National Fuel Gas : Reports First Quarter Earnings

National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated earnings for the first quarter of its 2015 fiscal year (the quarter ended December 31, 2014).

HIGHLIGHTS

• Earnings for the first quarter of fiscal 2015 of $84.7 million, or $1.00 per share, increased $2.5 million, or $0.03 per share, compared to the prior year’s first quarter. Adjusted EBITDA for the first quarter was $263.3 million, an increase of $9.6 million over last year. These increases were largely due to continued growth in the Company’s Midstream businesses (which consist of the Company's Pipeline and Storage and Gathering segments), where earnings and Adjusted EBITDA were up $7.1 million and $10.2 million, respectively.
• Seneca Resources Corporation’s (“Seneca”) first quarter production of natural gas and crude oil was 48.2 billion cubic feet equivalent (“Bcfe”), an increase of 11.1 Bcfe or approximately 30% over the prior year’s first quarter. Pricing related curtailments for the quarter were an estimated 6 Bcf. Average daily production during the quarter was 524 million cubic feet equivalent (“MMcfe”) per day.
• A conference call is scheduled for Friday, January 30, 2015, at 11 a.m. Eastern Time.

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: “The first quarter was a very good start to our 2015 fiscal year. Our Upstream business continues to develop and highlight the quality of our Marcellus acreage. Our Midstream companies continue the build-out of gathering and transmission pipeline infrastructure in Appalachia, providing more capacity to move Marcellus supplies to market. And once again, our Utility system and employees proved reliable in the face of yet another extreme winter storm that hit our western New York service territory last November.

“Low commodity prices impacted our production for the quarter, and we expect those low prices to continue to tighten the economics of Seneca’s activities in the Marcellus and California over the next 12 to 18 months. As a result, we have reduced our near-term capital spending plans, both at Seneca and in our Gathering segment. Nevertheless, we remain confident in our long-term growth plans in Appalachia, and in our strategy. We designed our integrated model to weather such challenges and we remain in a strong position to create sustainable value for our shareholders.”

SUMMARY OF RESULTS

National Fuel had consolidated earnings for the quarter ended December 31, 2014, of $84.7 million, or $1.00 per share, compared to the prior year’s first quarter of $82.2 million, or $0.97 per share, an increase of $2.5 million, or $0.03 per share. The increase is mainly due to higher earnings in the Midstream businesses. (Note: All references to earnings per share are to diluted earnings per share, and all amounts used in the discussion of earnings are after tax unless otherwise noted.)

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each segment is summarized in a tabular form at pages 7 and 8 of this report. It may be helpful to refer to those tables while reviewing this discussion.

Upstream Business

Exploration and Production Segment

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

The Exploration and Production segment’s earnings in the first quarter of fiscal 2015 of $26.7 million, or $0.32 per share, decreased $4.4 million, or $0.05 per share, when compared with the prior year’s first quarter mainly due to lower commodity prices realized after hedging. The weighted average natural gas price received by Seneca (after hedging) for the quarter ended December 31, 2014, was $3.25 per thousand cubic feet (“Mcf”), a decrease of $0.45 per Mcf compared to the prior year’s first quarter. The weighted average crude oil price realized after hedging for the quarter ended December 31, 2014, was $78.09 per barrel ("Bbl"), a decrease of $15.91 per Bbl compared to the prior year’s first quarter.

Overall production of natural gas and crude oil for the current quarter of 48.2 Bcfe increased approximately 11.1 Bcfe, or 29.8 percent, compared to the prior year’s first quarter. Production from Seneca’s Appalachia properties increased approximately 33.5 percent and accounted for 10.7 Bcfe of the increase, largely because of Seneca’s strong well results in Lycoming County and the Clermont-Rich Valley area in Seneca’s WDA. California production of 5.3 Bcfe increased 6.4 percent compared to the prior year’s first quarter due to development activities primarily in the East Coalinga and South Midway Sunset fields.

On a per unit basis, quarterly depletion expense of $1.66 per Mcfe decreased $0.26 per Mcfe due to higher natural gas reserve balances at December 31, 2014, compared to the prior year’s first quarter. On a per unit basis, lease operating and transportation expenses (“LOE”) at $0.97 per Mcfe increased $0.02 per Mcfe compared to the prior year’s first quarter due to higher intercompany gathering and compression costs associated with production from Tract 100 in Lycoming County and the Clermont-Rich Valley area in Seneca’s WDA. General and administrative expenses (“G&A”) decreased $0.08 per Mcfe compared to the prior year’s first quarter, due to higher production.

Midstream Businesses

Pipeline and Storage Segment

The Pipeline and Storage segment’s operations are carried out by National Fuel Gas Supply Corporation (“Supply Corporation”) and Empire Pipeline, Inc. (“Empire”). The Pipeline and Storage segment provides natural gas transportation and storage services to affiliated and non-affiliated companies through an integrated system of pipelines and underground natural gas storage fields in western New York and Pennsylvania.

The Pipeline and Storage segment’s earnings of $20.8 million, or $0.25 per share, for the quarter ended December 31, 2014, increased $1.6 million, or $0.02 per share, when compared with the same period in the prior fiscal year. The increase in earnings is due to higher non-affiliated revenues from the Mercer Expansion project, which was placed in service in the current year’s first quarter. The increase in earnings also reflects higher transportation revenues from additional new transportation contracts on both pipeline systems. As a result of the ongoing pricing basis differentials in the Marcellus basin, the Pipeline and Storage segment continues to see increased demand for transportation services from producers and marketers to move gas supplies to higher priced markets.

Gathering Segment

The Gathering segment’s operations are carried out by National Fuel Gas Midstream Corporation’s (“Midstream”) subsidiary limited liability companies. The Gathering segment constructs, owns and operates natural gas pipeline gathering and processing facilities in the Appalachian region and currently provides the gathering infrastructure for transporting Seneca’s Marcellus Shale production to the interstate pipeline system.

The Gathering segment’s earnings of $11.6 million, or $0.14 per share, for the quarter ended December 31, 2014, increased $5.5 million, or $0.07 per share, when compared with the same period in the prior fiscal year. The increase in earnings is mainly due to higher gathering revenues from Midstream’s Trout Run and Clermont gathering systems. That increase in revenue is mostly attributable to the overall increase in Seneca’s production volumes as described above. A change in the mix of Seneca’s production among Midstream's three major gathering systems also contributed to the increase.

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.

The Utility segment’s earnings of $22.6 million, or $0.26 per share, for the quarter ended December 31, 2014, decreased $1.6 million, or $0.02 per share, when compared with the same period in the prior fiscal year. The decrease in earnings was due to higher operating expenses associated with the replacement of Distribution’s customer billing system. In addition, margins in Distribution’s Pennsylvania service territory were reduced by approximately $0.4 million mainly due to weather that was 5.7 percent warmer than last year.

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 December 31, 2014, of $2.8 million increased $1.2 million, or $0.01 per share, compared to the prior year’s first quarter primarily due to higher per unit margins, which benefited from the weak pricing basis in the Northeast.

Corporate and All Other

The Corporate and All Other category primarily includes corporate operations. The category also includes the remaining operations of Seneca’s Northeast division that markets high quality hardwoods from Appalachian land holdings.

The Corporate and All Other category earnings of $0.2 million in the quarter ended December 31, 2014, were largely unchanged compared to the prior year’s first quarter.

EARNINGS AND CAPITAL SPENDING GUIDANCE

The Company is updating its GAAP earnings guidance range for fiscal 2015 to a range of $2.65 to $2.90 per share exclusive of any ceiling test impairment charges. The previous earnings guidance had been a range of $3.05 to $3.35 per share. The change in earnings guidance reflects the following changes in assumptions:

• Seneca's expected production for fiscal 2015 is now a range of 155 to 190 Bcfe. The previous range was 180 to 220 Bcfe. Substantially all of this change is attributable to an increase in the level of pricing related curtailments reflected in Seneca’s forecast.
• The Company is now assuming Marcellus spot pricing averages between $2.00 and $2.25 per Mcf for the remainder of the fiscal year, down $0.50 per Mcf from the previous range of $2.50 and $2.75 per Mcf.
• NYMEX natural gas prices are now assumed to average $3.00 per MMBtu for the remainder of the fiscal year, down $1.00 from the previous forecast. NYMEX crude oil prices average $50.00 per Bbl for the remainder of the fiscal year, down $35.00 from the previous forecast.

In addition, the Company is revising its fiscal 2015 capital spending guidance, as follows (in millions):

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, January 30, 2015, 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) 1-877-280-4959, using passcode “78316483.” For those unable to listen to the live conference call, a replay will be available at approximately 3 p.m. Eastern Time at the same website link and by phone at (toll-free) 1-888-286-8010, using passcode “80321376.” Both the webcast and telephonic replay will be available until the close of business on Friday, February 6, 2015.

National Fuel is an integrated energy company with $7.1 billion in assets, including the following 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.

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; 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; changes in the price of natural gas or oil; changes in price differential 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 and oil having different quality, heating value, hydrocarbon mix or delivery date; 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; 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; changes in demographic patterns and weather conditions; changes in the availability, price or accounting treatment of derivative financial instruments; 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; 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.