August 2, 2018 - 4:45 PM EDT
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National Fuel Reports Third Quarter Earnings and Provides Initial Guidance for Fiscal 2019

WILLIAMSVILLE, N.Y., Aug. 02, 2018 (GLOBE NEWSWIRE) -- National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated results for the third quarter of its 2018 fiscal year and for the nine months ended June 30, 2018. The Company also provided preliminary earnings and operational guidance for fiscal 2019.

FISCAL 2018 THIRD QUARTER SUMMARY

•      GAAP earnings of $63.0 million, or $0.73 per share, compared to $59.7 million, or $0.69 per share, in the prior year
•      Consolidated Adjusted EBITDA of $168.6 million (non-GAAP reconciliation on page 23)
•      Pipeline & Storage segment operating income of $35.5 million, up 6% on higher operating revenues
•      Net natural gas and oil production of 44.6 Bcfe, up 4% from the prior year
•      Average natural gas prices, after the impact of hedging, of $2.43 per Mcf, down $0.51 per Mcf from the prior year
•      Average oil prices, after the impact of hedging, of $58.74 per Bbl, up $5.72 per Bbl from the prior year
•      Reduction in federal tax rate from the 2017 Tax Reform Act resulted in a net earnings benefit of $11.2 million, or $0.14 per share for the quarter, helping to offset the expected decline in realized natural gas prices

GUIDANCE UPDATE

•      Raising and tightening FY18 earnings guidance to $3.30 to $3.40 per share (see non-GAAP discussion on page 5)
•      Initiating FY19 earnings guidance at $3.30 to $3.60 per share, at the midpoint a $0.10 per share increase over FY18
•      FY19 production of 210 to 230 Bcfe, a 24 percent increase over estimated FY18 production
•      Firm contracts in place for more than 85% of FY19 Appalachian natural gas production at attractive pricing
•      FY19 capital expenditures are expected to be in the range of $745 million to $845 million
•      At midpoint of expected guidance ranges, substantially all of FY19 capital expenditures are expected to be funded by internally generated cash flows

         
  Three Months Ended Nine Months Ended
  June 30, June 30,
(in thousands except per share amounts) 2018 2017 2018 2017
Reported GAAP Earnings $63,025  $59,714  $353,527  $237,906 
Items impacting comparability        
Remeasurement of deferred income taxes
under 2017 Tax Reform
     (107,000)  
Adjusted Operating Results $63,025  $59,714  $246,527  $237,906 
         
Reported GAAP Earnings per share $0.73  $0.69  $4.09  $2.77 
Items impacting comparability        
Remeasurement of deferred income taxes
under 2017 Tax Reform
     (1.24)  
Adjusted Operating Results per share $0.73  $0.69  $2.85  $2.77 
                 

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: “We had an excellent fiscal third quarter with each of our business segments achieving solid financial results.  Typically a quarter where we expect lower earnings due to the impact of seasonality on our Utility segment, consolidated results surpassed our forecast on better than projected commodity pricing realized on Seneca’s production, higher Pipeline & Storage revenues, and lower operating expenses across the system.

“Operationally, we continue to execute on our long-term strategic plans to grow our upstream and midstream businesses in tandem and pull forward the value of our integrated asset position in Appalachia. Seneca added a third drilling rig in May to focus more development in the Utica shale where results continue to impress.  As we look forward into fiscal 2019, our Gathering segment will benefit from Seneca’s increase in production, a majority of which is contracted to be sold at attractive pricing.  Coupled with the stability of our utility and pipeline businesses, we expect to continue to generate a predictable and growing base of earnings and cash flows that will add value for our shareholders and position us to achieve our long-term plans for organic growth across our integrated businesses.”

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each operating segment is summarized in a tabular form on pages 8 through 11 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 Company, LLC ("Seneca").  Seneca explores for, develops and produces natural gas and oil reserves, primarily in Pennsylvania and California.

    
 Three Months Ended Nine Months Ended
 June 30, June 30,
(in thousands except per share amounts)2018 2017 Variance 2018 2017 Variance
Net Income$27,817  $30,123  $(2,306) $161,052  $98,972  $62,080 
Net Income Per Share (Diluted)$0.32  $0.35  $(0.03) $1.86  $1.15  $0.71 
Adjusted EBITDA$76,935  $89,229  $(12,294) $235,199  $285,675  $(50,476)
                        

The Exploration and Production segment’s third quarter earnings declined $2.3 million, as the positive impacts of higher natural gas production, better realized crude oil prices, lower lease operating and transportation (“LOE”) expenses, and a lower effective income tax rate were negatively impacted by lower realized natural gas prices and higher depreciation, depletion and amortization (“DD&A”) expense.

Seneca’s third quarter net production was 44.6 billion cubic feet equivalent (“Bcfe”), an increase of 1.9 Bcfe from the prior year.  Natural gas production increased 2.3 billion cubic feet (“Bcf”), or 6 percent, due primarily to production from new Marcellus and Utica wells completed and connected to sales in the WDA-Clermont and EDA-Lycoming development areas after adding a second drilling rig in Appalachia in the third quarter of 2017.  Seneca's average realized natural gas price, after the impact of hedging and transportation costs, was $2.43 per thousand cubic feet ("Mcf"), a decrease of $0.51 per Mcf from the prior year.  The decline in Seneca’s average 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 oil production decreased 69 thousand barrels ("Mbbl") versus the prior year due largely to the expected reduction in California production after the sale of Seneca’s Sespe properties, which closed on May 1, 2018.  Seneca's average realized oil price, after the impact of hedging, was $58.74 per barrel ("Bbl"), an increase of $5.72 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.

LOE expense for the quarter decreased $3.0 million due to lower operating costs in California following the sale of Seneca’s Sespe properties and lower workover costs combined with a reduction in costs to operate compression facilities in Tioga County, Pennsylvania, which were acquired by the Gathering segment from Seneca in the second quarter of 2018.  These decreases were partially offset by higher gathering expenses in Appalachia due to the increase in natural gas production.   On a per unit of production basis, LOE expense was $0.84 per thousand cubic feet equivalent (“Mcfe”), a decrease of $0.11 per Mcfe from the prior year.

DD&A expense increased $3.8 million due to the increase in production and a higher per unit depletion rate.  The depletion rate for the quarter increased by $0.06 per Mcfe to $0.70 per Mcfe due mainly to a higher depletable fixed asset balance at June 30, 2018, as Seneca has increased development activity in Appalachia over the past year.

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 and benefited Seneca’s third quarter earnings by $6.2 million, or $0.07 per share.

See page 20 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 Nine Months Ended
 June 30, June 30,
(in thousands except per share amounts)2018 2017 Variance 2018 2017 Variance
Net Income$20,723  $16,031  $4,692  $81,909  $54,656  $27,253 
Net Income Per Share (Diluted)$0.24  $0.19  $0.05  $0.95  $0.64  $0.31 
Adjusted EBITDA$46,428  $44,163  $2,265  $147,342  $141,279  $6,063 
                        

The Pipeline and Storage segment’s third quarter earnings increased $4.7 million due primarily to higher operating revenues, lower interest expense, and a lower effective income tax rate.  Operating revenues increased $2.2 million, or 3 percent, versus the prior year 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, an increase in storage revenues resulting from Supply Corporation’s acquisition of the remaining interest in a jointly owned storage field during the quarter, additional revenues from short-term transportation contracts, and surcharge revenues relating to Supply Corporation’s greenhouse gas and pipeline safety system enhancements that also went into effect in November 2017.

The $0.8 million decrease in interest expense was primarily due to a lower weighted average interest rate on long-term debt.  The interest rate decreased following the Company’s issuance of 3.95 percent notes to repay 6.5 percent notes in October 2017.  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 $3.0 million, or $0.04 per share.

Gathering Segment

The Gathering segment’s operations are carried out by National Fuel Gas Midstream Company, LLC’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 Nine Months Ended
 June 30, June 30,
(in thousands except per share amounts)2018 2017 Variance 2018 2017 Variance
Net Income$11,566  $10,107  $1,459  $68,736  $31,373  $37,363 
Net Income Per Share (Diluted)$0.13  $0.12  $0.01  $0.80  $0.37  $0.43 
Adjusted EBITDA$23,008  $23,901  $(893) $67,877  $73,174  $(5,297)
                        

The $1.5 million increase in the Gathering segment’s third quarter earnings was due mainly to higher revenues and a lower effective income tax rate, offset partially by an increase in operation and maintenance ("O&M") expense.  Operating revenues increased $1.0 million, or 4 percent, versus the prior year due primarily to a 2.6 Bcf increase in throughput from Seneca’s Appalachian natural gas production.

The $1.9 million increase in O&M expense was due largely to the operation of new compression facilities along the Covington gathering system that were acquired from affiliate Seneca in March 2018, an increase in facilities and maintenance activity at the Clermont gathering system,  and a non-recurring loss recognized on the sale of pipe materials.  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 $2.4 million, or $0.03 per share.

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 Nine Months Ended
 June 30, June 30,
(in thousands except per share amounts)2018 2017 Variance 2018 2017 Variance
Net Income$3,930  $4,348  $(418) $58,283  $51,103  $7,180 
Net Income Per Share (Diluted)$0.05  $0.05  $  $0.67  $0.59  $0.08 
Adjusted EBITDA$24,366  $25,322  $(956) $137,364  $139,232  $(1,868)
                        

The Utility segment’s third quarter earnings decreased $0.4 million as the positive impact of colder weather was more than offset by higher O&M expense and the impact of tax reform.  Weather in Distribution’s Pennsylvania service territory was 17 percent colder 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 increased $1.3 million due mainly to higher personnel costs, primarily pension costs. The net impact of the 2017 Tax Reform Act, including a $0.5 million customer refund provision ($0.4 million after-tax) that reduced the segment’s operating revenues, lowered third quarter earnings by $0.3 million.

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 Nine Months Ended
 June 30, June 30,
(in thousands except per share amounts)2018 2017 Variance 2018 2017 Variance
Net Income / (Loss)$(190) $(564) $374  $1,434  $2,122  $(688)
Net Income / (Loss) Per Share (Diluted)$  $(0.01) $0.01  $0.02  $0.02  $ 
Adjusted EBITDA$(419) $(1,017) $598  $2,187  $3,213  $(1,026)
                        

The Energy Marketing segment’s third quarter earnings increased $0.4 million due largely to higher margins (operating revenues less purchased gas expenses).  NFR’s customer margins were positively impacted by weaker natural gas prices at local purchase points relative to NYMEX-based customer sales contracts and higher volumes due to colder weather.

Corporate and All Other

For the third quarter of fiscal 2018, the Corporate and All Other category had a net loss of $0.8 million compared to a net loss of $0.3 million in the prior year.  The increase in the net loss was primarily attributable to higher income tax expense offset partially by an increase in sales generated by the Company’s timber operations.

GUIDANCE

The Company is raising and tightening its earnings guidance for fiscal 2018 to a range of $3.30 to $3.40 per share to reflect the impact of actual results for the nine months ended June 30, 2018, and updates to key forecast assumptions, including revisions to the expected consolidated effective tax rate and the Exploration and Production segment’s forecasted production, oil pricing, and operating expense assumptions, as outlined in the table below.

  The revised fiscal 2018 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 nine months ended June 30, 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 last three 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, and possible technical corrections.  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.

The Company is also initiating preliminary guidance for fiscal 2019.  National Fuel is projecting that its fiscal 2019 earnings will be within a range of $3.30 to $3.60 per share, or $3.45 per share at the midpoint of the range.  The $0.10 per share increase from the fiscal 2018 earnings guidance midpoint is being driven primarily by an increase in Seneca’s forecasted natural gas production and the associated impact on Gathering segment revenues, offset partially by lower expected natural gas price realizations after hedging and lower Pipeline & Storage segment revenues.

Seneca’s fiscal 2019 net production is expected to be in the range of 210 to 230 Bcfe, an increase of 24 percent from fiscal 2018 at the midpoint of the respective ranges.  Seneca added a third drilling rig in Appalachia this past May, which is the main driver of the expected 42.5 Bcf increase year over year.  The midpoint of the production range does not assume any price related curtailments. The increase in Seneca’s production is also expected to generate higher throughput and revenues for the Company’s Gathering segment. At the midpoint of the range, Gathering revenues are forecasted to increase by approximately $25 million, or 23 percent, to $135 million for fiscal 2019.

Seneca has approximately 176 Bcf, or more than 85 percent of its fiscal 2019 projected Appalachian natural gas production sold under physical firm contracts with third parties, leaving a modest amount of production exposed to local spot prices for the year.  Seneca's net-back pricing on approximately 140 Bcf of the 176 Bcf of production sold firm is currently locked-in using a combination of financial hedges and fixed-price contracts that achieve a certain weighted average realized price of $2.44 per Mcf for the year.  Assuming NYMEX natural gas pricing of $2.75 per MMBtu and including the impact of local spot pricing and firm transportation costs, Seneca expects its fiscal 2019 net realized gas price after hedging to be approximately $2.35 per Mcf, which is a decrease of $0.15 per Mcf from Seneca’s expected realized pricing after hedging of $2.50 per Mcf for fiscal 2018.

Seneca’s oil operations in California are expected to produce approximately 17 Bcfe in fiscal 2019, relatively flat versus fiscal 2018 excluding production from the California Sespe properties sold in May 2018.  Seneca is approximately 72 percent hedged on an expected 2.5 million Bbls of oil production in fiscal 2019 at an average hedge price of $57.57 per Bbl.

The Company expects Pipeline & Storage segment revenues to decrease from approximately $295 million in fiscal 2018 to $285 million in fiscal 2019. The $10 million reduction reflects the anticipated roll-off of a significant counter-flow, legacy contract on the Company’s Empire Pipeline system in December 2018 (as discussed on the Company’s first quarter 2018 earnings teleconference).  In response, Empire Pipeline filed a rate case in June 2018 with the Federal Energy Regulatory Commission (“FERC”).  The requested increase in transportation rates, which is expected to partially offset the loss of the contract revenues, is anticipated to be effective January 1, 2019, subject to refund.

Consolidated capital expenditures in fiscal 2019 are expected to be in a range of $745 million to $845 million, a $180 million increase from the midpoint of the Company’s fiscal 2018 capital expenditure guidance.  The primary drivers of the increase are Seneca’s development activity in Appalachia, where the Company plans to operate three drilling rigs for the entirety of the fiscal year, coupled with the impact of the completion of the 75 well Marcellus shale joint development agreement (“JDA”) earlier in fiscal 2018.  Seneca’s JDA partner contributed $17 million in initial conveyance proceeds and an additional $25 million for its 80 percent working interest to complete the final 12 JDA wells, which offset Seneca’s fiscal 2018 total capital expenditures and is reflected in the fiscal 2018 guidance range of $350 million to $370 million.  Pipeline & Storage segment capital expenditures are expected to increase by $50 million at the midpoint of the range due to higher spending on expansion projects and system modernization.  At the midpoint of the fiscal 2019 guidance ranges, substantially all of the Company's capital expenditures are expected to be funded by internally generated cash flows.

Additional details on the Company's forecast assumptions and business segment guidance for fiscal 2019 are outlined in the table below.

      
   Updated FY 2018 Guidance Preliminary FY 2019 Guidance
Consolidated Earnings per Share (1)  $3.30 to $3.40 $3.30 to $3.60
Consolidated Effective Tax Rate (1)  ~25% ~25%
      
Capital Expenditures (Millions)     
  Exploration and Production (2)  $350 - $370 $460 - $500
  Pipeline and Storage  $100 - $120 $140 - $180
  Gathering  $55 - $65 $55 - $65
  Utility  $80 - $90 $90 - $100
  Consolidated Capital Expenditures  $585 - $645 $745 - $845
      
Exploration & Production Segment Guidance     
      
  Commodity Price Assumptions     
  NYMEX natural gas price  $2.75 /MMBtu $2.75 /MMBtu 
  Appalachian basin spot price (winter | summer)  $2.00 /MMBtu $2.40 /MMBtu | $2.00 /MMBtu 
  NYMEX (WTI) crude oil price  $65.00 /Bbl $65.00 /Bbl 
  California oil price (% of WTI)  100% 100% 
      
  Production (Bcfe)     
  East Division - Appalachia  157 to 162 193 to 213 
  West Division - California  ~ 18 ~ 17 
  Total Production  175 to 180 210 to 230 
      
  E&P Operating Costs ($/Mcfe)     
  LOE  $0.90 - $0.95 $0.85 - $0.90 
  G&A  $0.30 - $0.35 $0.25 - $0.35 
  DD&A  ~ $0.70 $0.70 - $0.75 
      
Other Business Segment Guidance (Millions)     
  Gathering Segment Revenues  ~$110 $130 - $140 
  Pipeline and Storage Segment Revenues  ~$295 ~$285 
      


(1)   FY18 excludes earnings impact of the remeasurement of deferred income taxes resulting from the 2017 Tax Reform Act.
(2)   FY18 net of proceeds received from joint development partner for working interest in joint development wells.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, August 3, 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 “1984229.”  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 “1984229.”  Both the webcast and a telephonic replay will be available until the close of business on Friday, August 10, 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:Kenneth E. Webster716-857-7067
Media Contact:Karen L. Merkel716-857-7654
   

 

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; 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 the price of natural gas or oil; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; 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 JUNE 30, 2018
(Unaudited)
              
              
 Upstream Midstream Businesses Downstream Businesses    
              
 Exploration & Pipeline &     Energy Corporate/  
(Thousands of Dollars)Production Storage Gathering Utility Marketing All Other Consolidated*
              
Third quarter 2017 GAAP earnings$30,123  $16,031  $10,107  $4,348  $(564) $(331) $59,714 
              
Earnings drivers***             
Higher (lower) crude oil prices2,236            2,236 
Higher (lower) natural gas prices(13,665)           (13,665)
Higher (lower) natural gas production4,464            4,464 
Higher (lower) crude oil production(2,361)           (2,361)
Lower (higher) lease operating and transportation expenses1,954            1,954 
Lower (higher) depreciation / depletion(2,501)   (203)     (283) (2,987)
              
Higher (lower) transportation and storage revenues  1,342          1,342 
Higher (lower) gathering and processing revenues    644        644 
Lower (higher) other operating expenses(625)   (1,224) (980)     (2,829)
              
Colder weather      659      659 
              
Higher (lower) margins        304  623  927 
              
Higher (lower) AFUDC**  (113)         (113)
              
Lower (higher) interest expense  534          534 
              
Lower (higher) income tax expense / effective tax rate1,730          (956) 774 
              
Impact of 2017 Tax Reform Act             
Impact of tax rate change on current period earnings6,154  3,046  2,422  77    (161) 11,538 
Refund provision on tax rate change      (358)     (358)
              
All other / rounding308  (117) (180) 184  70  287  552 
Third quarter 2018 GAAP earnings$27,817  $20,723  $11,566  $3,930  $(190) $(821) $63,025 
              
* 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 JUNE 30, 2018
(Unaudited)
               
               
  Upstream Midstream Businesses Downstream Businesses    
               
  Exploration & Pipeline &     Energy Corporate/  
  Production Storage Gathering Utility Marketing All Other Consolidated*
               
Third quarter 2017 GAAP earnings $0.35  $0.19  $0.12  $0.05  $(0.01) $(0.01) $0.69 
               
Earnings drivers***              
Higher (lower) crude oil prices 0.03            0.03 
Higher (lower) natural gas prices (0.16)           (0.16)
Higher (lower) natural gas production 0.05            0.05 
Higher (lower) crude oil production (0.03)           (0.03)
Lower (higher) lease operating and transportation expenses 0.02            0.02 
Lower (higher) depreciation / depletion (0.03)           (0.03)
               
Higher (lower) transportation and storage revenues   0.02          0.02 
Higher (lower) gathering and processing revenues     0.01        0.01 
Lower (higher) other operating expenses (0.01)   (0.01) (0.01)     (0.03)
               
Colder weather       0.01      0.01 
               
Higher (lower) margins           0.01  0.01 
               
Higher (lower) AFUDC**              
               
Lower (higher) interest expense   0.01          0.01 
               
Lower (higher) income tax expense / effective tax rate 0.02          (0.01) 0.01 
               
Impact of 2017 Tax Reform Act              
Impact of tax rate change on current period earnings 0.07  0.04  0.03        0.14 
Refund provision on tax rate change              
               
All other / rounding 0.01  (0.02) (0.02)   0.01    (0.02)
Third quarter 2018 GAAP earnings $0.32  $0.24  $0.13  $0.05  $  $(0.01) $0.73 
               
* 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
NINE MONTHS ENDED JUNE 30, 2018
(Unaudited)
              
 Upstream Midstream Businesses Downstream Businesses    
              
 Exploration & Pipeline &     Energy Corporate/  
(Thousands of Dollars)Production Storage Gathering Utility Marketing All Other Consolidated*
              
Nine months ended June 30, 2017 GAAP earnings$98,972  $54,656  $31,373  $51,103  $2,122  $(320) $237,906 
              
Earnings drivers***             
Higher (lower) crude oil prices6,770            6,770 
Higher (lower) natural gas prices(31,640)           (31,640)
Higher (lower) natural gas production(3,088)           (3,088)
Higher (lower) crude oil production(4,449)           (4,449)
Lower (higher) lease operating and transportation expenses1,171            1,171 
Lower (higher) depreciation / depletion(3,480) (1,086) (488)     (479) (5,533)
              
Higher (lower) transportation and storage revenues  2,126          2,126 
Higher (lower) gathering and processing revenues    (2,126)       (2,126)
Lower (higher) other operating expenses(1,635) 2,283  (1,299) (505) 234    (922)
Lower (higher) property, franchise and other taxes  (439)         (439)
              
Impact of new rates      2,789      2,789 
Colder weather      5,621      5,621 
              
Higher (lower) margins        (901) 1,634  733 
              
Higher (lower) AFUDC**  (656)         (656)
              
Lower (higher) interest expense  1,143    772      1,915 
              
Lower (higher) income tax expense / effective tax rate3,871      (2,201)   (1,381) 289 
              
Impact of 2017 Tax Reform Act             
Impact of tax rate change on current period earnings17,401  9,967  7,091  10,726  263  (322) 45,126 
Refund provision on tax rate change      (8,678)     (8,678)
Remeasurement of deferred income taxes under
2017 Tax Reform
76,510  14,100  34,500    (359) (17,751) 107,000 
              
All other / rounding649  (185) (315) (1,344) 75  732  (388)
Nine months ended June 30, 2018 GAAP earnings$161,052  $81,909  $68,736  $58,283  $1,434  $(17,887) $353,527 
              
* 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
NINE MONTHS ENDED JUNE 30, 2018
(Unaudited)
               
  Upstream Midstream Businesses Downstream Businesses    
               
  Exploration & Pipeline &     Energy Corporate/  
  Production Storage Gathering Utility Marketing All Other Consolidated*
               
Nine months ended June 30, 2017 GAAP earnings $1.15  $0.64  $0.37  $0.59  $0.02  $  $2.77 
               
Earnings drivers***              
Higher (lower) crude oil prices 0.08            0.08 
Higher (lower) natural gas prices (0.37)           (0.37)
Higher (lower) natural gas production (0.04)           (0.04)
Higher (lower) crude oil production (0.05)           (0.05)
Lower (higher) lease operating and transportation expenses 0.01            0.01 
Lower (higher) depreciation / depletion (0.04) (0.01) (0.01)     (0.01) (0.07)
               
Higher (lower) transportation and storage revenues   0.02          0.02 
Higher (lower) gathering and processing revenues     (0.02)       (0.02)
Lower (higher) other operating expenses (0.02) 0.03  (0.02) (0.01)     (0.02)
Lower (higher) property, franchise and other taxes   (0.01)         (0.01)
               
Impact of new rates       0.03      0.03 
Colder weather       0.07      0.07 
               
Higher (lower) margins         (0.01) 0.02  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 0.04      (0.03)   (0.02) (0.01)
               
Impact of 2017 Tax Reform Act              
Impact of tax rate change on current period earnings 0.20  0.12  0.08  0.12      0.52 
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 
Nine months ended June 30, 2018 GAAP earnings $1.86  $0.95  $0.80  $0.67  $0.02  $(0.21) $4.09 
               
* 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 Nine Months Ended 
 June 30, June 30, 
 (Unaudited) (Unaudited) 
SUMMARY OF OPERATIONS2018 2017 2018 2017 
Operating Revenues:        
Utility and Energy Marketing Revenues$154,088  $146,360  $719,234  $663,029  
Exploration and Production and Other Revenues137,492  151,925  425,811  473,617  
Pipeline and Storage and Gathering Revenues51,332  50,083  158,428  156,298  
 342,912  348,368  1,303,473  1,292,944  
Operating Expenses:        
Purchased Gas52,211  46,135  322,854  264,349  
Operation and Maintenance:        
  Utility and Energy Marketing45,618  44,467  158,397  158,796  
  Exploration and Production and Other31,141  34,098  106,268  102,153  
  Pipeline and Storage and Gathering24,770  23,250  67,450  69,016  
Property, Franchise and Other Taxes20,595  21,447  64,245  64,368  
Depreciation, Depletion and Amortization60,817  55,617  177,802  168,812  
 235,152  225,014  897,016  827,494  
         
Operating Income107,760  123,354  406,457  465,450  
         
Other Income (Expense):        
Interest Income1,632  853  4,907  2,844  
Other Income999  1,370  3,492  4,728  
Interest Expense on Long-Term Debt(27,177) (29,225) (82,412) (87,241) 
Other Interest Expense(1,006) (846) (2,742) (2,680) 
         
Income Before Income Taxes82,208  95,506  329,702  383,101  
         
Income Tax Expense (Benefit)19,183  35,792  (23,825) 145,195  
         
Net Income Available for Common Stock$63,025  $59,714  $353,527  $237,906  
         
Earnings Per Common Share        
Basic$0.73  $0.70  $4.12  $2.79  
Diluted$0.73  $0.69  $4.09  $2.77  
         
Weighted Average Common Shares:        
Used in Basic Calculation85,930,289 85,422,313 85,789,279 85,315,154 
Used in Diluted Calculation86,501,194 86,064,464 86,370,900 85,950,742 
         


NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
  
 June 30, September 30,
(Thousands of Dollars) 2018  2017
    
ASSETS   
Property, Plant and Equipment$10,254,976  $9,945,560 
Less - Accumulated Depreciation, Depletion and Amortization 5,411,746   5,271,486 
Net Property, Plant and Equipment 4,843,230   4,674,074 
    
Current Assets:   
Cash and Temporary Cash Investments 313,307   555,530 
Hedging Collateral Deposits 2,283   1,741 
Receivables - Net 151,005   112,383 
Unbilled Revenue 18,930   22,883 
Gas Stored Underground 16,090   35,689 
Materials and Supplies - at average cost 34,693   33,926 
Unrecovered Purchased Gas Costs    4,623 
Other Current Assets 52,690   51,505 
Total Current Assets 588,998   818,280 
    
Other Assets:   
Recoverable Future Taxes 115,688   181,363 
Unamortized Debt Expense 7,587   1,159 
Other Regulatory Assets 171,792   174,433 
Deferred Charges 37,349   30,047 
Other Investments 130,744   125,265 
Goodwill 5,476   5,476 
Prepaid Post-Retirement Benefit Costs 61,371   56,370 
Fair Value of Derivative Financial Instruments 11,760   36,111 
Other 108   742 
Total Other Assets 541,875   610,966 
Total Assets$5,974,103  $6,103,320 
    
CAPITALIZATION AND LIABILITIES   
Capitalization:   
Comprehensive Shareholders' Equity   
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and   
Outstanding - 85,943,875 Shares and 85,543,125 Shares, Respectively$85,944  $85,543 
Paid in Capital 816,395   796,646 
Earnings Reinvested in the Business 1,097,438   851,669 
Accumulated Other Comprehensive Loss (72,396)  (30,123)
Total Comprehensive Shareholders' Equity 1,927,381   1,703,735 
Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs 1,835,582   2,083,681 
Total Capitalization 3,762,963   3,787,416 
    
Current and Accrued Liabilities:   
Notes Payable to Banks and Commercial Paper     
Current Portion of Long-Term Debt 250,000   300,000 
Accounts Payable 111,812   126,443 
Amounts Payable to Customers 16,833    
Dividends Payable 36,526   35,500 
Interest Payable on Long-Term Debt 28,357   35,031 
Customer Advances 197   15,701 
Customer Security Deposits 18,468   20,372 
Other Accruals and Current Liabilities 161,252   111,889 
Fair Value of Derivative Financial Instruments 38,012   1,103 
Total Current and Accrued Liabilities 661,457   646,039 
    
Deferred Credits:   
Deferred Income Taxes 491,520   891,287 
Taxes Refundable to Customers 366,183   95,739 
Cost of Removal Regulatory Liability 213,560   204,630 
Other Regulatory Liabilities 128,184   113,716 
Pension and Other Post-Retirement Liabilities 138,275   149,079 
Asset Retirement Obligations 101,833   106,395 
Other Deferred Credits 110,128   109,019 
Total Deferred Credits 1,549,683   1,669,865 
Commitments and Contingencies     
Total Capitalization and Liabilities$5,974,103  $6,103,320 


     
     
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
  Nine Months Ended
  June 30,
(Thousands of Dollars) 2018 2017
     
Operating Activities:    
Net Income Available for Common Stock $353,527  $237,906 
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
    
Depreciation, Depletion and Amortization 177,802  168,812 
Deferred Income Taxes (43,537) 105,073 
Stock-Based Compensation 11,770  8,857 
Other 12,311  11,084 
Change in:    
Hedging Collateral Deposits (542) (658)
Receivables and Unbilled Revenue (35,021) (15,885)
Gas Stored Underground and Materials and Supplies 18,832  15,699 
Unrecovered Purchased Gas Costs 4,623  (1,317)
Other Current Assets (1,185) 8,502 
Accounts Payable 2,327  5,046 
Amounts Payable to Customers 16,833  (6,467)
Customer Advances (15,504) (14,538)
Customer Security Deposits (1,904) 1,503 
Other Accruals and Current Liabilities 26,538  25,423 
Other Assets (10,770) (3,548)
Other Liabilities 1,441  5,638 
Net Cash Provided by Operating Activities $517,541  $551,130 
     
Investing Activities:    
Capital Expenditures $(403,994) $(314,774)
Net Proceeds from Sale of Oil and Gas Producing Properties 55,506  26,554 
Other (1,759) (10,186)
Net Cash Used in Investing Activities $(350,247) $(298,406)
     
Financing Activities:    
Reduction of Long-Term Debt $(307,047) $ 
Dividends Paid on Common Stock (106,732) (103,594)
Net Proceeds From Issuance of Common Stock 4,262  6,223 
Net Cash Used in Financing Activities $(409,517) $(97,371)
     
Net Increase (Decrease) in Cash and Temporary Cash Investments (242,223) 155,353 
Cash and Temporary Cash Investments at Beginning of Period 555,530  129,972 
Cash and Temporary Cash Investments at June 30 $313,307  $285,325 


          
          
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
          
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
          
UPSTREAM BUSINESS
          
          
 Three Months Ended Nine Months Ended
(Thousands of Dollars, except per share amounts)June 30, June 30,
EXPLORATION AND PRODUCTION SEGMENT2018 2017 Variance 20182017Variance
Total Operating Revenues$135,828  $151,161  $(15,333) $421,381 $471,646 $(50,265)
          
Operating Expenses:         
Operation and Maintenance:         
General and Administrative Expense15,239  14,170  1,069  46,175 43,674 2,501 
Lease Operating and Transportation Expense37,624  40,630  (3,006) 121,079 122,881 (1,802)
All Other Operation and Maintenance Expense2,728  2,835  (107) 8,182 8,168 14 
Property, Franchise and Other Taxes3,302  4,297  (995) 10,746 11,248 (502)
Depreciation, Depletion and Amortization31,296  27,448  3,848  90,707 85,353 5,354 
 90,189  89,380  809  276,889 271,324 5,565 
          
Operating Income45,639  61,781 (16,142) 144,492 200,322(55,830)
          
Other Income (Expense):         
Interest Income486  217  269  1,087 451 636 
Interest Expense(13,247) (13,444) 197  (40,001)(40,270)269 
          
Income Before Income Taxes32,878  48,554  (15,676) 105,578 160,503 (54,925)
Income Tax Expense (Benefit)5,061  18,431  (13,370) (55,474)61,531 (117,005)
Net Income$27,817  $30,123  $(2,306) $161,052 $98,972 $62,080 
          
Net Income Per Share (Diluted)$0.32  $0.35  $(0.03) $1.86 $1.15 $0.71 
          


          
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
          
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
          
MIDSTREAM BUSINESSES
          
          
 Three Months Ended Nine Months Ended
(Thousands of Dollars, except per share amounts)June 30, June 30,
PIPELINE AND STORAGE SEGMENT2018 2017 Variance 20182017Variance
Revenues from External Customers$51,363  $50,049  $1,314  $158,387 $156,212 $2,175 
Intersegment Revenues22,496  21,643  853  67,524 66,389 1,135 
Total Operating Revenues73,859  71,692  2,167  225,911 222,601 3,310 
          
Operating Expenses:         
Purchased Gas105  (13) 118  266 181 85 
Operation and Maintenance20,262  20,607  (345) 57,004 60,517 (3,513)
Property, Franchise and Other Taxes7,064  6,935  129  21,299 20,624 675 
Depreciation, Depletion and Amortization10,888  10,513  375  32,322 30,651 1,671 
 38,319  38,042  277  110,891 111,973 (1,082)
          
Operating Income35,540  33,650  1,890  115,020 110,628 4,392 
          
Other Income (Expense):         
Interest Income698  393  305  1,851 984 867 
Other Income379  449  (70) 1,333 1,944 (611)
Interest Expense(7,667) (8,489) 822  (23,418)(25,177)1,759 
          
Income Before Income Taxes28,950  26,003  2,947  94,786 88,379 6,407 
Income Tax Expense8,227  9,972  (1,745) 12,877 33,723 (20,846)
Net Income$20,723  $16,031  $4,692  $81,909 $54,656 $27,253 
          
Net Income Per Share (Diluted)$0.24  $0.19  $0.05  $0.95 $0.64 $0.31 
          
          
 Three Months Ended Nine Months Ended
 June 30, June 30,
GATHERING SEGMENT2018 2017 Variance 20182017Variance
Revenues from External Customers$(31) $34  $(65) $41 $86 $(45)
Intersegment Revenues27,908  26,853  1,055  79,404 82,629 (3,225)
Total Operating Revenues27,877  26,887  990  79,445 82,715 (3,270)
          
Operating Expenses:         
Operation and Maintenance4,855  2,973  1,882  11,494 9,496 1,998 
Property, Franchise and Other Taxes14  13  1  74 45 29 
Depreciation, Depletion and Amortization4,444  4,131  313  12,759 12,008 751 
 9,313  7,117  2,196  24,327 21,549 2,778 
          
Operating Income18,564  19,770  (1,206) 55,118 61,166 (6,048)
          
Other Income (Expense):         
Interest Income160  288  (128) 976 641 335 
Other Income       1 (1)
Interest Expense(2,502) (2,411) (91) (7,349)(6,739)(610)
          
Income Before Income Taxes16,222  17,647  (1,425) 48,745 55,069 (6,324)
Income Tax Expense (Benefit)4,656  7,540  (2,884) (19,991)23,696 (43,687)
Net Income$11,566  $10,107  $1,459  $68,736 $31,373 $37,363 
          
Net Income Per Share (Diluted)$0.13  $0.12  $0.01  $0.80 $0.37 $0.43 
          


          
          
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
          
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
          
DOWNSTREAM BUSINESSES
          
          
 Three Months Ended Nine Months Ended
(Thousands of Dollars, except per share amounts)June 30, June 30,
UTILITY SEGMENT2018 2017 Variance 20182017Variance
Revenues from External Customers$128,628  $121,900  $6,728  $599,495 $550,819 $48,676 
Intersegment Revenues3,519  3,391  128  11,401 11,314 87 
Total Operating Revenues132,147  125,291  6,856  610,896 562,133 48,763 
          
Operating Expenses:         
Purchased Gas53,028  46,536  6,492  286,446 235,481 50,965 
Operation and Maintenance44,792  43,506  1,286  155,737 155,783 (46)
Property, Franchise and Other Taxes9,961  9,927  34  31,349 31,637 (288)
Depreciation, Depletion and Amortization13,316  13,086  230  39,981 39,502 479 
 121,097  113,055  8,042  513,513 462,403 51,110 
          
Operating Income11,050  12,236  (1,186) 97,383 99,730 (2,347)
          
Other Income (Expense):         
Interest Income306  141  165  1,121 418 703 
Other Income192  438  (246) 499 576 (77)
Interest Expense(6,572) (7,062) 490  (20,266)(21,454)1,188 
          
Income Before Income Taxes4,976  5,753  (777) 78,737 79,270 (533)
Income Tax Expense1,046  1,405  (359) 20,454 28,167 (7,713)
Net Income$3,930  $4,348  $(418) $58,283 $51,103 $7,180 
          
Net Income Per Share (Diluted)$0.05  $0.05  $  $0.67 $0.59 $0.08 
          
          
 Three Months Ended Nine Months Ended
 June 30, June 30,
ENERGY MARKETING SEGMENT2018 2017 Variance 20182017Variance
Revenues from External Customers$25,460  $24,460  $1,000  $119,739 $112,210 $7,529 
Intersegment Revenues512  565  (53) 589 600 (11)
Total Operating Revenues25,972  25,025  947  120,328 112,810 7,518 
          
Operating Expenses:         
Purchased Gas24,816  24,336  480  113,240 104,335 8,905 
Operation and Maintenance1,575  1,706  (131) 4,901 5,262 (361)
Depreciation, Depletion and Amortization69  69    207 210 (3)
 26,460  26,111  349  118,348 109,807 8,541 
          
Operating Income (Loss)(488) (1,086) 598  1,980 3,003 (1,023)
          
Other Income (Expense):         
Interest Income202  146  56  497 418 79 
Other Income26  22  4  52 57 (5)
Interest Expense(4) (13) 9  (16)(38)22 
          
Income (Loss) Before Income Taxes(264) (931) 667  2,513 3,440 (927)
Income Tax Expense (Benefit)(74) (367) 293  1,079 1,318 (239)
Net Income (Loss)$(190) $(564) $374  $1,434 $2,122 $(688)
          
Net Income (Loss) Per Share (Diluted)$  $(0.01) $0.01  $0.02 $0.02 $ 
          


NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
          
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
          
 Three Months Ended Nine Months Ended
(Thousands of Dollars, except per share amounts)June 30, June 30,
ALL OTHER2018 2017 Variance 20182017Variance
Total Operating Revenues$1,496  $538  $958  $3,824 $1,311 $2,513 
Operating Expenses:         
Operation and Maintenance414  435  (21) 1,106 1,344 (238)
Property, Franchise and Other Taxes138  151  (13) 425 445 (20)
Depreciation, Depletion and Amortization614  182  432  1,259 525 734 
 1,166  768  398  2,790 2,314 476 
          
Operating Income (Loss)330  (230) 560  1,034 (1,003)2,037 
Other Income (Expense):         
Interest Income108  59  49  271 147 124 
          
Income (Loss) Before Income Taxes438  (171) 609  1,305 (856)2,161 
Income Tax Expense (Benefit)141  (73) 214  1,519 (358)1,877 
Net Income (Loss)$297  $(98) $395  $(214)$(498)$284 
          
Net Income (Loss) Per Share (Diluted)$  $  $  $ $ $ 
          
          
 Three Months Ended Nine Months Ended
 June 30, June 30,
CORPORATE2018 2017 Variance 20182017Variance
Revenues from External Customers$168  $226  $(58) $606 $660 $(54)
Intersegment Revenues999  977  22  2,998 2,930 68 
Total Operating Revenues1,167  1,203  (36) 3,604 3,590 14 
Operating Expenses:         
Operation and Maintenance3,736  3,658  78  11,255 11,054 201 
Property, Franchise and Other Taxes116  124  (8) 352 369 (17)
Depreciation, Depletion and Amortization190  188  2  567 563 4 
 4,042  3,970  72  12,174 11,986 188 
          
Operating Loss(2,875) (2,767) (108) (8,570)(8,396)(174)
          
Other Income (Expense):         
Interest Income30,147  31,185  (1,038) 91,844 93,684 (1,840)
Other Income402  461  (59) 1,608 2,150 (542)
Interest Expense on Long-Term Debt(27,177) (29,225) 2,048  (82,412)(87,241)4,829 
Other Interest Expense(1,489) (1,003) (486) (4,432)(2,901)(1,531)
          
Loss Before Income Taxes(992) (1,349) 357  (1,962)(2,704)742 
Income Tax Expense (Benefit)126  (1,116) 1,242  15,711 (2,882)18,593 
Net Income (Loss)$(1,118) $(233) $(885) $(17,673)$178 $(17,851)
          
Net Income (Loss) Per Share (Diluted)$(0.01) $(0.01) $  $(0.21)$ $(0.21)
          
          
 Three Months Ended Nine Months Ended
 June 30, June 30,
INTERSEGMENT ELIMINATIONS2018 2017 Variance 20182017Variance
Intersegment Revenues$(55,434) $(53,429) $(2,005) $(161,916)$(163,862)$1,946 
Operating Expenses:         
Purchased Gas(25,738) (24,724) (1,014) (77,098)(75,648)(1,450)
Operation and Maintenance(29,696) (28,705) (991) (84,818)(88,214)3,396 
 (55,434) (53,429) (2,005) (161,916)(163,862)1,946 
          
Operating Income         
          
Other Income (Expense):         
Interest Income(30,475) (31,576) 1,101  (92,740)(93,899)1,159 
Interest Expense30,475  31,576  (1,101) 92,740 93,899 (1,159)
Net Income$  $  $  $ $ $ 
          
Net Income Per Share (Diluted)$  $  $  $ $ $ 


            
            
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
            
SEGMENT INFORMATION (Continued)
(Thousands of Dollars)
            
            
 Three Months Ended Nine Months Ended
 June 30, June 30,
 (Unaudited) (Unaudited)
     Increase     Increase
 2018 2017 (Decrease) 2018 2017 (Decrease)
            
Capital Expenditures:           
Exploration and Production$110,591 (1)$70,719 (3)$39,872  $269,876 (1)(2)$168,545 (3)(4)$101,331 
Pipeline and Storage15,916 (1)16,750 (3)(834) 53,356 (1)(2)53,528 (3)(4)(172)
Gathering15,484 (1)9,214 (3)6,270  47,767 (1)(2)23,705 (3)(4)24,062 
Utility19,737 (1)20,116 (3)(379) 52,026 (1)(2)56,411 (3)(4)(4,385)
Energy Marketing10  3  7  33  14  19 
Total Reportable Segments161,738  116,802  44,936  423,058  302,203  120,855 
All Other      1  40  (39)
Corporate7  22  (15) 51  86  (35)
Eliminations  295  (295) (19,922) (482) (19,440)
Total Capital Expenditures$161,745  $117,119  $44,626  $403,188  $301,847  $101,341 
                        

(1)       Capital expenditures for the quarter and nine months ended June 30, 2018, include accounts payable and accrued liabilities related to capital expenditures of $49.0 million, $10.9 million, $8.2 million, and $3.3 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 June 30, 2018, since they represent non-cash investing activities at that date.

(2)       Capital expenditures for the nine months ended June 30, 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 nine months ended June 30, 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 June 30, 2018.

(3)       Capital expenditures for the quarter and nine months ended June 30, 2017, include accounts payable and accrued liabilities related to capital expenditures of $25.0 million, $10.3 million, $5.2 million, and $7.0 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 June 30, 2017, since they represent non-cash investing activities at that date.

(4)       Capital expenditures for the nine months ended June 30, 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 nine months ended June 30, 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 June 30, 2017.

          
DEGREE DAYS         
          
       Percent Colder
       (Warmer) Than:
Three Months Ended June 30Normal 2018 2017   Normal (1) Last Year (1)
          
Buffalo, NY912 873 767 (4.3) 13.8
Erie, PA871 825 705 (5.3) 17.0
          
Nine Months Ended June 30         
          
Buffalo, NY6,455 6,308 5,599 (2.3) 12.7 
Erie, PA6,023 5,929 5,082 (1.6) 16.7 
          

(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 Nine Months Ended
  June 30, June 30,
      Increase     Increase
  2018 2017 (Decrease) 2018 2017 (Decrease)
             
Gas Production/Prices:            
Production (MMcf)            
Appalachia 40,444  37,904  2,540  117,261  118,517  (1,256)
West Coast 526  733  (207) 1,896  2,246  (350)
Total Production 40,970  38,637  2,333  119,157  120,763  (1,606)
             
Average Prices (Per Mcf)            
Appalachia $2.30  $2.58  $(0.28) $2.37  $2.55  $(0.18)
West Coast 4.41  3.39  1.02  4.62  4.07  0.55 
Weighted Average 2.32  2.59  (0.27) 2.40  2.58  (0.18)
Weighted Average after Hedging 2.43  2.94  (0.51) 2.55  2.96  (0.41)
             
Oil Production/Prices:            
Production (Thousands of Barrels)            
Appalachia 1  1    3  3   
West Coast 600  669  (69) 1,934  2,062  (128)
Total Production 601  670  (69) 1,937  2,065  (128)
             
Average Prices (Per Barrel)            
Appalachia $64.37  $48.34  $16.03  $55.06  $48.85  $6.21 
West Coast 71.53  45.63  25.90  64.69  45.71  18.98 
Weighted Average 71.52  45.64  25.88  64.68  45.76  18.92 
Weighted Average after Hedging 58.74  53.02  5.72  58.96  53.58  5.38 
             
Total Production (Mmcfe) 44,576  42,657  1,919  130,779  133,153  (2,374)
             
Selected Operating Performance Statistics:            
General & Administrative Expense per Mcfe (1) $0.34  $0.33  $0.01  $0.35  $0.33  $0.02 
Lease Operating and Transportation Expense per Mcfe (1)(2) $0.84  $0.95  $(0.11) $0.93  $0.92  $0.01 
Depreciation, Depletion & Amortization per Mcfe (1) $0.70  $0.64  $0.06  $0.69  $0.64  $0.05 
             

(1)       Refer to page 15 for the General and Administrative Expense, Lease Operating and Transportation Expense and Depreciation, Depletion, and Amortization Expense for the Exploration and Production segment.

(2)     Amounts include transportation expense of $0.53 and $0.54 per Mcfe for the three months ended June 30, 2018 and June 30, 2017, respectively.  Amounts include transportation expense of $0.54 per Mcfe for both the nine months ended June 30, 2018 and June 30, 2017.

 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
       
EXPLORATION AND PRODUCTION INFORMATION
 
Hedging Summary for the Remaining Three Months of Fiscal 2018Volume  Average Hedge Price
Oil Swaps      
Brent 114,000 BBL $63.55 / BBL
NYMEX 420,000 BBL $52.67 / BBL
Total 534,000 BBL $54.99 / BBL
       
Gas Swaps      
NYMEX 12,260,000 MMBTU $3.11 / MMBTU
DAWN 1,800,000 MMBTU $3.00 / MMBTU
Fixed Price Physical Sales 21,037,880 MMBTU $2.30 / MMBTU
Total 35,097,880 MMBTU $2.62 / MMBTU
       
Hedging Summary for Fiscal 2019 Volume  Average Hedge Price
Oil Swaps      
Brent 744,000 BBL $63.52 / BBL
NYMEX 1,068,000 BBL $53.42 / BBL
Total 1,812,000 BBL $57.57 / BBL
       
Gas Swaps      
NYMEX 80,980,000 MMBTU $2.94 / MMBTU
DAWN 7,200,000 MMBTU $3.00 / MMBTU
Fixed Price Physical Sales 56,149,146 MMBTU $2.64 / MMBTU
Total 144,329,146 MMBTU $2.83 / MMBTU
       
Hedging Summary for Fiscal 2020 Volume  Average Hedge Price
Oil Swaps      
Brent 732,000 BBL $61.48 / BBL
NYMEX 324,000 BBL $50.52 / BBL
Total 1,056,000 BBL $58.12 / BBL
       
Gas Swaps      
NYMEX 18,640,000 MMBTU $3.04 / MMBTU
DAWN 7,200,000 MMBTU $3.00 / MMBTU
Fixed Price Physical Sales 41,833,352 MMBTU $2.30 / MMBTU
Total 67,673,352 MMBTU $2.58 / MMBTU
       
Hedging Summary for Fiscal 2021 Volume  Average Hedge Price
Oil Swaps      
Brent 444,000 BBL $62.59 / BBL
NYMEX 156,000 BBL $51.00 / BBL
Total 600,000 BBL $59.58 / BBL
       
Gas Swaps      
NYMEX 4,840,000 MMBTU $3.01 / MMBTU
  DAWN 600,000 MMBTU $3.00 / MMBTU
Fixed Price Physical Sales 41,608,372 MMBTU $2.22 / MMBTU
Total 47,048,372 MMBTU $2.31 / MMBTU
       
Hedging Summary for Fiscal 2022 Volume  Average Hedge Price
Oil Swaps      
Brent 300,000 BBL $60.07 / BBL
NYMEX 156,000 BBL $51.00 / BBL
Total 456,000 BBL $56.97 / BBL
       
Fixed Price Physical Sales 40,589,265 MMBTU $2.23 / MMBTU
       
Hedging Summary for Fiscal 2023 Volume  Average Hedge Price
       
Fixed Price Physical Sales 37,079,884 MMBTU $2.26 / MMBTU
       
Hedging Summary for Fiscal 2024 Volume  Average Hedge Price
       
Fixed Price Physical Sales 20,966,205 MMBTU $2.25 / MMBTU
       
Hedging Summary for Fiscal 2025 Volume  Average Hedge Price
       
Fixed Price Physical Sales 2,293,200 MMBTU $2.18 / MMBTU


             
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
             
             
             
Pipeline & Storage Throughput - (millions of cubic feet - MMcf)    
             
  Three Months Ended Nine Months Ended
  June 30, June 30,
      Increase     Increase
  2018 2017 (Decrease) 2018 2017 (Decrease)
Firm Transportation - Affiliated 21,714  17,734  3,980  104,106  92,583  11,523 
Firm Transportation - Non-Affiliated 155,357  165,717  (10,360) 479,346  495,015  (15,669)
Interruptible Transportation 1,107  1,060  47  3,153  5,078  (1,925)
  178,178  184,511  (6,333) 586,605  592,676  (6,071)
             
Gathering Volume - (MMcf)            
  Three Months Ended Nine Months Ended
  June 30, June 30,
      Increase     Increase
  2018 2017 (Decrease) 2018 2017 (Decrease)
Gathered Volume - Affiliated 51,392  48,838  2,554  145,928  150,005  (4,077)
             
             
Utility Throughput - (MMcf)            
  Three Months Ended Nine Months Ended
  June 30, June 30,
      Increase     Increase
  2018 2017 (Decrease) 2018 2017 (Decrease)
Retail Sales:            
Residential Sales 10,052  8,105  1,947  56,468  48,817  7,651 
Commercial Sales 1,525  1,170  355  8,621  7,373  1,248 
Industrial Sales 128  48  80  559  282  277 
  11,705  9,323  2,382  65,648  56,472  9,176 
Off-System Sales       141  1,295  (1,154)
Transportation 15,348  13,799  1,549  66,398  60,453  5,945 
  27,053  23,122  3,931  132,187  118,220  13,967 
             
Energy Marketing Volume            
  Three Months Ended Nine Months Ended
  June 30, June 30,
      Increase     Increase
  2018 2017 (Decrease) 2018 2017 (Decrease)
Natural Gas (MMcf) 8,322  7,722  600  36,413  32,969  3,444 
             


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 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 nine months ended June 30, 2018 and 2017:

  Three Months Ended Nine Months Ended
  June 30, June 30,
(in thousands except per share amounts) 2018 2017 2018 2017
Reported GAAP Earnings $63,025  $59,714  $353,527  $237,906 
Items impacting comparability        
Remeasurement of deferred income taxes
under 2017 Tax Reform
     (107,000)  
Adjusted Operating Results $63,025  $59,714  $246,527  $237,906 
         
Reported GAAP Earnings per share $0.73  $0.69  $4.09  $2.77 
Items impacting comparability        
Remeasurement of deferred income taxes
under 2017 Tax Reform
     (1.24)  
Adjusted Operating Results per share $0.73  $0.69  $2.85  $2.77 
                 

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 nine months ended June 30, 2018 and 2017:

     
  Three Months Ended Nine Months Ended
  June 30, June 30,
  2018 2017 2018 2017
(in thousands)        
Reported GAAP Earnings $63,025  $59,714  $353,527  $237,906 
Depreciation, Depletion and Amortization 60,817  55,617  177,802  168,812 
Interest and Other Income (2,631) (2,223) (8,399) (7,572)
Interest Expense 28,183  30,071  85,154  89,921 
Income Taxes 19,183  35,792  (23,825) 145,195 
Adjusted EBITDA $168,577  $178,971  $584,259  $634,262 
         
Adjusted EBITDA by Segment        
Pipeline and Storage Adjusted EBITDA $46,428  $44,163  $147,342  $141,279 
Gathering Adjusted EBITDA 23,008  23,901  67,877  73,174 
Total Midstream Businesses Adjusted EBITDA 69,436  68,064  215,219  214,453 
Exploration and Production Adjusted EBITDA 76,935  89,229  235,199  285,675 
Utility Adjusted EBITDA 24,366  25,322  137,364  139,232 
Energy Marketing Adjusted EBITDA (419) (1,017) 2,187  3,213 
Corporate and All Other Adjusted EBITDA (1,741) (2,627) (5,710) (8,311)
Total Adjusted EBITDA $168,577  $178,971  $584,259  $634,262 
                 


NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
 SEGMENT ADJUSTED EBITDA
 
  Three Months Ended Nine Months Ended
  June 30, June 30,
(in thousands) 2018 2017 2018 2017
Exploration and Production Segment        
Reported GAAP Earnings $27,817  $30,123  $161,052  $98,972 
Depreciation, Depletion and Amortization 31,296  27,448  90,707  85,353 
Interest and Other Income (486) (217) (1,087) (451)
Interest Expense 13,247  13,444  40,001  40,270 
Income Taxes 5,061  18,431  (55,474) 61,531 
Adjusted EBITDA $76,935  $89,229  $235,199  $285,675 
         
Pipeline and Storage Segment        
Reported GAAP Earnings $20,723  $16,031  $81,909  $54,656 
Depreciation, Depletion and Amortization 10,888  10,513  32,322  30,651 
Interest and Other Income (1,077) (842) (3,184) (2,928)
Interest Expense 7,667  8,489  23,418  25,177 
Income Taxes 8,227  9,972  12,877  33,723 
Adjusted EBITDA $46,428  $44,163  $147,342  $141,279 
         
Gathering Segment        
Reported GAAP Earnings $11,566  $10,107  $68,736  $31,373 
Depreciation, Depletion and Amortization 4,444  4,131  12,759  12,008 
Interest and Other Income (160) (288) (976) (642)
Interest Expense 2,502  2,411  7,349  6,739 
Income Taxes 4,656  7,540  (19,991) 23,696 
Adjusted EBITDA $23,008  $23,901  $67,877  $73,174 
         
Utility Segment        
Reported GAAP Earnings $3,930  $4,348  $58,283  $51,103 
Depreciation, Depletion and Amortization 13,316  13,086  39,981  39,502 
Interest and Other Income (498) (579) (1,620) (994)
Interest Expense 6,572  7,062  20,266  21,454 
Income Taxes 1,046  1,405  20,454  28,167 
Adjusted EBITDA $24,366  $25,322  $137,364  $139,232 
         
Energy Marketing Segment        
Reported GAAP Earnings $(190) $(564) $1,434  $2,122 
Depreciation, Depletion and Amortization 69  69  207  210 
Interest and Other Income (228) (168) (549) (475)
Interest Expense 4  13  16  38 
Income Taxes (74) (367) 1,079  1,318 
Adjusted EBITDA $(419) $(1,017) $2,187  $3,213 
         
Corporate and All Other        
Reported GAAP Earnings $(821) $(331) $(17,887) $(320)
Depreciation, Depletion and Amortization 804  370  1,826  1,088 
Interest and Other Income (182) (129) (983) (2,082)
Interest Expense (1,809) (1,348) (5,896) (3,757)
Income Taxes 267  (1,189) 17,230  (3,240)
Adjusted EBITDA $(1,741) $(2,627) $(5,710) $(8,311)


     
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
     
     
Quarter Ended June 30 (unaudited) 2018 2017
     
Operating Revenues $342,912,000  $348,368,000 
     
Net Income Available for Common Stock $63,025,000  $59,714,000 
     
Earnings Per Common Share    
Basic $0.73  $0.70 
Diluted $0.73  $0.69 
     
Weighted Average Common Shares:    
Used in Basic Calculation 85,930,289  85,422,313 
Used in Diluted Calculation 86,501,194  86,064,464 
     
Nine Months Ended June 30 (unaudited)    
     
Operating Revenues $1,303,473,000  $1,292,944,000 
     
Net Income Available for Common Stock $353,527,000  $237,906,000 
     
Earnings Per Common Share:    
Basic $4.12  $2.79 
Diluted $4.09  $2.77 
     
Weighted Average Common Shares:    
Used in Basic Calculation 85,789,279  85,315,154 
Used in Diluted Calculation 86,370,900  85,950,742 
     
Twelve Months Ended June 30 (unaudited)    
     
Operating Revenues $1,590,410,000  $1,585,416,000 
     
Net Income Available for Common Stock $399,103,000  $275,459,000 
     
Earnings Per Common Share    
Basic $4.66  $3.23 
Diluted $4.62  $3.21 
     
Weighted Average Common Shares:    
Used in Basic Calculation 85,719,552  85,239,850 
Used in Diluted Calculation 86,333,307  85,881,424 
     

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Source: GlobeNewswire (August 2, 2018 - 4:45 PM EDT)

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