WILLIAMSVILLE, N.Y., Feb. 07, 2024 (GLOBE NEWSWIRE) -- National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated results for the first quarter of its 2024 fiscal year.

FISCAL 2024 FIRST QUARTER SUMMARY

• GAAP net income of $133.0 million, or $1.44 per share, compared to GAAP net income of $169.7 million, or $1.84 per share, in the prior year.
• Adjusted operating results of $135.2 million, or $1.46 per share, compared to $169.5 million, or $1.84 per share, in the prior year (see non-GAAP reconciliation on page 2).
• Exploration & Production segment produced 101 Bcf of natural gas, an increase of 11% from the prior year, and 8% higher than the fiscal 2023 fourth quarter, driven by strong operational execution in its Eastern Development Area.
• Gathering segment earnings increased $4.1 million, or 17%, from the prior year primarily as a result of an increase in throughput from both Seneca Resources and third-party producers.
• Utility segment earnings increased by $2.7 million, or 11%, from the prior year primarily due to an increase in base rates from our 2023 Pennsylvania jurisdiction rate case settlement.
• Seneca Resources achieved a peer-leading “A” grade under Equitable Origin's EO100^TM Standard for 100% of Appalachian natural gas production, as part of an annual verification audit.

MANAGEMENT COMMENTS

David P. Bauer, President and Chief Executive Officer of National Fuel Gas Company, stated: “National Fuel had a strong start to fiscal 2024, with solid operational execution across our businesses. We continued to see excellent well results in our Eastern Development Area (“EDA”), which led to double-digit increases in Seneca’s production and Gathering segment throughput. As we continue to high-grade our upstream activity and focus our development activities in the EDA where we have more than a decade of high-quality inventory, we expect an ongoing improvement in capital efficiency and free cash flow generation.

“In our regulated businesses, the positive impacts of our recently settled rate case in Pennsylvania drove increased Utility earnings. As we move through the remainder of this year and into 2025, we expect our other ongoing rate proceedings will contribute to a further improvement in earnings. Longer-term, the continued need to invest in modernizing our infrastructure positions us well to deliver additional growth for the foreseeable future.

“Taken together, the long-term outlook for meaningful growth in our regulated businesses, improving capital efficiency and free cash flow generation potential from our non-regulated operations, and the strength of our investment grade balance sheet, position the Company to deliver significant shareholder value well into the future.”

RECONCILIATION OF GAAP EARNINGS TO ADJUSTED OPERATING RESULTS

FISCAL 2024 GUIDANCE UPDATE

National Fuel is revising its fiscal 2024 earnings guidance to reflect the results of the first quarter, along with updated forecast assumptions and projections. The Company is now projecting that earnings, excluding items impacting comparability, will be within the range of $4.90 to $5.20 per share, a decrease of $0.60 per share from the midpoint of the Company’s prior guidance range. The decrease from the Company’s prior earnings guidance primarily reflects the impact of lower natural gas price expectations, partially offset by the improved outlook for both production and lease operating and transportation expense (“LOE”) in the Exploration and Production segment.

The Company is now assuming that NYMEX natural gas prices will average $2.40 per MMBtu for the remainder of fiscal 2024, a decrease of $0.85 per MMBtu from the $3.25 per MMBtu assumed in the previous guidance. For guidance purposes, the Company’s updated natural gas price projections approximate the current NYMEX forward curve and consider the impact of local sales point differentials and new physical firm sales, transportation, and financial hedge contracts.

The Exploration and Production segment’s fiscal 2024 net production guidance is now expected to be in the range of 395 to 410 Bcf, an increase of 2.5 Bcf at the midpoint. This guidance range does not incorporate any price-related curtailments over the remainder of the fiscal year. Seneca currently has firm sales contracts in place for approximately 90% of its projected remaining fiscal 2024 production, limiting its exposure to in-basin markets. Approximately 72% of Seneca’s expected remaining production is either matched by a financial hedge, including a combination of swaps and no-cost collars, or was entered into at a fixed price.

The Company’s consolidated capital expenditures are now expected to be in the range of $885 to $1,000 million, a 2% increase from the midpoint of previous guidance. This increase is due to the estimated impact of New York State’s recently enacted Roadway Excavation Quality Assurance Act (“REQAA”), which requires that contractors pay state published prevailing wages to their employees on projects that require a permit to operate in a public right of way. We anticipate these higher costs to be passed on to the Company, which are expected to be recoverable and are being addressed in the Company’s ongoing rate case proceeding in New York.

The Company’s other guidance assumptions remain largely unchanged from the previous guidance. The details are outlined in the table on page 7.

DISCUSSION OF FIRST QUARTER RESULTS BY SEGMENT

The following earnings discussion of each operating segment for the quarter ended December 31, 2023 is summarized in a tabular form on pages 8 and 9 of this report. It may be helpful to refer to those tables while reviewing this discussion.

Note that management defines Adjusted Operating Results as reported GAAP earnings adjusted for items impacting comparability, and Adjusted EBITDA as reported GAAP earnings before the following items: interest expense, income taxes, depreciation, depletion and amortization, other income and deductions, impairments, and other items reflected in operating income that impact comparability.

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 primarily natural gas reserves in Pennsylvania.

Seneca’s first quarter GAAP earnings decreased $38.7 million versus the prior year. Higher natural gas production, lower per unit LOE, and lower other taxes were more than offset by lower realized natural gas prices, and increases in per unit depreciation, depletion and amortization (“DD&A”), general and administrative (“G&A”), other operation and maintenance (“O&M”) and interest expenses. The earnings decrease also includes an unrealized loss of $4.2 million ($3.0 million after-tax) recognized during the current-year first quarter from a reduction in the fair value of the contingent consideration Seneca received in connection with the June 2022 divestiture of its California assets. Excluding this loss, Seneca's earnings decreased $35.7 million,

During this year's first quarter, Seneca produced 100.8 Bcf of natural gas, an increase of 10.2 Bcf, or 11%, from the prior year, largely due to production from new Marcellus and Utica wells in Seneca's EDA.

Seneca’s average realized natural gas price, after the impact of hedging and transportation costs, was $2.51 per Mcf, a decrease of $0.51 per Mcf from the prior year.

On a per unit basis, LOE was $0.67 per Mcf, a decrease of $0.01 per Mcf from the prior year. On an absolute basis, LOE increased $5.5 million due primarily to higher transportation and gathering costs as a result of increased production. LOE includes $56.2 million for gathering and compression services from NFG Midstream to connect Seneca’s production to sales points along interstate pipelines.

G&A expense was $0.18 per Mcf, an increase of less than $0.01 per Mcf from the prior year. On an absolute basis, Seneca’s G&A expense increased $2.2 million primarily due to an increase in personnel costs.

DD&A expense was $0.71 per Mcf, an increase of $0.10 per Mcf from the prior year. Absolute DD&A expense increased $16.4 million due to higher natural gas production and a higher per unit DD&A rate. The higher per unit rate was driven by an increase in Seneca's full cost pool due to a combination of higher capitalized costs and an increase in estimated future development costs related to proved undeveloped wells.

Other taxes decreased $3.3 million largely as a result of lower Impact Fees in Pennsylvania due to the decline in NYMEX natural gas prices. Seneca's all other O&M expense increased $3.0 million due primarily to the accrual of estimated plugging and abandonment expenses related to certain California wells that were sold by Seneca in 2004 to an operator that is no longer in business. As a result, the cost of abandoning the wells will likely revert back to Seneca.

Interest expense increased $2.0 million due primarily to higher average interest rates combined with a higher average amount of net borrowings.

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.

The Pipeline and Storage segment’s first quarter GAAP earnings decreased $5.4 million versus the prior year primarily due to lower operating revenues, higher O&M and DD&A expenses. The decrease in operating revenues of $3.2 million was primarily attributable to contract expirations that occurred near the end of the prior-year first quarter. O&M expense increased $1.9 million primarily due to an increase in personnel costs. The increase in DD&A expense of $0.8 million was attributable to higher average depreciable plant in service compared to the prior year.

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 delivers Seneca and other non-affiliated Appalachian production to the interstate pipeline system.

The Gathering segment’s first quarter GAAP earnings increased $4.1 million versus the prior year due primarily to higher operating revenues, partly offset by higher DD&A expense. Operating revenues increased $6.2 million, or 11%, which was the result of a $4.2 million increase in revenue from Seneca and a $2.0 million increase in revenue from non-affiliated parties. DD&A expense increased $0.7 million due primarily to higher average depreciable plant in service compared to the prior year.

Downstream Business

Utility Segment

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

The Utility segment’s first quarter GAAP earnings increased $2.7 million versus the prior year due to higher customer margins (operating revenues less purchased gas sold) and a lower effective income tax rate, partially offset by increases in O&M and DD&A expenses.

The $4.7 million increase in customer margin for the quarter was primarily a result of the $23 million annual rate increase in Distribution's Pennsylvania jurisdiction that was approved last year and went into effect in August 2023. Higher revenues from the Company’s system modernization tracking mechanisms in its New York service territory also contributed to the increase. These increases were partially offset by a decrease in customer usage due in large part to warmer weather as compared to the prior-year first quarter. The impact of temperature fluctuations on usage and margin revenues is largely protected by weather normalization adjustment (“WNA”) mechanisms in both the New York and Pennsylvania jurisdictions. The Company's WNA mechanism in Pennsylvania, which went into effect for the first time in October 2023, is subject to a dead-band threshold whereby margin impacted by weather that is more than 3% warmer or colder than normal is recovered or refunded through the mechanism.

O&M expense increased by $3.4 million, primarily driven by higher personnel costs and an increase in expenses related to the current New York rate case proceeding filed during the quarter. These increases were partially offset by a decline in the accrual for uncollectible accounts due to a decrease in the natural gas commodity component of customer bills. DD&A expense increased $1.2 million primarily due to higher average depreciable plant in service compared to the prior year.

The reduction in the Utility segment's effective income tax rate was primarily driven by an increase in tax deductions related to certain repairs and maintenance expenditures as a result of recently updated IRS guidance.

Corporate and All Other

The Company’s operations that are included in Corporate and All Other generated combined earnings of $1.1 million in the current year first quarter, which was $0.6 million higher than the combined earnings of $0.5 million in the prior-year first quarter. The increase in earnings was primarily driven by a higher amount of unrealized gains on investment securities recognized in the current quarter as compared to the prior-year first quarter.

EARNINGS TELECONFERENCE

The Company will host a conference call on Thursday, February 8, 2024, at 10 a.m. Eastern Time to discuss this announcement. To pre-register for the call (recommended), please visit https://www.netroadshow.com/events/login?show=4b2c797c&confId=59975. After registering, you will receive your access details via email. To join by telephone on the day of the call, dial U.S. toll free 1-833–470–1428 and provide Participant Access Code 059311. The teleconference will also be simultaneously webcast online and can be accessed on the NFG Investor Relations website at investor.nationalfuelgas.com. A telephone replay of the teleconference call will be available through the end of the day on Thursday, February 15, 2024. To access the replay, dial U.S. toll free 1-866-813-9403 and provide Replay Access Code 385109.

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: changes in laws, regulations or judicial interpretations to which the Company is subject, including those involving derivatives, taxes, safety, employment, climate change, other environmental matters, real property, and exploration and production activities such as hydraulic fracturing; governmental/regulatory actions, initiatives and proceedings, including those involving rate cases (which address, among other things, target rates of return, rate design, retained natural gas and system modernization), environmental/safety requirements, affiliate relationships, industry structure, and franchise renewal; the Company’s ability to estimate accurately the time and resources necessary to meet emissions targets; governmental/regulatory actions and/or market pressures to reduce or eliminate reliance on natural gas; changes in economic conditions, including inflationary pressures, supply chain issues, liquidity challenges, and global, national or regional recessions, and their effect on the demand for, and customers’ ability to pay for, the Company’s products and services; changes in the price of natural gas; impairments under the SEC’s full cost ceiling test for natural gas reserves; the creditworthiness or performance of the Company’s key suppliers, customers and counterparties; 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; increased costs or delays or changes in plans with respect to Company projects or related projects of other companies, as well as difficulties or delays in obtaining necessary governmental approvals, permits or orders or in obtaining the cooperation of interconnecting facility operators; changes in price differentials between similar quantities of natural gas 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 reserves, including among others geology, lease availability and costs, title disputes, weather conditions, water availability and disposal or recycling opportunities of used water, 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; the Company’s ability to complete strategic transactions; 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 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; negotiations with the collective bargaining units representing the Company's workforce, including potential work stoppages during negotiations; uncertainty of natural gas reserve estimates; significant differences between the Company’s projected and actual production levels for natural gas; changes in demographic patterns and weather conditions (including those related to climate change); 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, as well as economic and operational disruptions due to third-party outages; 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 2024. Additional details on the Company's forecast assumptions and business segment guidance are outlined in the table below.

While the Company expects to record certain adjustments to unrealized gain or loss on a derivative asset and unrealized gain or loss on investments during the nine months ending September 30, 2024, the amounts of these and other potential adjustments are not reasonably determinable at this time. As such, the Company is unable to provide earnings guidance other than on a non-GAAP basis.

* Commodity price assumptions are for the remaining 9 months of the fiscal year.

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES

In addition to financial measures calculated in accordance with generally accepted accounting principles (GAAP), this press release contains information regarding Adjusted Operating Results, Adjusted EBITDA and free cash flow, 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 or liquidity and for comparing the Company’s financial performance to other companies. The Company's management uses these non-GAAP financial measures for the same purpose, and for planning and forecasting purposes. The presentation of non-GAAP financial measures is not meant to be a substitute for financial measures in accordance with GAAP.

Management defines Adjusted Operating Results as reported GAAP earnings before items impacting comparability. The following table reconciles National Fuel's reported GAAP earnings to Adjusted Operating Results for the three months ended December 31, 2023 and 2022:

Management defines Adjusted EBITDA as reported GAAP earnings before the following items: interest expense, income taxes, depreciation, depletion and amortization, other income and deductions, impairments, and other items reflected in operating income that impact comparability. The following tables reconcile National Fuel's reported GAAP earnings to Adjusted EBITDA for the three months ended December 31, 2023 and 2022:

Management defines free cash flow as net cash provided by operating activities, less net cash used in investing activities, adjusted for acquisitions and divestitures. The Company is unable to provide a reconciliation of projected free cash flow as described in this release to its comparable financial measure calculated in accordance with GAAP without unreasonable efforts. This is due to our inability to reliably predict the comparable GAAP projected metrics, including operating income and total production costs, given the unknown effect, timing, and potential significance of certain income statement items.

Brandon J. Haspett
Investor Relations
716-857-7697

Timothy J. Silverstein
Treasurer
716-857-6987