National Fuel Reports Second Quarter Earnings and Provides Operational Update
May 3, 2018 - 5:00 PM EDT
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National Fuel Reports Second Quarter Earnings and Provides Operational Update
WILLIAMSVILLE, N.Y., May 03, 2018 (GLOBE NEWSWIRE) -- National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated results for the second quarter of its 2018 fiscal year and for the six months ended March 31, 2018, and provided an update on the Company's upstream and midstream operations.
FISCAL 2018 SECOND QUARTER SUMMARY
GAAP earnings of $91.8 million, or $1.06 per share, compared to $89.3 million, or $1.04 per share, in the prior year
Excluding a $4.0 million, or $0.05 per share, adjustment to the initial remeasurement of deferred taxes from federal tax reform, Adjusted Operating Results were $95.8 million, or $1.11 per share (see non-GAAP reconciliation below)
Consolidated Adjusted EBITDA of $217.9 million (non-GAAP reconciliation on page 24)
Net natural gas and oil production of 46.1 Bcfe, up 1% from the prior year and up 15% from the first quarter
Average natural gas prices, after the impact of hedging, of $2.52 per Mcf, down $0.44 per Mcf from the prior year
Average oil prices, after the impact of hedging, of $58.31 per Bbl, up $5.39 per Bbl from the prior year
Utility segment earnings increased 30% on colder weather in Pennsylvania and new rates in New York
Due to the reduction in the fiscal 2018 federal statutory rate as a result of the 2017 Tax Reform Act, the Company realized net earnings benefit for the quarter of $10.3 million, or $0.11 per share
Three Months Ended
Six Months Ended
March 31,
March 31,
(in thousands except per share amounts)
2018
2017
2018
2017
Reported GAAP Earnings
$
91,847
$
89,284
$
290,501
$
178,191
Items impacting comparability
Remeasurement of deferred income taxes under 2017 Tax Reform
4,000
—
(107,000
)
—
Adjusted Operating Results
$
95,847
$
89,284
$
183,501
$
178,191
Reported GAAP Earnings per share
$
1.06
$
1.04
$
3.37
$
2.07
Items impacting comparability
Remeasurement of deferred income taxes under 2017 Tax Reform
$
0.05
—
$
(1.24
)
—
Adjusted Operating Results per share
$
1.11
$
1.04
$
2.13
$
2.07
UPSTREAM AND MIDSTREAM BUSINESS OPERATIONS UPDATE
Earlier this week, the Company’s exploration and production subsidiary, Seneca Resources Corporation (“Seneca”) entered into a precedent agreement with Transcontinental Gas Pipeline Company, LLC (“Transco”) for 300,000 Dekatherms (Dth) per day of new firm transportation capacity. The incremental capacity will allow Seneca to move natural gas supplies from its Clermont-Rich Valley producing area in the Western Development Area (“WDA”) and its Lycoming County acreage in the Eastern Development Area (“EDA”) to premium markets connected to Zone 6 of Transco’s interstate pipeline system. Seneca will be an anchor shipper on the to-be-announced Transco project. While the size, scope, and facilities associated with Transco’s expansion have yet to be finalized, Seneca’s transportation rate is expected to be competitive with other expansion project rates in its current transportation portfolio. The in-service date is anticipated in the first half of fiscal 2022.
In order to provide Seneca with a complete transportation path extending from its WDA to these Zone 6 markets, Transco is expected to lease approximately 300,000 Dth per day of new capacity from National Fuel Gas Supply Corporation (“Supply Corporation”), a pipeline and storage subsidiary of the Company. The lease is expected to provide Transco with a path from the Company’s Clermont Gathering System in McKean County, Pa., to Supply Corporation’s existing interconnection with Transco in Leidy, Pa. This new capacity on the Supply Corporation pipeline system is expected to be created via an expansion component that will be added to Supply Corporation’s FM100 Modernization Project. The preliminary cost estimate for the entirety of the FM100 Modernization Project, including the proposed expansion, is approximately $250 million to $300 million. Supply Corporation is currently in the pre-filing process with FERC on the FM100 Modernization Project, which is also expected to upgrade 1950’s era facilities.
National Fuel also remains committed to building its federally authorized Northern Access pipeline project. Northern Access, a planned expansion of the Supply Corporation and Empire Pipeline, Inc. (“Empire”) interstate pipeline systems, will provide Seneca with 490,000 Dth per day of incremental capacity from the WDA in Pennsylvania to diverse markets in New York state, Canada and the Midwest U.S. Legal challenges relating to the New York State Department of Environmental Conservation’s review of a state environmental permit remain pending.
Seneca has continued to advance its Utica appraisal and optimization program in the WDA. In the second quarter, Seneca brought on three additional Utica wells off a Marcellus development pad in Clermont-Rich Valley and one Utica appraisal well on its Boone Mountain prospect in Elk County, Pa., approximately 30 miles to the south of the Clermont-Rich Valley area. Initial production results on the Boone Mountain well were consistent with the best WDA Utica well that Seneca has completed to date and, based on other geologic information, suggests that as much as 160,000 acres in the WDA is economically viable for future Utica shale development. Much of this Utica position overlaps with Seneca’s core Marcellus acreage, where Seneca has identified as many as 125 well locations on existing Marcellus well pads that allow for the utilization of the Company's Clermont Gathering System. The redevelopment of these locations requires minimal additional investment in gathering infrastructure, which will provide significant uplift to the program's consolidated returns.
Seneca meanwhile continues to make progress on the marketing of its near-term natural gas production, augmenting its existing firm transportation portfolio with firm sales at in-basin receipt points that lock in a significant portion of its projected production volumes at attractive net-back pricing while reducing local spot market exposure. As Seneca looks to grow into this future firm capacity and capitalize on the Company’s integrated strategy to enhance the consolidated upstream and midstream returns of the Appalachian drilling program, Seneca will add a third horizontal drilling rig to its Appalachian operations in the third quarter of fiscal 2018. The additional rig will be primarily dedicated to the redevelopment of Seneca’s Clermont-Rich Valley acreage for the Utica Shale.
While the additional drilling rig will not lead to an immediate production increase this fiscal year, Seneca expects now to grow its production at a 15 to 20 percent compound annual growth rate through fiscal 2022, which will also benefit the Gathering segment's throughput. Due to the minimal gathering capital requirements, as well as Seneca’s existing firm capacity and financial hedge portfolio, peer leading cost structure, and royalty-free economics in the WDA, the Company expects the combined Exploration and Production and Gathering segments to live within cash flows at current natural gas strip pricing over the next three years. The addition of a third rig is also expected to be accretive to the Appalachian program’s overall consolidated earnings and yield a higher return on invested capital relative to the current two rig activity level, while providing economies of scale, operational flexibility, and other benefits to drive further efficiencies.
Additionally, on May 1, 2018, Seneca closed on a sale of its Sespe oil and natural gas assets in California for $43 million. The divestiture of Sespe, the Company’s sole asset in Ventura County, is part of Seneca’s strategy to focus on and grow production from its core California assets in the San Joaquin basin, in particular recently acquired leases in the Midway Sunset field. The Sespe field produces approximately 900 net barrels of oil equivalent (“boe”) per day and was expected to contribute approximately $0.05 per share of earnings for the remainder of fiscal 2018. Under full cost accounting rules, the Company will not record any gain or loss with respect to the transaction.
MANAGEMENT COMMENTS
Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: “We’re pleased to report another quarter of solid financial results across all of our operating segments. A return this year to a more normal heating season in our New York and Pennsylvania operating regions increased throughput across our utility pipeline system. Notwithstanding the weather that was colder than the two previous heating seasons, our customers continue to benefit from the low cost of natural gas supplies that are being produced from the Appalachian basin and safely delivered to them through our interstate and utility pipeline systems.
“We are also excited about recent updates to our near and longer-term operating plans that will allow us to continue the growth of our upstream and midstream businesses in Appalachia. Our ongoing transition to Utica shale development in the WDA is moving along quite well. Early results indicate that we have a large inventory of additional Utica locations in and around our core Marcellus footprint that will generate stronger consolidated returns, particularly in areas where new Utica production can use existing gathering infrastructure that was built during our Marcellus development. With a newly developed pipeline expansion project planned to be in place, we now expect to have the exit capacity and end-market diversity to tap and bring forward the value of our significant, stacked-pay acreage position in Pennsylvania, while also continuing to grow the earnings and returns of our Gathering and Pipeline and Storage segments and capitalize on the strategic benefits of our integrated business model.”
DISCUSSION OF RESULTS BY SEGMENT
The following discussion of the earnings of each segment is summarized in a tabular form on pages 9 through 12 of this report. It may be helpful to refer to those tables while reviewing this discussion. Note that management defines Adjusted EBITDA as reported GAAP earnings before the following items: interest expense, income taxes, depreciation, depletion and amortization, interest and other income, 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 Corporation ("Seneca"). Seneca explores for, develops and produces natural gas and oil reserves, primarily in Pennsylvania and California.
Three Months Ended
Six Months Ended
March 31,
March 31,
(in thousands except per share amounts)
2018
2017
Variance
2018
2017
Variance
Net Income
$
26,537
$
33,769
$
(7,232
)
$
133,235
$
68,849
$
64,386
Net Income Per Share (Diluted)
$
0.31
$
0.39
$
(0.08
)
$
1.54
$
0.80
$
0.74
Adjusted EBITDA
$
78,770
$
93,970
$
(15,200
)
$
158,264
$
196,447
$
(38,183
)
The Exploration and Production segment’s second quarter earnings declined $7.2 million, as the positive impacts of higher production, better realized crude oil prices, and a lower effective income tax rate were more than offset by a decline in realized natural gas prices and higher operating expenses.
Seneca’s second quarter net production was 46.1 billion cubic feet equivalent (“Bcfe”), an increase of 0.5 Bcfe, or 1 percent, from the prior year due mainly to higher natural gas production in Appalachia. Net natural gas production increased 0.5 billion cubic feet (“Bcf”) versus the prior year and 6.0 Bcf, or 17 percent, versus the fiscal 2018 first quarter. The year over year increase was primarily due to higher net production in the WDA from new Marcellus and Utica wells completed and connected to sales during the past year. The 17 percent sequential increase over the first quarter of the fiscal year was due mostly to production from new wells brought on-line this quarter (including the first development pad brought to sales in the EDA since fiscal 2016), and an increase in Marcellus production from other EDA locations after price-related and operational curtailments experienced during the previous quarter (Seneca did not have any significant curtailments in the second quarter of fiscal 2018). Seneca’s oil production decreased 11 thousand barrels ("Mbbl"), or 2 percent, versus the prior year.
Seneca's average realized natural gas price, after the impact of hedging and marketing and transportation costs, was $2.52 per thousand cubic feet ("Mcf"), a decrease of $0.44 per Mcf from the prior year. The decline in Seneca’s 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. Seneca's average realized oil price, after the impact of hedging, was $58.31 per barrel ("Bbl"), an increase of $5.39 per Bbl. 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.
Seneca’s operating expenses increased $5.2 million during the second quarter. Lease operating and transportation expense (“LOE”) increased $1.3 million due to higher natural gas production in Appalachia, which resulted in higher gathering and transportation costs, and an increase in well workover activities and steaming costs in California. Depreciation, depletion and amortization (“DD&A”) expense increased $3.1 million due to the increase in production and a higher per unit DD&A rate, which increased by $0.06 per thousand cubic feet equivalent (“Mcfe”) to $0.69 per Mcfe due mainly to a higher depletable fixed asset balance at March 31, 2018.
The decrease in the segment’s effective tax rate was mostly due to the 2017 Tax Reform Act, which reduced the Company’s federal statutory corporate tax rate in fiscal 2018 from 35 percent to 24.5 percent and benefited Seneca’s second quarter earnings by $3.5 million, or $0.04 per share. The current period benefit was offset partially by a $0.8 million revision to the remeasurement of deferred income taxes that was recorded in the first quarter.
See page 21 for additional comparative information on the Exploration & Production segment’s production, realized pricing and per unit operating costs.
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
Six Months Ended
March 31,
March 31,
(in thousands except per share amounts)
2018
2017
Variance
2018
2017
Variance
Net Income
$
22,724
$
19,256
$
3,468
$
61,186
$
38,624
$
22,562
Net Income Per Share (Diluted)
$
0.26
$
0.22
$
0.04
$
0.71
$
0.45
$
0.26
Adjusted EBITDA
$
50,142
$
49,103
$
1,039
$
100,915
$
97,116
$
3,799
The Pipeline and Storage segment’s second quarter earnings increased $3.5 million due primarily to higher operating revenues and a lower effective income tax rate, offset partially by a decrease in the allowance for funds used during construction reported in other income. Operating revenues increased $1.0 million due to new demand charges for transportation service from Supply Corporation’s Line D Expansion project, which was placed in service on November 1, 2017, and surcharge revenues relating to Supply Corporation’s greenhouse gas and pipeline safety system enhancements that also went into effect in November 2017, which were partially offset by a decline in transportation revenues resulting from contract terminations. The decrease in the effective income tax rate was due primarily to the 2017 Tax Reform Act, which reduced the Company’s federal statutory corporate tax rate and benefited the segment’s earnings by $3.4 million, or $0.04 per share.
Gathering Segment
The Gathering segment’s operations are carried out by National Fuel Gas Midstream Corporation’s subsidiary 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
Six Months Ended
March 31,
March 31,
(in thousands except per share amounts)
2018
2017
Variance
2018
2017
Variance
Net Income
$
11,770
$
10,285
$
1,485
$
57,169
$
21,266
$
35,903
Net Income Per Share (Diluted)
$
0.14
$
0.12
$
0.02
$
0.66
$
0.25
$
0.41
Adjusted EBITDA
$
24,138
$
24,172
$
(34
)
$
44,869
$
49,273
$
(4,404
)
The $1.5 million increase in Gathering segment’s second quarter earnings was due mainly to a lower effective income tax rate. Operating revenues were largely flat when compared to the prior year as the increase in gathering throughput from Seneca’s Appalachian natural gas production was offset by the impact of gathering rate adjustments that went into effect in February. The decrease in the effective income tax rate was due primarily to the 2017 Tax Reform Act, which reduced the Company’s federal statutory corporate tax rate and benefited the segment’s earnings by $1.9 million, or $0.02 per share. The current period tax benefit was offset partially by a $0.4 million revision to the remeasurement of deferred income taxes that was recorded in the first quarter.
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
Six Months Ended
March 31,
March 31,
(in thousands except per share amounts)
2018
2017
Variance
2018
2017
Variance
Net Income
$
33,360
$
25,581
$
7,779
$
54,353
$
46,755
$
7,598
Net Income Per Share (Diluted)
$
0.39
$
0.30
$
0.09
$
0.63
$
0.54
$
0.09
Adjusted EBITDA
$
66,013
$
61,580
$
4,433
$
112,997
$
113,909
$
(912
)
The Utility segment’s second quarter earnings increased $7.8 million due to the positive impacts of colder weather, new customer rates in Distribution’s New York service territory (effective in April 2017), lower O&M expense, and tax reform. Weather in Distribution’s Pennsylvania service territory was 17.1 percent colder on average than last year, resulting in higher 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. O&M expense decreased $2.3 million due mainly to lower personnel and information systems costs, partially offset by higher amortization of environmental remediation costs that resulted from the April 2017 rate case order in New York.
The decline in the Utility segment’s effective income tax rate due to the 2017 Tax Reform Act resulted in a $5.4 million decrease in income tax expense, which was mostly offset by a regulatory refund provision recorded against operating revenues. Consistent with utility rate treatment implemented after previous federal tax reforms and taking into consideration guidance provided by state regulators during the quarter, the Company recorded a $5.3 million refund provision ($3.9 million after-tax, or $0.05 per share) that reduced the Utility segment’s operating revenues and deferred the net effect of the reduction in tax rates by increasing the segment’s regulatory liability.
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
Six Months Ended
March 31,
March 31,
(in thousands except per share amounts)
2018
2017
Variance
2018
2017
Variance
Net Income
$
578
$
905
$
(327
)
$
1,624
$
2,687
$
(1,063
)
Net Income Per Share (Diluted)
$
0.01
$
0.01
$
—
$
0.02
$
0.03
$
(0.01
)
Adjusted EBITDA
$
924
$
1,382
$
(458
)
$
2,606
$
4,230
$
(1,624
)
The Energy Marketing segment’s second quarter earnings declined $0.3 million due largely to lower margins (operating revenues less purchased gas expenses), offset partially by lower O&M expense. NFR’s customer margins were negatively impacted by stronger natural gas prices at local purchase points, which spiked on days with extreme weather in January, relative to NYMEX-based customer sales contracts.
Corporate and All Other
For the second quarter of fiscal 2018, the Corporate and All Other category had a net loss of $3.1 million compared to a net loss of $0.5 million in the prior year. The decrease in earnings was primarily attributable to a $2.7 million revision to the remeasurement of deferred income taxes that was recorded in the first quarter of fiscal 2018 due to the 2017 Tax Reform Act.
FISCAL 2018 GUIDANCE UPDATE
National Fuel is revising its fiscal 2018 earnings guidance to $3.20 to $3.35 per share, or $3.275 per share at the midpoint of the range. The revised earnings guidance does not include the impact of the remeasurement of deferred income taxes resulting from the 2017 Tax Reform Act, which reduced the Company’s consolidated income tax expense and benefited earnings for the six months ended March 31, 2018, by $107.0 million, or $1.24 per share. While the Company expects to record additional adjustments to its deferred income taxes as a result of the 2017 Tax Reform Act during the remaining six months of fiscal 2018, the amounts of these and other potential adjustments are not reasonably determinable at this time. The final determination of the impact of the income tax effects of certain items will require additional analysis and further interpretation of the 2017 Tax Reform Act from yet to be issued U.S. Treasury regulations, state income tax guidance, federal and state regulatory guidance, technical corrections, and the filing of the Company’s fiscal 2017 federal consolidated tax return. Some or all of these factors may be significant. Because the amounts of final adjustments are not reasonably determinable at this time, the Company is unable to provide earnings guidance other than on a non-GAAP basis that excludes the impact of the remeasurement of deferred income taxes and other potential adjustments.
Excluding the impact of the remeasurement of deferred income taxes, the Company expects that the reduction in the statutory federal tax rate from 35 percent to 24.5 percent will lower the Company’s effective income tax rate for fiscal 2018 to a range of 26 percent to 27 percent. Furthermore, consistent with utility rate treatment implemented after previous tax reforms, the Company expects to record a regulatory refund provision of approximately $16.0 million (pre-tax) in fiscal 2018 to reduce the Utility segment’s operating revenues and defer the net effect of the reduction in tax rates by increasing the segment’s regulatory liability. The Company recorded an $11.3 million ($8.3 million after-tax) regulatory refund provision in the first six months of fiscal 2018. The Company’s earnings guidance, including the impact from the Utility segment’s projected regulatory refund provision, assumes normal weather.
In addition to the impacts of tax reform on current year income, the revised earnings guidance range reflects the impact of actual results for the six months ended March 31, 2018, the sale of Seneca's Sespe assets in California, and other updates to key forecast assumptions, including revisions to the Exploration and Production segment’s forecasted production and natural gas and oil pricing as outlined in the table below.
The Exploration and Production segment’s fiscal 2018 forecasted production was reduced by 5 Bcfe at the midpoint of the range to reflect the impact of the sale of Seneca’s Sespe oil properties in California and adjustments made to Seneca’s operations schedule in Appalachia due primarily to the anticipated delay of the in-service date of the Atlantic Sunrise project to later in the fourth quarter, which impacted the expected timing of new pad turn-ons and pushed a portion of new production from fiscal 2018 to fiscal 2019. Seneca, which holds 189,405 Dth per day of firm transportation capacity on Atlantic Sunrise, had previously expected that the capacity would be available on July 1, 2018.
The Company’s capital expenditure guidance was revised to a range of $610 million to $680 million, at the midpoint an increase of $40 million from the previous guidance range. The increase is due primarily to the additional horizontal drilling rig that Seneca plans to deploy in Appalachia during the third quarter as discussed in the Upstream and Midstream Operations Update section above. The revision to the Pipeline and Storage segment’s capital budget is due primarily to the expected timing of the spending.
Additional details on the Company's forecast assumptions and business segment guidance for fiscal 2018 are outlined in the table below.
Updated FY 2018 Guidance
Previous FY 2018 Guidance
Consolidated Earnings per Share (1)
$3.20 to $3.35
$3.20 to $3.40
Consolidated Effective Tax Rate (1)
26% to 27%
~27%
Capital Expenditures (Millions)
Exploration and Production (2)
$350 - $370
$300 - $330
Pipeline and Storage
$110 - $130
$110 - $140
Gathering
$60 - $80
$60 - $80
Utility
$90 - $100
$90 - $100
Consolidated Capital Expenditures
$610 - $680
$560 - $650
Exploration & Production Segment Guidance
Commodity Price Assumptions
NYMEX natural gas price
$2.75 /MMBtu
$3.00 /MMBtu
Appalachian basin spot price (summer)
$2.00 /MMBtu
$2.40/$2.00 /MMBtu
NYMEX (WTI) crude oil price
$65.00 /Bbl
$60.00 /Bbl
California oil price (% of WTI)
98
%
98
%
Production (Bcfe)
East Division - Appalachia (3)
157 to 172
160 to 175
West Division - California
~ 18
~ 20
Total Production
175 to 190
180 to 195
E&P Operating Costs ($/Mcfe)
LOE
$0.90 - $1.00
$0.90 - $1.00
G&A
$0.30 - $0.35
$0.30 - $0.35
DD&A
~ $0.70
~ $0.70
Other Business Segment Guidance (Millions)
Gathering Segment Revenues
$110 - $115
$110 - $120
Pipeline and Storage Segment Revenues
~$295
~$295
Utility Segment Regulatory Refund Provision
~$16
~$16
(1) Excludes earnings impact of the remeasurement of deferred income taxes resulting from the 2017 Tax Reform Act. (2) Net of conveyance proceeds received from joint development partner for working interest in joint development wells. (3) Seneca East Division - Appalachia production guidance assumes approximately 11 Bcf of spot sales for the remainder of FY18.
EARNINGS TELECONFERENCE
The Company will host a conference call on Friday, May 4, 2018, 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 “2679378.” 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 “2679378.” Both the webcast and a telephonic replay will be available until the close of business on Friday, May 11, 2018.
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.
Analyst Contact:
Brian M. Welsch
716-857-7875
Media Contact:
Karen L. Merkel
716-857-7654
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; changes in the price of natural gas or oil; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; 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; 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
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
QUARTER ENDED MARCH 31, 2018
(Unaudited)
Upstream
Midstream Businesses
Downstream Businesses
Exploration &
Pipeline &
Energy
Corporate /
(Thousands of Dollars)
Production
Storage
Gathering
Utility
Marketing
All Other
Consolidated*
Second quarter 2017 GAAP earnings
$
33,769
$
19,256
$
10,285
$
25,581
$
905
$
(512
)
$
89,284
Earnings drivers***
Higher (lower) crude oil prices
2,322
2,322
Higher (lower) natural gas prices
(11,965
)
(11,965
)
Higher (lower) natural gas production
1,031
1,031
Higher (lower) crude oil production
(369
)
(369
)
Lower (higher) lease operating and transportation expenses
(822
)
(822
)
Lower (higher) depreciation / depletion
(2,038
)
(263
)
(2,301
)
Higher (lower) transportation and storage revenues
606
606
Lower (higher) other operating expenses
(421
)
1,171
750
Impact of new rates
1,767
1,767
Colder weather
3,448
3,448
Higher (lower) margins
(443
)
659
216
Higher (lower) AFUDC**
(599
)
(599
)
(Higher) lower interest expense
302
302
Lower (higher) income tax expense / effective tax rate
1,884
1,884
Impact of 2017 Tax Reform Act
Impact of tax rate change (35% to 24.5%) on current period earnings
3,539
3,385
1,871
5,440
109
(122
)
14,222
Refund provision on tax rate change
(3,914
)
(3,914
)
Remeasurement of deferred income taxes under 2017 Tax Reform
(790
)
(400
)
(159
)
(2,651
)
(4,000
)
All other / rounding
397
(226
)
14
(133
)
166
(233
)
(15
)
Second quarter 2018 GAAP earnings
$
26,537
$
22,724
$
11,770
$
33,360
$
578
$
(3,122
)
$
91,847
* Amounts do not reflect intercompany eliminations
** AFUDC = Allowance for Funds Used During Construction
*** Earnings drivers have been calculated using a 35% federal statutory rate. The impact of the change to a blended year 24.5% federal statutory rate is broken out separately under the caption "Impact of 2017 Tax Reform Act."
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
QUARTER ENDED MARCH 31, 2018
(Unaudited)
Upstream
Midstream Businesses
Downstream Businesses
Exploration &
Pipeline &
Energy
Corporate /
Production
Storage
Gathering
Utility
Marketing
All Other
Consolidated*
Second quarter 2017 GAAP earnings
$
0.39
$
0.22
$
0.12
$
0.30
$
0.01
$
—
$
1.04
Earnings drivers***
Higher (lower) crude oil prices
0.03
0.03
Higher (lower) natural gas prices
(0.14
)
(0.14
)
Higher (lower) natural gas production
0.01
0.01
Higher (lower) crude oil production
—
—
Lower (higher) lease operating and transportation expenses
(0.01
)
(0.01
)
Lower (higher) depreciation / depletion
(0.02
)
—
(0.02
)
Higher (lower) transportation and storage revenues
0.01
0.01
Lower (higher) other operating expenses
—
0.01
0.01
Impact of new rates
0.02
0.02
Colder weather
0.04
0.04
Higher (lower) margins
—
0.01
0.01
Higher (lower) AFUDC**
(0.01
)
(0.01
)
(Higher) lower interest expense
—
—
Lower (higher) income tax expense / effective tax rate
0.02
0.02
Impact of 2017 Tax Reform Act
Impact of tax rate change (35% to 24.5%) on current period earnings
0.04
0.04
0.02
0.06
—
—
0.16
Refund provision on tax rate change
(0.05
)
(0.05
)
Remeasurement of deferred income taxes under 2017 Tax Reform
(0.01
)
(0.01
)
—
(0.03
)
(0.05
)
All other / rounding
—
—
0.01
0.01
—
(0.03
)
(0.01
)
Second quarter 2018 GAAP earnings
$
0.31
$
0.26
$
0.14
$
0.39
$
0.01
$
(0.05
)
$
1.06
* Amounts do not reflect intercompany eliminations
** AFUDC = Allowance for Funds Used During Construction
*** Earnings drivers have been calculated using a 35% federal statutory rate. The impact of the change to a blended year 24.5% federal statutory rate is broken out separately under the caption "Impact of 2017 Tax Reform Act."
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
SIX MONTHS ENDED MARCH 31, 2018
(Unaudited)
Upstream
Midstream Businesses
Downstream Businesses
Exploration &
Pipeline &
Energy
Corporate /
(Thousands of Dollars)
Production
Storage
Gathering
Utility
Marketing
All Other
Consolidated*
Six months ended March 31, 2017 GAAP earnings
$
68,849
$
38,624
$
21,266
$
46,755
$
2,687
$
10
$
178,191
Earnings drivers***
Higher (lower) crude oil prices
4,519
4,519
Higher (lower) natural gas prices
(17,940
)
(17,940
)
Higher (lower) natural gas production
(7,587
)
(7,587
)
Higher (lower) crude oil production
(2,074
)
(2,074
)
Lower (higher) lease operating and transportation expenses
(783
)
(783
)
Lower (higher) depreciation / depletion
(979
)
(842
)
(285
)
(197
)
(2,303
)
Higher (lower) storage revenues
784
784
Higher (lower) gathering and processing revenues
(2,769
)
(2,769
)
Lower (higher) other operating expenses
(1,009
)
2,059
476
1,526
Lower (higher) property, franchise and other taxes
(354
)
(354
)
Impact of new rates
2,789
2,789
Colder weather
4,688
4,688
Higher (lower) margins
(1,204
)
1,011
(193
)
Higher (lower) AFUDC**
(542
)
(542
)
Lower (higher) interest expense
608
452
1,060
Lower (higher) income tax expense / effective tax rate
5,754
1,172
(1,850
)
5,076
Impact of 2017 Tax Reform Act
Impact of tax rate change (35% to 24.5%) on current period earnings
7,634
6,913
3,415
10,241
291
(11
)
28,483
Refund provision on tax rate change
(8,320
)
(8,320
)
Remeasurement of deferred income taxes under 2017 Tax Reform
76,510
14,100
34,500
(359
)
(17,751
)
107,000
All other / rounding
341
(164
)
(130
)
(878
)
209
(128
)
(750
)
Six months ended March 31, 2018 GAAP earnings
$
133,235
$
61,186
$
57,169
$
54,353
$
1,624
$
(17,066
)
$
290,501
* Amounts do not reflect intercompany eliminations
** AFUDC = Allowance for Funds Used During Construction
*** Earnings drivers have been calculated using a 35% federal statutory rate. The impact of the change to a blended year 24.5% federal statutory rate is broken out separately under the caption "Impact of 2017 Tax Reform Act."
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
SIX MONTHS ENDED MARCH 31, 2018
(Unaudited)
Upstream
Midstream Businesses
Downstream Businesses
Exploration &
Pipeline &
Energy
Corporate /
Production
Storage
Gathering
Utility
Marketing
All Other
Consolidated*
Six months ended March 31, 2017 GAAP earnings
$
0.80
$
0.45
$
0.25
$
0.54
$
0.03
$
—
$
2.07
Earnings drivers***
Higher (lower) crude oil prices
0.05
0.05
Higher (lower) natural gas prices
(0.21
)
(0.21
)
Higher (lower) natural gas production
(0.09
)
(0.09
)
Higher (lower) crude oil production
(0.02
)
(0.02
)
Lower (higher) lease operating and transportation expenses
(0.01
)
(0.01
)
Lower (higher) depreciation / depletion
(0.01
)
(0.01
)
—
—
(0.02
)
Higher (lower) storage revenues
0.01
0.01
Higher (lower) gathering and processing revenues
(0.03
)
(0.03
)
Lower (higher) other operating expenses
(0.01
)
0.02
0.01
0.02
Lower (higher) property, franchise and other taxes
—
—
Impact of new rates
0.03
0.03
Colder weather
0.05
0.05
Higher (lower) margins
(0.01
)
0.01
—
Higher (lower) AFUDC**
(0.01
)
(0.01
)
Lower (higher) interest expense
0.01
0.01
0.02
Lower (higher) income tax expense / effective tax rate
0.07
0.01
(0.02
)
0.06
Impact of 2017 Tax Reform Act
Impact of tax rate change (35% to 24.5%) on current period earnings
0.09
0.08
0.04
0.12
—
—
0.33
Refund provision on tax rate change
(0.10
)
(0.10
)
Remeasurement of deferred income taxes under 2017 Tax Reform
0.89
0.16
0.40
—
(0.21
)
1.24
All other / rounding
(0.01
)
—
(0.01
)
(0.01
)
—
0.01
(0.02
)
Six months ended March 31, 2018 GAAP earnings
$
1.54
$
0.71
$
0.66
$
0.63
$
0.02
$
(0.19
)
$
3.37
* Amounts do not reflect intercompany eliminations
** AFUDC = Allowance for Funds Used During Construction
*** Earnings drivers have been calculated using a 35% federal statutory rate. The impact of the change to a blended year 24.5% federal statutory rate is broken out separately under the caption "Impact of 2017 Tax Reform Act."
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
2018
2017
2018
2017
Operating Revenues:
Utility and Energy Marketing Revenues
$
339,422
$
308,889
$
565,147
$
516,669
Exploration and Production and Other Revenues
147,868
159,997
288,318
321,691
Pipeline and Storage and Gathering Revenues
53,615
53,189
107,096
106,216
540,905
522,075
960,561
944,576
Operating Expenses:
Purchased Gas
176,608
147,971
270,642
218,214
Operation and Maintenance:
Utility and Energy Marketing
61,410
63,907
112,780
114,329
Exploration and Production and Other
39,586
37,593
75,127
68,055
Pipeline and Storage and Gathering
22,642
23,106
42,679
45,766
Property, Franchise and Other Taxes
22,802
22,542
43,650
42,921
Depreciation, Depletion and Amortization
61,155
56,999
116,985
113,194
384,203
352,118
661,863
602,479
Operating Income
156,702
169,957
298,698
342,097
Other Income (Expense):
Interest Income
1,025
391
3,275
1,991
Other Income
770
1,744
2,492
3,356
Interest Expense on Long-Term Debt
(27,148
)
(28,913
)
(55,235
)
(58,016
)
Other Interest Expense
(1,233
)
(924
)
(1,736
)
(1,834
)
Income Before Income Taxes
130,116
142,255
247,494
287,594
Income Tax Expense (Benefit)
38,269
52,971
(43,007
)
109,403
Net Income Available for Common Stock
$
91,847
$
89,284
$
290,501
$
178,191
Earnings Per Common Share
Basic
$
1.07
$
1.05
$
3.39
$
2.09
Diluted
$
1.06
$
1.04
$
3.37
$
2.07
Weighted Average Common Shares:
Used in Basic Calculation
85,809,233
85,334,887
85,718,779
85,261,575
Used in Diluted Calculation
86,323,636
86,006,614
86,318,892
85,897,282
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
September 30,
(Thousands of Dollars)
2018
2017
ASSETS
Property, Plant and Equipment
$
10,126,931
$
9,945,560
Less - Accumulated Depreciation, Depletion and Amortization
5,344,134
5,271,486
Net Property, Plant and Equipment
4,782,797
4,674,074
Current Assets:
Cash and Temporary Cash Investments
227,994
555,530
Hedging Collateral Deposits
3,657
1,741
Receivables - Net
198,922
112,383
Unbilled Revenue
60,059
22,883
Gas Stored Underground
6,842
35,689
Materials and Supplies - at average cost
34,769
33,926
Unrecovered Purchased Gas Costs
426
4,623
Other Current Assets
60,324
51,505
Total Current Assets
592,993
818,280
Other Assets:
Recoverable Future Taxes
115,514
181,363
Unamortized Debt Expense
7,861
1,159
Other Regulatory Assets
171,902
174,433
Deferred Charges
36,835
30,047
Other Investments
123,039
125,265
Goodwill
5,476
5,476
Prepaid Post-Retirement Benefit Costs
59,586
56,370
Fair Value of Derivative Financial Instruments
18,144
36,111
Other
426
742
Total Other Assets
538,783
610,966
Total Assets
$
5,914,573
$
6,103,320
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders' Equity
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and
Outstanding - 85,881,897 Shares and 85,543,125 Shares, Respectively
$
85,882
$
85,543
Paid in Capital
810,126
796,646
Earnings Reinvested in the Business
1,070,939
851,669
Accumulated Other Comprehensive Loss
(47,760
)
(30,123
)
Total Comprehensive Shareholders' Equity
1,919,187
1,703,735
Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs
2,085,012
2,083,681
Total Capitalization
4,004,199
3,787,416
Current and Accrued Liabilities:
Notes Payable to Banks and Commercial Paper
—
—
Current Portion of Long-Term Debt
—
300,000
Accounts Payable
127,585
126,443
Amounts Payable to Customers
12,083
—
Dividends Payable
35,641
35,500
Interest Payable on Long-Term Debt
26,435
35,031
Customer Advances
154
15,701
Customer Security Deposits
18,973
20,372
Other Accruals and Current Liabilities
147,549
111,889
Fair Value of Derivative Financial Instruments
11,475
1,103
Total Current and Accrued Liabilities
379,895
646,039
Deferred Credits:
Deferred Income Taxes
482,682
891,287
Taxes Refundable to Customers
365,091
95,739
Cost of Removal Regulatory Liability
207,711
204,630
Other Regulatory Liabilities
124,868
113,716
Pension and Other Post-Retirement Liabilities
133,852
149,079
Asset Retirement Obligations
106,481
106,395
Other Deferred Credits
109,794
109,019
Total Deferred Credits
1,530,479
1,669,865
Commitments and Contingencies
—
—
Total Capitalization and Liabilities
$
5,914,573
$
6,103,320
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
(Thousands of Dollars)
2018
2017
Operating Activities:
Net Income Available for Common Stock
$
290,501
$
178,191
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization
116,985
113,194
Deferred Income Taxes
(62,459
)
63,781
Stock-Based Compensation
7,862
5,632
Other
8,052
7,713
Change in:
Hedging Collateral Deposits
(1,916
)
(287
)
Receivables and Unbilled Revenue
(123,954
)
(92,155
)
Gas Stored Underground and Materials and Supplies
28,004
24,476
Unrecovered Purchased Gas Costs
4,197
(2,241
)
Other Current Assets
(8,819
)
7,769
Accounts Payable
10,838
13,997
Amounts Payable to Customers
12,083
(71
)
Customer Advances
(15,547
)
(14,462
)
Customer Security Deposits
(1,399
)
1,493
Other Accruals and Current Liabilities
37,646
44,690
Other Assets
(9,541
)
(32
)
Other Liabilities
(5,767
)
202
Net Cash Provided by Operating Activities
$
286,766
$
351,890
Investing Activities:
Capital Expenditures
$
(261,720
)
$
(208,231
)
Net Proceeds from Sale of Oil and Gas Producing Properties
17,310
26,554
Other
5,355
(3,225
)
Net Cash Used in Investing Activities
$
(239,055
)
$
(184,902
)
Financing Activities:
Reduction of Long-Term Debt
$
(307,047
)
$
—
Dividends Paid on Common Stock
(71,091
)
(69,017
)
Net Proceeds From Issuance of Common Stock
2,891
3,230
Net Cash Used in Financing Activities
$
(375,247
)
$
(65,787
)
Net Increase (Decrease) in Cash and Temporary Cash Investments
(327,536
)
101,201
Cash and Temporary Cash Investments at Beginning of Period
555,530
129,972
Cash and Temporary Cash Investments at March 31
$
227,994
$
231,173
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
2018
2017
Variance
2018
2017
Variance
Total Operating Revenues
$
146,411
$
159,553
$
(13,142
)
$
285,552
$
320,485
$
(34,933
)
Operating Expenses:
Operation and Maintenance:
General and Administrative Expense
17,041
16,530
511
30,936
29,504
1,432
Lease Operating and Transportation Expense
43,808
42,543
1,265
83,455
82,251
1,204
All Other Operation and Maintenance Expense
2,919
2,781
138
5,454
5,332
122
Property, Franchise and Other Taxes
3,873
3,729
144
7,443
6,951
492
Depreciation, Depletion and Amortization
31,986
28,851
3,135
59,411
57,905
1,506
99,627
94,434
5,193
186,699
181,943
4,756
Operating Income
46,784
65,119
(18,335
)
98,853
138,542
(39,689
)
Other Income (Expense):
Interest Income
305
147
158
601
233
368
Interest Expense
(13,380
)
(13,303
)
(77
)
(26,753
)
(26,826
)
73
Income Before Income Taxes
33,709
51,963
(18,254
)
72,701
111,949
(39,248
)
Income Tax Expense (Benefit)
7,172
18,194
(11,022
)
(60,534
)
43,100
(103,634
)
Net Income
$
26,537
$
33,769
$
(7,232
)
$
133,235
$
68,849
$
64,386
Net Income Per Share (Diluted)
$
0.31
$
0.39
$
(0.08
)
$
1.54
$
0.80
$
0.74
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
2018
2017
Variance
2018
2017
Variance
Revenues from External Customers
$
53,714
$
53,163
$
551
$
107,025
$
106,164
$
861
Intersegment Revenues
23,044
22,592
452
45,028
44,746
282
Total Operating Revenues
76,758
75,755
1,003
152,053
150,910
1,143
Operating Expenses:
Purchased Gas
55
(28
)
83
161
194
(33
)
Operation and Maintenance
19,426
19,668
(242
)
36,742
39,911
(3,169
)
Property, Franchise and Other Taxes
7,135
7,012
123
14,235
13,689
546
Depreciation, Depletion and Amortization
10,838
10,476
362
21,434
20,138
1,296
37,454
37,128
326
72,572
73,932
(1,360
)
Operating Income
39,304
38,627
677
79,481
76,978
2,503
Other Income (Expense):
Interest Income
608
319
289
1,153
591
562
Other Income
209
807
(598
)
954
1,494
(540
)
Interest Expense
(7,875
)
(8,342
)
467
(15,752
)
(16,688
)
936
Income Before Income Taxes
32,246
31,411
835
65,836
62,375
3,461
Income Tax Expense
9,522
12,155
(2,633
)
4,650
23,751
(19,101
)
Net Income
$
22,724
$
19,256
$
3,468
$
61,186
$
38,624
$
22,562
Net Income Per Share (Diluted)
$
0.26
$
0.22
$
0.04
$
0.71
$
0.45
$
0.26
Three Months Ended
Six Months Ended
March 31,
March 31,
GATHERING SEGMENT
2018
2017
Variance
2018
2017
Variance
Revenues from External Customers
$
(99
)
$
26
$
(125
)
$
71
$
52
$
19
Intersegment Revenues
27,832
27,936
(104
)
51,497
55,776
(4,279
)
Total Operating Revenues
27,733
27,962
(229
)
51,568
55,828
(4,260
)
Operating Expenses:
Operation and Maintenance
3,572
3,769
(197
)
6,638
6,523
115
Property, Franchise and Other Taxes
23
21
2
61
32
29
Depreciation, Depletion and Amortization
4,227
3,997
230
8,315
7,877
438
7,822
7,787
35
15,014
14,432
582
Operating Income
19,911
20,175
(264
)
36,554
41,396
(4,842
)
Other Income (Expense):
Interest Income
419
207
212
815
353
462
Other Income
—
—
—
—
1
(1
)
Interest Expense
(2,508
)
(2,235
)
(273
)
(4,847
)
(4,328
)
(519
)
Income Before Income Taxes
17,822
18,147
(325
)
32,522
37,422
(4,900
)
Income Tax Expense (Benefit)
6,052
7,862
(1,810
)
(24,647
)
16,156
(40,803
)
Net Income
$
11,770
$
10,285
$
1,485
$
57,169
$
21,266
$
35,903
Net Income Per Share (Diluted)
$
0.14
$
0.12
$
0.02
$
0.66
$
0.25
$
0.41
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
DOWNSTREAM BUSINESSES
Three Months Ended
Six Months Ended
(Thousands of Dollars, except per share amounts)
March 31,
March 31,
UTILITY SEGMENT
2018
2017
Variance
2018
2017
Variance
Revenues from External Customers
$
283,778
$
257,949
$
25,829
$
470,867
$
428,919
$
41,948
Intersegment Revenues
5,700
6,096
(396
)
7,882
7,922
(40
)
Total Operating Revenues
289,478
264,045
25,433
478,749
436,841
41,908
Operating Expenses:
Purchased Gas
151,493
128,212
23,281
233,418
188,945
44,473
Operation and Maintenance
60,463
62,748
(2,285
)
110,946
112,277
(1,331
)
Property, Franchise and Other Taxes
11,509
11,505
4
21,388
21,710
(322
)
Depreciation, Depletion and Amortization
13,340
13,314
26
26,665
26,415
250
236,805
215,779
21,026
392,417
349,347
43,070
Operating Income
52,673
48,266
4,407
86,332
87,494
(1,162
)
Other Income (Expense):
Interest Income
510
144
366
816
278
538
Other Income
138
45
93
307
137
170
Interest Expense
(6,857
)
(7,194
)
337
(13,695
)
(14,392
)
697
Income Before Income Taxes
46,464
41,261
5,203
73,760
73,517
243
Income Tax Expense
13,104
15,680
(2,576
)
19,407
26,762
(7,355
)
Net Income
$
33,360
$
25,581
$
7,779
$
54,353
$
46,755
$
7,598
Net Income Per Share (Diluted)
$
0.39
$
0.30
$
0.09
$
0.63
$
0.54
$
0.09
Three Months Ended
Six Months Ended
March 31,
March 31,
ENERGY MARKETING SEGMENT
2018
2017
Variance
2018
2017
Variance
Revenues from External Customers
$
55,644
$
50,940
$
4,704
$
94,280
$
87,750
$
6,530
Intersegment Revenues
(51
)
16
(67
)
76
35
41
Total Operating Revenues
55,593
50,956
4,637
94,356
87,785
6,571
Operating Expenses:
Purchased Gas
52,980
47,661
5,319
88,423
79,999
8,424
Operation and Maintenance
1,689
1,913
(224
)
3,327
3,556
(229
)
Depreciation, Depletion and Amortization
68
70
(2
)
138
140
(2
)
54,737
49,644
5,093
91,888
83,695
8,193
Operating Income
856
1,312
(456
)
2,468
4,090
(1,622
)
Other Income (Expense):
Interest Income
161
138
23
295
271
24
Other Income
22
33
(11
)
25
35
(10
)
Interest Expense
—
(11
)
11
(12
)
(24
)
12
Income Before Income Taxes
1,039
1,472
(433
)
2,776
4,372
(1,596
)
Income Tax Expense
461
567
(106
)
1,152
1,685
(533
)
Net Income
$
578
$
905
$
(327
)
$
1,624
$
2,687
$
(1,063
)
Net Income Per Share (Diluted)
$
0.01
$
0.01
$
—
$
0.02
$
0.03
$
(0.01
)
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
2018
2017
Variance
2018
2017
Variance
Total Operating Revenues
$
1,232
$
218
$
1,014
$
2,328
$
772
$
1,556
Operating Expenses:
Operation and Maintenance
367
394
(27
)
691
909
(218
)
Property, Franchise and Other Taxes
145
150
(5
)
288
294
(6
)
Depreciation, Depletion and Amortization
506
102
404
645
343
302
1,018
646
372
1,624
1,546
78
Operating Income (Loss)
214
(428
)
642
704
(774
)
1,478
Other Income (Expense):
Interest Income
91
49
42
163
89
74
Income (Loss) Before Income Taxes
305
(379
)
684
867
(685
)
1,552
Income Tax Expense (Benefit)
98
(158
)
256
1,378
(285
)
1,663
Net Income (Loss)
$
207
$
(221
)
$
428
$
(511
)
$
(400
)
$
(111
)
Net Income (Loss) Per Share (Diluted)
$
—
$
—
$
—
$
—
$
—
$
—
Three Months Ended
Six Months Ended
March 31,
March 31,
CORPORATE
2018
2017
Variance
2018
2017
Variance
Revenues from External Customers
$
225
$
226
$
(1
)
$
438
$
434
$
4
Intersegment Revenues
999
977
22
1,999
1,953
46
Total Operating Revenues
1,224
1,203
21
2,437
2,387
50
Operating Expenses:
Operation and Maintenance
3,957
4,003
(46
)
7,519
7,395
124
Property, Franchise and Other Taxes
117
125
(8
)
235
245
(10
)
Depreciation, Depletion and Amortization
190
189
1
377
376
1
4,264
4,317
(53
)
8,131
8,016
115
Operating Loss
(3,040
)
(3,114
)
74
(5,694
)
(5,629
)
(65
)
Other Income (Expense):
Interest Income
29,877
30,693
(816
)
61,697
62,498
(801
)
Other Income
401
859
(458
)
1,206
1,689
(483
)
Interest Expense on Long-Term Debt
(27,148
)
(28,913
)
1,765
(55,235
)
(58,016
)
2,781
Other Interest Expense
(1,559
)
(1,145
)
(414
)
(2,942
)
(1,898
)
(1,044
)
Loss Before Income Taxes
(1,469
)
(1,620
)
151
(968
)
(1,356
)
388
Income Tax Expense (Benefit)
1,860
(1,329
)
3,189
15,587
(1,766
)
17,353
Net Income (Loss)
$
(3,329
)
$
(291
)
$
(3,038
)
$
(16,555
)
$
410
$
(16,965
)
Net Income (Loss) Per Share (Diluted)
$
(0.05
)
$
—
$
(0.05
)
$
(0.19
)
$
—
$
(0.19
)
Three Months Ended
Six Months Ended
March 31,
March 31,
INTERSEGMENT ELIMINATIONS
2018
2017
Variance
2018
2017
Variance
Intersegment Revenues
$
(57,524
)
$
(57,617
)
$
93
$
(106,482
)
$
(110,432
)
$
3,950
Operating Expenses:
Purchased Gas
(27,920
)
(27,874
)
(46
)
(51,360
)
(50,924
)
(436
)
Operation and Maintenance
(29,604
)
(29,743
)
139
(55,122
)
(59,508
)
4,386
(57,524
)
(57,617
)
93
(106,482
)
(110,432
)
3,950
Operating Income
—
—
—
—
—
—
Other Income (Expense):
Interest Income
(30,946
)
(31,306
)
360
(62,265
)
(62,322
)
57
Interest Expense
30,946
31,306
(360
)
62,265
62,322
(57
)
Net Income
$
—
$
—
$
—
$
—
$
—
$
—
Net Income 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
2018
2017
(Decrease)
2018
2017
(Decrease)
Capital Expenditures:
Exploration and Production
$
84,559
(1
)
$
57,137
(3
)
$
27,422
$
159,285
(1)(2)
$
97,826
(3)(4)
$
61,459
Pipeline and Storage
15,167
(1
)
11,386
(3
)
3,781
37,440
(1)(2)
36,778
(3)(4)
662
Gathering
19,352
(1
)
3,147
(3
)
16,205
32,283
(1)(2)
14,491
(3)(4)
17,792
Utility
15,755
(1
)
19,244
(3
)
(3,489
)
32,290
(1)(2)
36,296
(3)(4)
(4,006
)
Energy Marketing
4
5
(1
)
22
11
11
Total Reportable Segments
134,837
90,919
43,918
261,320
185,402
75,918
All Other
—
—
—
1
39
(38
)
Corporate
15
3
12
44
64
(20
)
Eliminations
(19,922
)
(777
)
(19,145
)
(19,922
)
(777
)
(19,145
)
Total Capital Expenditures
$
114,930
$
90,145
$
24,785
$
241,443
$
184,728
$
56,715
(1) Capital expenditures for the quarter and six months ended March 31, 2018, include accounts payable and accrued liabilities related to capital expenditures of $38.8 million, $9.0 million, $1.6 million, and $2.5 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, 2018, since they represent non-cash investing activities at that date.
(2) Capital expenditures for the six months ended March 31, 2018, 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 six months ended March 31, 2018. 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 March 31, 2018.
(3) Capital expenditures for the quarter and six months ended March 31, 2017, include accounts payable and accrued liabilities related to capital expenditures of $23.2 million, $5.8 million, $2.2 million, and $5.7 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, 2017, since they represent non-cash investing activities at that date.
(4) Capital expenditures for the six months ended March 31, 2017, exclude capital expenditures of $25.2 million, $18.7 million, $5.3 million and $11.2 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, 2016 and paid during the six months ended March 31, 2017. These amounts were excluded from the Consolidated Statement of Cash Flows at September 30, 2016, 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, 2017.
DEGREE DAYS
Percent Colder
(Warmer) Than:
Three Months Ended March 31
Normal
2018
2017
Normal (1)
Last Year (1)
Buffalo, NY
3,290
3,208
2,866
(2.5
)
11.9
Erie, PA
3,108
3,075
2,627
(1.1
)
17.1
Six Months Ended March 31
Buffalo, NY
5,543
5,435
4,832
(1.9
)
12.5
Erie, PA
5,152
5,104
4,377
(0.9
)
16.6
(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
Six Months Ended
March 31,
March 31,
Increase
Increase
2018
2017
(Decrease)
2018
2017
(Decrease)
Gas Production/Prices:
Production (MMcf)
Appalachia
41,403
40,805
598
76,817
80,612
(3,795
)
West Coast
675
737
(62
)
1,370
1,513
(143
)
Total Production
42,078
41,542
536
78,187
82,125
(3,938
)
Average Prices (Per Mcf)
Appalachia
$
2.46
$
2.71
$
(0.25
)
$
2.41
$
2.54
$
(0.13
)
West Coast
4.40
4.57
(0.17
)
4.70
4.40
0.30
Weighted Average
2.49
2.75
(0.26
)
2.45
2.57
(0.12
)
Weighted Average after Hedging
2.52
2.96
(0.44
)
2.61
2.96
(0.35
)
Oil Production/Prices:
Production (Thousands of Barrels)
Appalachia
1
2
(1
)
2
2
—
West Coast
662
672
(10
)
1,334
1,393
(59
)
Total Production
663
674
(11
)
1,336
1,395
(59
)
Average Prices (Per Barrel)
Appalachia
$
58.54
$
49.87
$
8.67
$
49.82
$
49.04
$
0.78
West Coast
65.39
$
47.96
17.43
61.61
45.75
15.86
Weighted Average
65.39
47.96
17.43
61.60
45.82
15.78
Weighted Average after Hedging
58.31
52.92
5.39
59.05
53.85
5.20
Total Production (Mmcfe)
46,056
45,586
470
86,203
90,495
(4,292
)
Selected Operating Performance Statistics:
General & Administrative Expense per Mcfe (1)
$
0.37
$
0.36
$
0.01
$
0.36
$
0.33
$
0.03
Lease Operating and Transportation Expense per Mcfe (1)(2)
$
0.95
$
0.93
$
0.02
$
0.97
$
0.91
$
0.06
Depreciation, Depletion & Amortization per Mcfe (1)
$
0.69
$
0.63
$
0.06
$
0.69
$
0.64
$
0.05
(1) Refer to page 16 for the General and Administrative Expense, Lease Operating 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 March 31, 2018 and March 31, 2017. Amounts include transportation expense of $0.54 per Mcfe for both the six months ended March 31, 2018 and March 31, 2017.
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
EXPLORATION AND PRODUCTION INFORMATION
Hedging Summary for the Remaining Six Months of Fiscal 2018
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, 2018 and 2017:
Three Months Ended
Six Months Ended
March 31,
March 31,
(in thousands except per share amounts)
2018
2017
2018
2017
Reported GAAP Earnings
$
91,847
$
89,284
$
290,501
$
178,191
Items impacting comparability
Remeasurement of deferred income taxes under 2017 Tax Reform
4,000
—
(107,000
)
—
Adjusted Operating Results
$
95,847
$
89,284
$
183,501
$
178,191
Reported GAAP Earnings per share
$
1.06
$
1.04
$
3.37
$
2.07
Items impacting comparability
Remeasurement of deferred income taxes under 2017 Tax Reform
0.05
—
(1.24
)
—
Adjusted Operating Results per share
$
1.11
$
1.04
$
2.13
$
2.07
Management defines Adjusted EBITDA as reported GAAP earnings before the following items: interest expense, income taxes, depreciation, depletion and amortization, interest and other income, 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, 2018 and 2017:
Three Months Ended
Six Months Ended
March 31,
March 31,
2018
2017
2018
2017
(in thousands)
Reported GAAP Earnings
$
91,847
$
89,284
$
290,501
$
178,191
Depreciation, Depletion and Amortization
61,155
56,999
116,985
113,194
Interest and Other Income
(1,795
)
(2,135
)
(5,767
)
(5,347
)
Interest Expense
28,381
29,837
56,971
59,850
Income Taxes
38,269
52,971
(43,007
)
109,403
Adjusted EBITDA
$
217,857
$
226,956
$
415,683
$
455,291
Adjusted EBITDA by Segment
Pipeline and Storage Adjusted EBITDA
$
50,142
$
49,103
$
100,915
$
97,116
Gathering Adjusted EBITDA
24,138
24,172
44,869
49,273
Total Midstream Businesses Adjusted EBITDA
74,280
73,275
145,784
146,389
Exploration and Production Adjusted EBITDA
78,770
93,970
158,264
196,447
Utility Adjusted EBITDA
66,013
61,580
112,997
113,909
Energy Marketing Adjusted EBITDA
924
1,382
2,606
4,230
Corporate and All Other Adjusted EBITDA
(2,130
)
(3,251
)
(3,968
)
(5,684
)
Total Adjusted EBITDA
$
217,857
$
226,956
$
415,683
$
455,291
NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES NON-GAAP FINANCIAL MEASURES SEGMENT ADJUSTED EBITDA
