion and Amortization
13,356
11,293
2,063
24,960
22,407
2,553
43,499
42,351
1,148
84,382
82,709
1,673
Operating Income
35,746
29,988
5,758
67,083
66,699
384
Other Income (Expense):
Non-Service Pension and Post-Retirement Benefit (Costs) Credit
(174
)
930
(1,104
)
(349
)
1,397
(1,746
)
Interest and Other Income
1,535
1,043
492
3,088
2,502
586
Interest Expense
(7,152
)
(7,500
)
348
(14,264
)
(14,786
)
522
Income Before Income Taxes
29,955
24,461
5,494
55,558
55,812
(254
)
Income Tax Expense
7,868
6,712
1,156
15,366
12,961
2,405
Net Income
$
22,087
$
17,749
$
4,338
$
40,192
$
42,851
$
(2,659
)
Net Income Per Share (Diluted)
$
0.26
$
0.20
$
0.06
$
0.46
$
0.49
$
(0.03
)
Three Months Ended
Six Months Ended
March 31,
March 31,
GATHERING SEGMENT
2020
2019
Variance
2020
2019
Variance
Revenues from External Customers
$
—
$
2
$
(2
)
$
—
$
2
$
(2
)
Intersegment Revenues
35,267
29,366
5,901
70,055
59,056
10,999
Total Operating Revenues
35,267
29,368
5,899
70,055
59,058
10,997
Operating Expenses:
Operation and Maintenance
5,702
4,752
950
11,044
8,464
2,580
Property, Franchise and Other Taxes
24
18
6
38
48
(10
)
Depreciation, Depletion and Amortization
5,279
4,673
606
10,418
9,351
1,067
11,005
9,443
1,562
21,500
17,863
3,637
Operating Income
24,262
19,925
4,337
48,555
41,195
7,360
Other Income (Expense):
Non-Service Pension and Post-Retirement Benefit Costs
(71
)
(1
)
(70
)
(143
)
(83
)
(60
)
Interest and Other Income
89
190
(101
)
157
315
(158
)
Interest Expense
(2,160
)
(2,345
)
185
(4,379
)
(4,723
)
344
Income Before Income Taxes
22,120
17,769
4,351
44,190
36,704
7,486
Income Tax Expense
2,222
5,079
(2,857
)
8,348
9,832
(1,484
)
Net Income
$
19,898
$
12,690
$
7,208
$
35,842
$
26,872
$
8,970
Net Income Per Share (Diluted)
$
0.23
$
0.15
$
0.08
$
0.42
$
0.31
$
0.11
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
DOWNSTREAM BUSINESS
Three Months Ended
Six Months Ended
(Thousands of Dollars, except per share amounts)
March 31,
March 31,
UTILITY SEGMENT
2020
2019
Variance
2020
2019
Variance
Revenues from External Customers
$
250,556
$
298,636
$
(48,080
)
$
445,465
$
518,647
$
(73,182
)
Intersegment Revenues
3,937
4,394
(457
)
5,853
7,040
(1,187
)
Total Operating Revenues
254,493
303,030
(48,537
)
451,318
525,687
(74,369
)
Operating Expenses:
Purchased Gas
119,411
165,235
(45,824
)
204,116
277,115
(72,999
)
Operation and Maintenance
51,070
47,795
3,275
93,913
90,950
2,963
Property, Franchise and Other Taxes
10,820
11,312
(492
)
20,634
21,365
(731
)
Depreciation, Depletion and Amortization
13,751
13,365
386
27,382
26,656
726
195,052
237,707
(42,655
)
346,045
416,086
(70,041
)
Operating Income
59,441
65,323
(5,882
)
105,273
109,601
(4,328
)
Other Income (Expense):
Non-Service Pension and Post-Retirement Benefit Costs
(12,388
)
(12,686
)
298
(19,151
)
(19,614
)
463
Interest and Other Income
294
1,068
(774
)
1,245
1,780
(535
)
Interest Expense
(5,516
)
(6,263
)
747
(11,190
)
(12,157
)
967
Income Before Income Taxes
41,831
47,442
(5,611
)
76,177
79,610
(3,433
)
Income Tax Expense
10,332
11,853
(1,521
)
18,095
18,373
(278
)
Net Income
$
31,499
$
35,589
$
(4,090
)
$
58,082
$
61,237
$
(3,155
)
Net Income Per Share (Diluted)
$
0.36
$
0.41
$
(0.05
)
$
0.67
$
0.71
$
(0.04
)
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
Three Months Ended
Six Months Ended
(Thousands of Dollars, except per share amounts)
March 31,
March 31
ALL OTHER
2020
2019
Variance
2020
2019
Variance
Revenues from External Customers
$
32,925
$
59,328
$
(26,403
)
$
67,161
$
112,416
$
(45,255
)
Intersegment Revenues
79
43
36
256
375
(119
)
Total Operating Revenues
33,004
59,371
(26,367
)
67,417
112,791
(45,374
)
Operating Expenses:
Purchased Gas
29,151
56,820
(27,669
)
61,184
108,337
(47,153
)
Operation and Maintenance
1,875
1,944
(69
)
3,578
3,822
(244
)
Property, Franchise and Other Taxes
176
134
42
320
270
50
Depreciation, Depletion and Amortization
206
254
(48
)
408
536
(128
)
31,408
59,152
(27,744
)
65,490
112,965
(47,475
)
Operating Income (Loss)
1,596
219
1,377
1,927
(174
)
2,101
Other Income (Expense):
Non-Service Pension and Post-Retirement Benefit Costs
(69
)
(11
)
(58
)
(138
)
(133
)
(5
)
Interest and Other Income
193
360
(167
)
471
666
(195
)
Interest Expense
(24
)
(8
)
(16
)
(42
)
(13
)
(29
)
Income Before Income Taxes
1,696
560
1,136
2,218
346
1,872
Income Tax Expense (Benefit)
527
144
383
678
(153
)
831
Net Income
$
1,169
$
416
$
753
$
1,540
$
499
$
1,041
Net Income Per Share (Diluted)
$
0.01
$
0.01
$
—
$
0.02
$
0.01
$
0.01
Three Months Ended
Six Months Ended
March 31,
March 31,
CORPORATE
2020
2019
Variance
2020
2019
Variance
Revenues from External Customers
$
135
$
55
$
80
$
270
$
109
$
161
Intersegment Revenues
1,094
1,165
(71
)
2,187
2,329
(142
)
Total Operating Revenues
1,229
1,220
9
2,457
2,438
19
Operating Expenses:
Operation and Maintenance
3,499
3,955
(456
)
6,142
6,751
(609
)
Property, Franchise and Other Taxes
120
120
—
237
235
2
Depreciation, Depletion and Amortization
184
191
(7
)
378
380
(2
)
3,803
4,266
(463
)
6,757
7,366
(609
)
Operating Loss
(2,574
)
(3,046
)
472
(4,300
)
(4,928
)
628
Other Income (Expense):
Non-Service Pension and Post-Retirement Benefit Costs
(775
)
(647
)
(128
)
(1,550
)
(1,385
)
(165
)
Interest and Other Income
22,801
32,761
(9,960
)
53,874
56,377
(2,503
)
Interest Expense on Long-Term Debt
(25,270
)
(25,273
)
3
(50,713
)
(50,713
)
—
Other Interest Expense
(1,605
)
(1,324
)
(281
)
(3,023
)
(2,367
)
(656
)
Income (Loss) before Income Taxes
(7,423
)
2,471
(9,894
)
(5,712
)
(3,016
)
(2,696
)
Income Tax Expense (Benefit)
(1,977
)
193
(2,170
)
(1,878
)
(4,726
)
2,848
Net Income (Loss)
$
(5,446
)
$
2,278
$
(7,724
)
$
(3,834
)
$
1,710
$
(5,544
)
Net Income (Loss) Per Share (Diluted)
$
(0.06
)
$
0.02
$
(0.08
)
$
(0.05
)
$
0.02
$
(0.07
)
Three Months Ended
Six Months Ended
March 31,
March 31,
INTERSEGMENT ELIMINATIONS
2020
2019
Variance
2020
2019
Variance
Intersegment Revenues
$
(67,703
)
$
(58,886
)
$
(8,817
)
$
(128,928
)
$
(115,569
)
$
(13,359
)
Operating Expenses:
Purchased Gas
(30,289
)
(27,528
)
(2,761
)
(54,748
)
(52,568
)
(2,180
)
Operation and Maintenance
(37,414
)
(31,358
)
(6,056
)
(74,180
)
(63,001
)
(11,179
)
(67,703
)
(58,886
)
(8,817
)
(128,928
)
(115,569
)
(13,359
)
Operating Income
—
—
—
—
—
—
Other Income (Expense):
Interest and Other Deductions
(28,728
)
(29,201
)
473
(57,675
)
(57,897
)
222
Interest Expense
28,728
29,201
(473
)
57,675
57,897
(222
)
Net Income (Loss)
$
—
$
—
$
—
$
—
$
—
$
—
Net Income (Loss) Per Share (Diluted)
$
—
$
—
$
—
$
—
$
—
$
—
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
SEGMENT INFORMATION (Continued)
(Thousands of Dollars)
Three Months Ended
Six Months Ended
March 31,
March 31,
(Unaudited)
(Unaudited)
Increase
Increase
2020
2019
(Decrease)
2020
2019
(Decrease)
Capital Expenditures:
Exploration and Production
$
102,424
(1)
$
142,571
(3)
$
(40,147
)
$
229,343
(1)(2)
$
262,786
(3)(4)
$
(33,443
)
Pipeline and Storage
25,554
(1)
22,674
(3)
2,880
82,638
(1)(2)
52,638
(3)(4)
30,000
Gathering
15,072
(1)
12,680
(3)
2,392
24,910
(1)(2)
21,470
(3)(4)
3,440
Utility
19,457
(1)
19,735
(3)
(278
)
36,622
(1)(2)
35,657
(3)(4)
965
Total Reportable Segments
162,507
197,660
(35,153
)
373,513
372,551
962
All Other
1
22
(21
)
22
41
(19
)
Corporate
134
85
49
320
103
217
Total Capital Expenditures
$
162,642
$
197,767
$
(35,125
)
$
373,855
$
372,695
$
1,160
(1) Capital expenditures for the quarter and six months ended March 31, 2020, include accounts payable and accrued liabilities related to capital expenditures of $41.2 million, $9.7 million, $4.4 million, and $4.2 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 March 31, 2020, since they represent non-cash investing activities at that date.
(2) Capital expenditures for the six months ended March 31, 2020, exclude capital expenditures of $38.0 million, $23.8 million, $6.6 million and $12.7 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, 2019 and paid during the six months ended March 31, 2020. These amounts were excluded from the Consolidated Statement of Cash Flows at September 30, 2019, since they represented non-cash investing activities at that date. These amounts have been included in the Consolidated Statement of Cash Flows at March 31, 2020.
(3) Capital expenditures for the quarter and six months ended March 31, 2019, include accounts payable and accrued liabilities related to capital expenditures of $53.4 million, $10.7 million, $7.4 million, and $3.4 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 March 31, 2019, since they represent non-cash investing activities at that date.
(4) Capital expenditures for the six months ended March 31, 2019, 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 six months ended March 31, 2019. 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 March 31, 2019.
DEGREE DAYS
Percent Colder
(Warmer) Than:
Three Months Ended March 31
Normal
2020
2019
Normal (1)
Last Year (1)
Buffalo, NY
3,326
2,738
3,372
(17.7
)
(18.8
)
Erie, PA
3,142
2,555
3,096
(18.7
)
(17.5
)
Six Months Ended March 31
Buffalo, NY
5,579
4,970
5,697
(10.9
)
(12.8
)
Erie, PA
5,186
4,461
5,126
(14.0
)
(13.0
)
(1) Percents compare actual 2020 degree days to normal degree days and actual 2020 degree days to actual 2019 degree days.
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
EXPLORATION AND PRODUCTION INFORMATION
Three Months Ended
Six Months Ended
March 31,
March 31,
Increase
Increase
2020
2019
(Decrease)
2020
2019
(Decrease)
Gas Production/Prices:
Production (MMcf)
Appalachia
55,638
44,883
10,755
109,922
90,188
19,734
West Coast
479
487
(8
)
966
989
(23
)
Total Production
56,117
45,370
10,747
110,888
91,177
19,711
Average Prices (Per Mcf)
Appalachia
$
1.77
$
2.65
$
(0.88
)
$
1.97
$
2.79
$
(0.82
)
West Coast
4.34
6.06
(1.72
)
4.67
6.40
(1.73
)
Weighted Average
1.80
2.69
(0.89
)
1.99
2.83
(0.84
)
Weighted Average after Hedging
2.12
2.58
(0.46
)
2.22
2.60
(0.38
)
Oil Production/Prices:
Production (Thousands of Barrels)
Appalachia
1
1
—
2
2
—
West Coast
605
563
42
1,206
1,134
72
Total Production
606
564
42
1,208
1,136
72
Average Prices (Per Barrel)
Appalachia
$
55.90
$
47.54
$
8.36
$
55.48
$
55.93
$
(0.45
)
West Coast
49.91
61.85
(11.94
)
56.25
63.79
(7.54
)
Weighted Average
49.92
61.82
(11.90
)
56.25
63.78
(7.53
)
Weighted Average after Hedging
58.23
61.01
(2.78
)
60.57
61.36
(0.79
)
Total Production (MMcfe)
59,753
48,754
10,999
118,136
97,993
20,143
Selected Operating Performance Statistics:
General & Administrative Expense per Mcfe (1)
$
0.29
$
0.35
$
(0.06
)
$
0.28
$
0.33
$
(0.05
)
Lease Operating and Transportation Expense per Mcfe (1)(2)
$
0.87
$
0.94
$
(0.07
)
$
0.87
$
0.90
$
(0.03
)
Depreciation, Depletion & Amortization per Mcfe (1)
$
0.76
$
0.74
$
0.02
$
0.76
$
0.72
$
0.04
(1) Refer to page 16 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 $0.56 and $0.56 per Mcfe for the three months ended March 31, 2020 and March 31, 2019, respectively. Amounts include transportation expense of $0.57 and $0.55 per Mcfe for the six months ended March 31, 2020 and March 31, 2019, respectively.
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
EXPLORATION AND PRODUCTION INFORMATION
Hedging Summary for Remaining Six Months of Fiscal 2020
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 and six months ended March 31, 2020 and 2019:
Three Months Ended
Six Months Ended
March 31,
March 31,
(in thousands except per share amounts)
2020
2019
2020
2019
Reported GAAP Earnings
$
(106,068
)
$
90,595
$
(19,477
)
$
193,256
Items impacting comparability
Impairment of oil and gas properties (E&P)
177,761
—
177,761
—
Tax impact of impairment of oil and gas properties
(48,503
)
—
(48,503
)
—
Deferred tax valuation allowance
56,770
—
56,770
—
Remeasurement of deferred income taxes under 2017 Tax Reform
—
—
—
(5,000
)
Mark-to-market adjustments due to hedge ineffectiveness (E&P)
—
6,742
—
237
Tax impact of mark-to-market adjustments due to hedge ineffectiveness
—
(1,416
)
—
(50
)
Unrealized (gain) loss on other investments (Corporate/All Other)
5,414
(3,831
)
6,433
2,516
Tax impact of unrealized (gain) loss on other investments
(1,137
)
805
(1,351
)
(528
)
Adjusted Operating Results
$
84,237
$
92,895
$
171,633
$
190,431
Reported GAAP Earnings per share
$
(1.23
)
$
1.04
$
(0.23
)
$
2.23
Items impacting comparability
Impairment of oil and gas properties, net of tax (E&P)
1.49
—
1.49
—
Deferred tax valuation allowance
0.66
—
0.66
—
Remeasurement of deferred income taxes under 2017 Tax Reform
—
—
—
(0.06
)
Mark-to-market adjustments due to hedge ineffectiveness, net of tax (E&P)
—
0.06
—
—
Unrealized (gain) loss on other investments, net of tax (Corporate/All Other)
0.05
(0.03
)
0.06
0.02
Rounding
—
—
—
0.01
Adjusted Operating Results per share
$
0.97
$
1.07
$
1.98
$
2.20
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 and six months ended March 31, 2020 and 2019:
Three Months Ended
Six Months Ended
March 31,
March 31,
(in thousands)
2020
2019
2020
2019
Reported GAAP Earnings
$
(106,068
)
$
90,595
$
(19,477
)
$
193,256
Depreciation, Depletion and Amortization
77,912
65,664
152,830
129,918
Other (Income) Deductions
17,480
5,919
20,520
15,521
Interest Expense
27,162
27,060
54,156
53,573
Income Taxes
36,846
29,785
68,241
52,693
Mark-to-Market Adjustments due to Hedge Ineffectiveness
—
6,742
—
237
Impairment of Oil and Gas Producing Properties
177,761
—
177,761
—
Adjusted EBITDA
$
231,093
$
225,765
$
454,031
$
445,198
Adjusted EBITDA by Segment
Pipeline and Storage Adjusted EBITDA
$
49,102
$
41,281
$
92,043
$
89,106
Gathering Adjusted EBITDA
29,541
24,598
58,973
50,546
Total Midstream Businesses Adjusted EBITDA
78,643
65,879
151,016
139,652
Exploration and Production Adjusted EBITDA
79,846
83,580
171,947
173,475
Utility Adjusted EBITDA
73,192
78,688
132,655
136,257
Corporate and All Other Adjusted EBITDA
(588
)
(2,382
)
(1,587
)
(4,186
)
Total Adjusted EBITDA
$
231,093
$
225,765
$
454,031
$
445,198
NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES NON-GAAP FINANCIAL MEASURES SEGMENT ADJUSTED EBITDA
Three Months Ended
Six Months Ended
March 31,
March 31,
(in thousands)
2020
2019
2020
2019
Exploration and Production Segment
Reported GAAP Earnings
$
(175,275
)
$
21,873
$
(151,299
)
$
60,087
Depreciation, Depletion and Amortization
45,136
35,888
89,284
70,588
Other (Income) Deductions
187
(275
)
349
(554
)
Interest Expense
14,163
13,548
28,220
26,711
Income Taxes
17,874
5,804
27,632
16,406
Mark-to-Market Adjustments due to Hedge Ineffectiveness
—
6,742
—
237
Impairment of Oil and Gas Producing Properties
177,761
—
177,761
—
Adjusted EBITDA
$
79,846
$
83,580
$
171,947
$
173,475
Pipeline and Storage Segment
Reported GAAP Earnings
$
22,087
$
17,749
$
40,192
$
42,851
Depreciation, Depletion and Amortization
13,356
11,293
24,960
22,407
Other (Income) Deductions
(1,361
)
(1,973
)
(2,739
)
(3,899
)
Interest Expense
7,152
7,500
14,264
14,786
Income Taxes
7,868
6,712
15,366
12,961
Adjusted EBITDA
$
49,102
$
41,281
$
92,043
$
89,106
Gathering Segment
Reported GAAP Earnings
$
19,898
$
12,690
$
35,842
$
26,872
Depreciation, Depletion and Amortization
5,279
4,673
10,418
9,351
Other (Income) Deductions
(18
)
(189
)
(14
)
(232
)
Interest Expense
2,160
2,345
4,379
4,723
Income Taxes
2,222
5,079
8,348
9,832
Adjusted EBITDA
$
29,541
$
24,598
$
58,973
$
50,546
Utility Segment
Reported GAAP Earnings
$
31,499
$
35,589
$
58,082
$
61,237
Depreciation, Depletion and Amortization
13,751
13,365
27,382
26,656
Other (Income) Deductions
12,094
11,618
17,906
17,834
Interest Expense
5,516
6,263
11,190
12,157
Income Taxes
10,332
11,853
18,095
18,373
Adjusted EBITDA
$
73,192
$
78,688
$
132,655
$
136,257
Corporate and All Other
Reported GAAP Earnings
$
(4,277
)
$
2,694
$
(2,294
)
$
2,209
Depreciation, Depletion and Amortization
390
445
786
916
Other (Income) Deductions
6,578
(3,262
)
5,018
2,372
Interest Expense
(1,829
)
(2,596
)
(3,897
)
(4,804
)
Income Taxes
(1,450
)
337
(1,200
)
(4,879
)
Adjusted EBITDA
$
(588
)
$
(2,382
)
$
(1,587
)
$
(4,186
)
Analyst Contact:
Kenneth E. Webster
716-857-7067
Media Contact:
Karen L. Merkel
716-857-7654
