National Fuel Reports Second Quarter Earnings

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National Fuel Reports Second Quarter Earnings

WILLIAMSVILLE, N.Y.--(BUSINESS WIRE)-- National Fuel Gas Company ("National Fuel" or the "Company") (NYS: NFG) today announced consolidated earnings for the second quarter of fiscal 2013 and for the six months ended March 31, 2013.

HIGHLIGHTS

  • Earnings for the second quarter of fiscal 2013 of $85.7 million, or $1.02 per share, increased $18.3 million, or $0.21 per share, compared to $67.4 million, or $0.81 per share, for the prior year's second quarter. The increase is due to higher earnings across all segments.
  • Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") for the second quarter of fiscal 2013 were $243.0 million compared to $201.5 million for the prior year's second quarter, an increase of 21%.
  • Seneca Resources Corporation's ("Seneca") second quarter production of natural gas and crude oil was 28.8 billion cubic feet equivalent ("Bcfe"), an increase of 10.4 Bcfe or approximately 57%.
  • In the Pipeline and Storage segment, second quarter earnings of $16.8 million, or $0.20 per share, increased 31% compared to the prior year's second quarter. The increase is largely driven by higher revenues from contracts with non-affiliated shippers to transport gas through the Northern Access and Line N 2012 Expansion pipeline projects that were placed in service in the first quarter.
  • The Company is revising its GAAP earnings guidance range for fiscal 2013 to a range of $2.95 to $3.10 per share. The previous earnings guidance had been a range of $2.75 to $3.00 per share. This revised guidance assumes flat NYMEX equivalent pricing of $4.00 per Million British Thermal Units ("MMBtu") for natural gas (Henry Hub) and $85 per barrel ("Bbl") for crude oil (West Texas Intermediate) for unhedged production for the remainder of the fiscal year. Production for the entire 2013 fiscal year is projected to be between 110 to 118 Bcfe. The previous guidance for projected production was between 102 and 112 Bcfe.
  • A conference call is scheduled for Friday, May 3, 2013, at 11 a.m. Eastern Standard Time.

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: "Results across our system during the second quarter were outstanding, with all of our major subsidiaries contributing to an overall 20 percent increase in consolidated operating results.

"Seneca Resources continues to have impressive operating results in its Marcellus Shale program. Those operations helped drive the remarkable 57 percent increase in production compared to the prior year. At the same time, as Seneca and other Appalachian producers are expanding natural gas production in the region, our midstream businesses continue to capitalize on that growth. We continue to look at ways to make additional investments in new facilities that can increase system throughput and produce consistent long-term earnings.

"We believe that there are a number of factors that will allow us to continue this positive momentum. Seneca's recent success in Lycoming County has driven a significant increase in both our production and earnings forecasts for fiscal 2013. Looking to next year, the delineation results in our Rich Valley prospect area make us increasingly excited about the long-term potential of our legacy acreage. The decrease in the volatility of natural gas prices, and the modest upward trend in the futures strip prices should further support interest from shippers in our new pipeline projects. In short, we remain focused on efficiently deploying capital across our system, generating strong returns and delivering the positive results our shareholders expect."

SUMMARY OF RESULTS

National Fuel had consolidated earnings for the quarter ended March 31, 2013, of $85.7 million, or $1.02 per share, compared to the prior year's second quarter of $67.4 million, or $0.81 per share, an increase of $18.3 million or $0.21 per share. The increase is due to higher earnings in all segments and the All Other category. (Note: All references to earnings per share are to diluted earnings per share, all amounts are stated in U.S. dollars and all amounts used in the discussion of earnings are after tax unless otherwise noted.)

Consolidated earnings for the six months ended March 31, 2012, of $153.7 million, or $1.83 per share, increased $25.6 million, or $0.30 per share, from the same period in the prior year where earnings were $128.1 million or $1.53 per share.

OPERATING RESULTS

      
Three MonthsSix Months
Ended March 31,Ended March 31,
2013201220132012
(in thousands except per share amounts)
Reported GAAP earnings per share$85,720$67,392$153,664$128,091
Items impacting comparability1:
Pennsylvania impact fee4,0344,034
    
Operating Results$85,720$71,426$153,664$132,125
 
Reported GAAP earnings per share$1.02$0.81$1.83$1.53
Items impacting comparability1:
Pennsylvania impact fee0.050.05
    
 
Operating Results$1.02$0.86$1.83$1.58
 

1

 

See discussion of these individual items below.

 

As outlined in the table above, certain items included in GAAP earnings impacted the comparability of the Company's financial results when comparing the quarter and six months ended March 31, 2013, to the comparable periods in fiscal 2012. Excluding the one item in the prior fiscal year, Operating Results for the current quarter of $85.7 million, or $1.02 per share, increased $14.3 million, or $0.16 per share, from the prior year's second quarter where Operating Results were $71.4 million or $0.86 per share. Excluding this item, Operating Results for the six months ended March 31, 2013, of $153.7 million, or $1.83 per share, increased $21.5 million, or $0.25 per share, compared to the same period in the prior year. Items impacting comparability will be discussed in more detail within the discussion of segment earnings below.

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each segment is summarized in a tabular form at pages 9 through 12 of this report. It may be helpful to refer to those tables while reviewing this discussion.

Exploration and Production Segment

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

The Exploration and Production segment's earnings in the second quarter of fiscal 2013 of $27.7 million, or $0.33 per share, increased $5.5 million, or $0.06 per share, when compared with the prior year's second quarter.

In February 2012, the Commonwealth of Pennsylvania passed legislation that included a "natural gas impact fee." The fee was retroactive and applied to wells drilled before and after the legislation was passed. The impact fee recorded in the second quarter of fiscal 2012 that related to prior fiscal years was $6.2 million (pre-tax). Excluding this amount from the prior year's results, Operating Results for the current year's second quarter increased $1.5 million, or $0.01 per share, when compared with the prior year's adjusted second quarter.

Overall production of natural gas and crude oil for the current quarter of 28.8 Bcfe increased approximately 10.4 Bcfe, or 56.6 percent, compared to the prior year's second quarter. Production from Seneca's Appalachia properties increased approximately 10.7 Bcfe largely because of Seneca's strong well results in Lycoming County. California production of 4.8 Bcfe decreased 6.0 percent compared to the prior year's second quarter primarily due to a temporary gas transportation issue and natural field decline.

Changes in commodity prices realized after hedging also impacted Operating Results. The weighted average natural gas price received by Seneca (after hedging) for the quarter ended March 31, 2013, was $3.98 per thousand cubic feet ("Mcf"), a decrease of $0.66 per Mcf compared to the prior year's second quarter. Higher crude oil prices realized after hedging increased earnings. The weighted average oil price received by Seneca (after hedging) for the quarter ended March 31, 2013, was $99.08 per Bbl, an increase of $5.68 per Bbl.

Depletion expense for the current year's second quarter increased over last year's second quarter due to the higher production activity discussed above. On a per unit basis, depletion decreased $0.25 per thousand cubic feet equivalent ("Mcfe") due to higher crude oil and natural gas reserve balances at March 31, 2013, compared to the prior year. Lease operating expenses ("LOE") increased $4.5 million due to higher production and transportation costs. On a per unit basis, LOE decreased $0.17 per Mcfe. General and administrative expenses ("G&A") increased $1.6 million over the prior year's second quarter due to higher labor expenses; however, on a per unit basis G&A decreased $0.19 per Mcfe. Earnings were also impacted by higher interest expense due to a higher outstanding debt balance and higher state income taxes.

The Exploration and Productions segment's earnings of $54.4 million, or $0.65 per share, for the six months ended March 31, 2013, increased $1.9 million, or $0.02 per share, when compared with the six months ended March 31, 2012. Excluding the impact fee discussed above, the Exploration and Production segment's Operating Results for the six months ended March 31, 2013, of $54.4 million, or $0.65 per share, compared to Operating Results of $56.5 million, or $0.68 per share for the prior year's six-month period.

Overall production for the six months ended March 31, 2013, increased approximately 45.6 percent to 53.4 Bcfe. Production from Seneca's Appalachia properties increased approximately 17.1 Bcfe. California production of 9.8 Bcfe decreased slightly compared with the prior year's six-month period for the reasons noted above.

Changes in commodity prices realized after hedging also impacted earnings. The weighted average natural gas price received by Seneca (after hedging) for the six months ended March 31, 2013, was $4.03 per Mcf, a decrease of $0.68 per Mcf compared to the prior year's six-month period. Higher crude oil prices realized after hedging increased earnings. The weighted average oil price received by Seneca (after hedging) for the six months ended March 31, 2013, was $97.86 per Bbl, an increase of $5.47 per Bbl.

Depletion, LOE and G&A for the six months ended March 31, 2013, increased compared to the prior year's six-month period due to the higher production activity discussed above. On a per unit basis, depletion, LOE and G&A decreased $0.21 per Mcfe, $0.08 per Mcfe and $0.18 per Mcfe, respectively.

Pipeline and Storage Segment

The Pipeline and Storage segment 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 western Pennsylvania.

The Pipeline and Storage segment's earnings of $16.8 million, or $0.20 per share, for the quarter ended March 31, 2013, increased $4.0 million, or $0.05 per share, when compared with the same period in the prior fiscal year. The increase in earnings is mainly due to higher non-affiliated transportation revenues from the Northern Access and Line N 2012 Expansion projects, which were completed and placed in service in the current year's first quarter. Earnings also increased due to lower depreciation expense, which was largely driven by a reduction in Supply Corporation's depreciation rates as required by its 2012 rate case settlement.

The Pipeline and Storage segment's earnings of $33.7 million, or $0.40 per share, for the six months ended March 31, 2013, increased $10.9 million, or $0.13 per share, when compared with the same period in the prior fiscal year. The increase was mostly due to higher non-affiliated transportation revenues from the Northern Access and Line N 2012 Expansion projects and lower depreciation expense as required by Supply's 2012 rate case settlement.

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 earnings of $34.5 million, or $0.41 per share, for the quarter ended March 31, 2013, increased $6.2 million or $0.07 per share. Colder weather was the primary reason for the increase in earnings in the current year's second quarter. Temperatures in Pennsylvania were 27.6 percent colder in the current year's second quarter than the second quarter of 2012, which had a significant impact on Pennsylvania earnings. In New York, the impact of weather variations on earnings is mitigated by that jurisdiction's weather normalization clause. Lower income taxes as a result of a settlement with taxing authorities also contributed to higher earnings in the Utility segment.

The Utility segment's earnings of $57.4 million, or $0.68 per share, for the six months ended March 31, 2013, increased from earnings of $47.6 million, or $0.57 per share, for the six months ended March 31, 2012. Colder weather in Pennsylvania was the main reason for the increase in earnings in the current six-month period. Temperatures in Pennsylvania were 20.4 percent colder in the six months ended March 31, 2013, than in the prior year's six-month period. Lower income taxes as a result of a settlement with taxing authorities as noted above, also contributed to higher earnings in the Utility segment.

Energy Marketing Segment

National Fuel Resources, Inc. ("NFR") comprises the Company's Energy Marketing segment. NFR markets natural gas to industrial, wholesale, commercial, public authority and residential customers primarily in western and central New York and northwestern Pennsylvania, offering competitively priced natural gas to its customers.

The Energy Marketing segment's earnings for the quarter ended March 31, 2013, of $4.3 million increased $1.0 million from the prior year's second quarter earnings of $3.3 million. Earnings for the six months ended March 31, 2013, of $4.8 million increased $1.0 million compared to the prior year's six-month period. The increase in earnings for the quarter and six-month period was mainly due to higher average margins largely driven by a greater benefit derived from the Energy Marketing segment's contracts for storage capacity.

Corporate and All Other

The Corporate and All Other category includes the following active, wholly owned subsidiaries of the Company: National Fuel Gas Midstream Corporation ("Midstream"), formed to build, own and operate natural gas processing and pipeline gathering facilities in the Appalachian region, and the Northeast division of Seneca Resources Corporation that markets high quality hardwoods from Appalachian land holdings.

The Corporate and All Other category earnings of $2.4 million, for the quarter ended March 31, 2013, increased $1.6 million compared to the prior year's second quarter. Earnings for the six months ended March 31, 2013, of $3.4 million increased $2.0 million compared to the prior year's six-month period. The increase in earnings in both the current quarter and six-month period is mainly due to higher earnings from Midstream's pipeline gathering and natural gas processing operation. Midstream's Trout Run gathering system in Lycoming County, Pa., and its Covington gathering system in Tioga County, Pa., have provided the critical gathering infrastructure for transporting Seneca's Marcellus Shale production to the interstate pipeline system.

EARNINGS GUIDANCE

The Company is updating its earnings guidance for fiscal 2013 to reflect actual second quarter results and an increase in our production range. The revised GAAP earnings range is $2.95 to $3.10 per share. The previous earnings guidance had been a range of $2.75 to $3.00 per share. This revised guidance includes forecast oil and gas production for fiscal 2013 for the Exploration and Production segment in the range between 110 and 118 Bcfe (previous production range was between 102 and 112), hedges currently in place, and NYMEX equivalent pricing of $4.00 per MMBtu for natural gas and $85 per Bbl for crude oil for unhedged production for the remainder of the fiscal year.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, May 3, 2013, at 11 a.m. (Eastern Time) to discuss this announcement. There are two ways to access this call. For those with Internet access, visit the investor relations page at National Fuel's website at investor.nationalfuelgas.com. For those without Internet access, access is also provided by dialing (toll-free) 1-800-798-2864, and using the passcode "72803281." For those unable to listen to the live conference call, a replay will be available at approximately 2 p.m. (Eastern Time) at the same website link and by phone at (toll-free) 1-888-286-8010 using passcode "25230200." Both the webcast and telephonic replay will be available until the close of business on Friday, May 10, 2013.

National Fuel is an integrated energy company with $6.3 billion in assets comprised of the following four operating segments: Exploration and Production, Pipeline and Storage, Utility, and Energy Marketing. Additional information about National Fuel is available at www.nationalfuelgas.com or through its investor information service at 1-800-334-2188.

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: 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; 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; 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; governmental/regulatory actions, initiatives and proceedings, including those involving rate cases (which address, among other things, allowed rates of return, rate design and retained natural gas), environmental/safety requirements, affiliate relationships, industry structure, and franchise renewal; delays or changes in costs or plans with respect to Company projects or related projects of other companies, including difficulties or delays in obtaining necessary governmental approvals, permits or orders or in obtaining the cooperation of interconnecting facility operators; financial and economic conditions, including the availability of credit, and occurrences affecting the Company's ability to obtain financing on acceptable terms for working capital, capital expenditures and other investments, including any downgrades in the Company's credit ratings and changes in interest rates and other capital market conditions; changes in 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; economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities, acts of war, cyber attacks or pest infestation; changes in price differential between similar quantities of natural gas at different geographic locations, and the effect of such changes on the demand for pipeline transportation capacity to or from such locations; other changes in price differentials between similar quantities of oil or natural gas having different quality, heating value, geographic location or delivery date; significant differences between the Company's projected and actual capital expenditures and operating expenses; changes in laws, actuarial assumptions, the interest rate environment and the return on plan/trust assets related to the Company's pension and other post-retirement benefits, which can affect future funding obligations and costs and plan liabilities; the cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide other post-retirement benefits; or increasing costs of insurance, changes in coverage and the ability to obtain insurance. The Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date thereof.

       
 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
QUARTER ENDED MARCH 31, 2013
 
Exploration &Pipeline &EnergyCorporate /
(Thousands of Dollars) Production Storage Utility Marketing All Other Consolidated* 
 
Second quarter 2012 GAAP earnings$22,192$12,841$28,275$3,310$774$67,392
Items impacting comparability:
Pennsylvania impact fee  4,034           4,034  
Second quarter 2012 operating results26,22612,84128,2753,31077471,426
 
Drivers of operating results
Higher (lower) crude oil prices2,5512,551
Higher (lower) natural gas prices(10,568)(10,568)
Higher (lower) natural gas production32,04732,047
Higher (lower) crude oil production(2,070)(2,070)
Lower (higher) lease operating expenses(4,475)(4,475)
Lower (higher) depreciation / depletion(10,926)695(590)(10,821)
Higher (lower) processing plant and other revenues(1,710)(1,710)
 
Higher (lower) transportation and storage revenues4,7764,776
Higher (lower) efficiency gas revenues(634)(634)
Higher (lower) gathering and processing revenues3,1693,169
Lower (higher) operating expenses(1,870)(298)(2,168)
Lower (higher) property, franchise and other taxes1,1741,174
 
Colder weather5,4325,432
Regulatory true up adjustments(608)(608)
Higher (lower) capacity release revenues(478)(478)
 
Higher (lower) margins917(258)659
 
(Higher) lower interest expense(1,853)879(974)
 
Lower (higher) income tax expense / effective tax rate(870)(621)1,470(21)
 
All other / rounding  55   (261)  (454)  56  (383)  (987) 
 
Second quarter 2013 GAAP earnings $27,711  $16,796  $34,516  $4,283 $2,414  $85,720  
 
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