National Fuel Gas : Reports First Quarter Earnings and Provides Appalachian Operations Update

National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated results for the first quarter of its 2016 fiscal year (the quarter ended December 31, 2015) and provided an update on the Company's upstream and midstream operations in Appalachia.

FISCAL 2016 FIRST QUARTER EARNINGS SUMMARY

• Consolidated net loss of $189.1 million, or $2.23 per share
• Operating results, excluding items impacting comparability, of $66.5 million, or $0.78 per share
• $252.6 million, or $2.97 per share, after-tax impairment of oil and gas properties
• $204.8 million consolidated adjusted EBITDA (see non-GAAP reconciliation on page 23)
• Production of 38.1 Bcfe, a 21% decrease from prior year and 1% increase from the last quarter
• Price-related natural gas production curtailments of 14.6 Bcf in Appalachia
• Average natural gas and crude oil prices after hedging of $3.16 per Mcf and $59.76 per Bbl, respectively
• Pipeline and Storage operating revenues of $75.5 million, a 3.2% increase over prior year's first quarter
• Weather 27.4% warmer than normal and 25.5% warmer than the prior year in Utility's Pa. service territory

APPALACHIAN OPERATIONS UPDATE SUMMARY

• Currently operating two rigs in Appalachia, with plans to go to one rig by March 2016
• Northern Access 2016 pipeline expansion project timeline revised to target November 1, 2017, in service
• Fiscal 2016 capital expenditure budget reduced by a total of $470 million
• Company does not anticipate a need to access the long-term debt or equity capital markets through 2016

APPALACHIAN OPERATIONS UPDATE

Due to ongoing low prices in the natural gas market, National Fuel is revising its near-term upstream and midstream development plans in Appalachia, while its long-term strategic plans remain intact.

Seneca Resources Corporation (“Seneca”), the Company's wholly owned exploration and production subsidiary, has elected to further reduce the pace of its drilling program in the Marcellus Shale. Having already dropped one of its three rigs in January, Seneca plans to lay down an additional rig in March and operate a single rig in Appalachia for the remainder of fiscal 2016 and fiscal 2017. While Seneca's operational success in the Marcellus has significantly improved the economics of its development program, near-term natural gas prices have fallen to levels such that a reduction in activity is warranted. Seneca's program will utilize a single completions crew to complete its drilled well inventory and manage water logistics, thereby allowing it to maintain operational efficiencies and meet current firm transportation and firm sales commitments while significantly reducing the Company's upstream capital commitments over the near term. Seneca's projected fiscal 2016 production is largely unaffected by the planned decrease in drilling activity. Further, the reduction in activity is also not expected to have any impact on the Marcellus joint development agreement announced on December 2, 2015.

As a result of Seneca's slowed drilling activity and other considerations, the Company is revising the target in-service date for the Northern Access 2016 expansion project to November 1, 2017, and slowing the build-out of the Clermont Gathering System. The Northern Access project, originally scheduled for late calendar 2016 in-service, is a $455 million pipeline expansion of the Company's National Fuel Gas Supply Corporation and Empire Pipeline systems designed to transport and deliver 490,000 Dth per day of natural gas production from Seneca-operated wells to multiple markets in the northeast U.S., including Western New York and the Dawn market center that serves the Midwest and Ontario, Canada. The revised project timeline allows the Company additional time to complete all development activities and prepare for efficient construction of the project facilities. National Fuel will continue to pursue timely authorization from the Federal Energy Regulatory Commission ("FERC") to construct the project to meet the schedule and will preserve the option to accelerate construction as market and regulatory conditions and resource availability might allow.

As the owner and controlling operator of both the upstream acreage and midstream infrastructure subsidiaries, National Fuel has the ability to modify the timing and level of its coordinated Appalachian development activities to quickly and appropriately respond to changing market conditions. Seneca, as the fee owner of predominately all of the natural gas rights in the Western Development Area in Pennsylvania, is largely unencumbered by lease expirations that would commit it to drill the acreage in any set period of time. Additionally, the Northern Access project capacity is subscribed completely by Seneca, allowing for the coordination of production volumes and build-out of necessary pipeline capacity. With the stability provided by the Company's rate-regulated downstream and midstream businesses, the Company enjoys significant operational and financial flexibility to ensure that capital is deployed in an efficient and cost-effective fashion and financed in a manner that positions the Company and its shareholders for long-term value creation.

Based on the modified activity levels, National Fuel is updating its capital spending guidance for fiscal 2016. Business segment and consolidated guidance for the Company's fiscal 2016 capital expenditures is summarized in the table below. The Exploration and Production segment's capital expenditure guidance range would be reduced by an additional $90 to $110 million if Seneca's Marcellus joint development partner exercises their right to participate in the remaining 38 wells as outlined in the joint development agreement.

Due to the anticipated decrease in projected upstream and midstream capital expenditures and a strong hedge position that will provide attractive and certain realizations on a majority of Seneca's production in fiscal 2016, National Fuel is projecting a modest outspend through the end of fiscal 2016 that should be met with cash on the balance sheet.

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: “Operationally, the first quarter was a good start to our 2016 fiscal year, particularly for the Company's Pipeline and Storage segment. During the first quarter, we completed construction and placed in service three expansion projects for affiliated and non-affiliated customers. We continue to see opportunities to capitalize on our valuable midstream footprint in Appalachia and meet the increasing demand for pipeline infrastructure to move natural gas production from the Marcellus and Utica shales.

"However, persistently low commodity prices continued to weigh on our quarterly financial results, leading to a significant write-down of our natural gas and oil properties and lower price realizations on our natural gas and crude oil production. Magnified by warmer weather this winter in the Northeast, which also reduced earnings in our Utility segment, national and regional commodity prices have continued to trend lower, creating volatility in the energy markets and clouding the near-term outlook for the sector. While we remain committed to growing our uniquely integrated upstream and midstream asset base in a coordinated fashion over the long term, current market conditions compelled us to take precautionary and financially prudent steps to preserve the strength of our balance sheet and ensure that our long-term plans remain viable.

"Our decision to slow our pace of drilling in the Marcellus and revise the in-service date of the Northern Access expansion project demonstrates the ability of our integrated model to react quickly to changing market conditions. Our integrated structure and the coordinated nature of our upstream and midstream activities provides us significant stability and flexibility to efficiently deploy capital. Our rate-regulated midstream and downstream operations provide balance and a solid base of earnings and cash flows that allow us to maintain the safety and reliability of our pipeline systems, meet our fixed financial obligations, and fund our dividend.

"We have prudently managed and structured our business over the years to endure periods of extreme volatility in commodity prices. I am confident that National Fuel will stand ready and on strong footing to execute our long-term Appalachian growth strategy as we continue to work through this current business cycle.”

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each segment is summarized in a tabular form on pages 9 and 10 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 explores for, develops and produces natural gas and oil reserves, primarily in Pennsylvania and California.

The quarter over quarter variance is mainly due to a non-cash, after-tax charge of $252.6 million to write down the value of Seneca’s oil and natural gas reserves under the full cost method of accounting. This accounting method requires that Seneca perform a quarterly “ceiling test” to compare the present value of future revenues from its oil and natural gas reserves based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the 12-month period prior to the end of the reporting period (“the ceiling”) with the book value of those reserves at the balance sheet date. If the book value of the reserves exceeds the ceiling, a non-cash impairment charge must be recorded in order to reduce the book value of the reserves to the calculated ceiling. Unless oil and gas prices improve significantly, Seneca expects to incur additional impairment charges during the remainder of the fiscal year ending September 30, 2016.

Seneca also incurred $4.7 million ($3.0 million after-tax, or $0.04 per share) of professional and legal expenses relating to the joint development agreement that Seneca entered into during the first quarter. These transaction costs were recorded to General and Administrative ("G&A") expense.

Excluding these items, Operating Results in the Exploration and Production segment in the current year’s first quarter were $18.5 million, or $0.22 per share, compared to $26.7 million, or $0.32 per share, in the prior year’s first quarter, a decrease of $8.2 million or $0.10 per share. The decrease in Operating Results is mainly due to lower natural gas production and lower realized natural gas and crude oil prices after hedging, offset partially by a lower per unit depreciation, depletion and amortization expense ("DD&A") rate.

Seneca's total first quarter fiscal 2016 production was 38.1 billion cubic feet equivalent ("Bcfe"), a decrease of 10.1 Bcfe, or 21.0 percent, from the prior fiscal year's first quarter, and an increase of 0.4 Bcfe, or 1.1 percent, versus the fourth quarter of fiscal 2015. Natural gas and crude oil production for the quarter was 33.6 billion cubic feet (“Bcf”) and 748 thousand barrels ("Mbbl"), respectively. As a result of persistently low local spot prices in the Appalachian basin, Seneca voluntarily curtailed approximately 14.6 Bcf of natural gas production during the quarter. Absent price-related curtailments, Seneca's first quarter fiscal 2016 natural gas production would have been approximately 48.2 Bcf, or nearly 524 million cubic feet ("MMcf") per day.

Seneca's average realized natural gas price, after the impact of hedging, for the first quarter was $3.16 per thousand cubic feet ("Mcf"), reflecting $1.14 per Mcf of uplift from financial hedges settled during the quarter. Seneca's average realized oil price, after the impact of hedging, for the first quarter was $59.76 per barrel ("Bbl"), reflecting a $23.68 per Bbl uplift from financial hedges settled during the quarter. Seneca's remaining fiscal 2016 natural gas production is now 78 percent hedged at the midpoint of production guidance, with nearly 92 million Million British thermal units ("MMBtu") (88.7 Bcf) of production hedged at an average price of $3.53 per MMBtu. In California, Seneca's remaining fiscal 2016 oil production is now 46 percent hedged at an average hedge price of $87.70 per Bbl. For fiscal 2017, Seneca has over 97 million MMBtu (93 Bcf) of production hedged at an average hedge price of $3.66 per MMBtu and nearly 700,000 Bbls of oil production hedged at $75.19 per Bbl.

First quarter DD&A expense decreased $36.0 million versus the prior year first quarter. On a per unit basis, DD&A decreased $0.50 per Mcf equivalent ("Mcfe") to $1.16 per Mcfe due primarily to the ceiling test impairment charges recorded during the prior fiscal year and higher natural gas reserve balances at September 30, 2015.

First quarter lease operating expense (“LOE”) decreased by $7.8 million mostly due to lower production. On a per unit basis, LOE increased by $0.06 per Mcfe largely due to the pricing related curtailments discussed above, which increased the relative proportion of higher cost California oil production to the total.

The increase in Interest Expense is the result of a new long-term debt issuance that occurred during the quarter ended June 30, 2015.

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 increase in the Pipeline and Storage segment's earnings is due to higher transportation revenues, offset partially by higher DD&A and property tax expenses. Transportation revenues increased $2.5 million, or 4.6 percent, as a result of higher non-affiliated revenues generated from the Mercer Expansion project, which was placed in service in November 2014, as well as revenues generated from three additional expansion projects that were placed in service during the first quarter of fiscal 2016. The Tuscarora Lateral, Westside Expansion and Modernization and Northern Access 2015 projects added a combined 364,000 dekatherms (Dth) of new firm transportation capacity to the Supply Corporation and Empire systems under long-dated contracts for affiliated and non-affiliated customers. DD&A and property tax expenses increased $1.2 million and $0.6 million, respectively, mostly due to a higher gross plant in service, which was largely the result of the Company's recent expansion projects.

Gathering Segment

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

The decrease in the Gathering segment's earnings is due primarily to lower gathering revenues, higher DD&A expense, and higher interest expense. Gathering revenues decreased $5.8 million as a result of lower Seneca production volumes in Appalachia compared to the prior year’s first quarter. DD&A expense increased $2.1 million due to a higher average gross plant in-service balance, resulting primarily from Clermont Gathering system facilities that were placed in service over the previous twelve months. The increase in Interest Expense is the result of a new long-term debt issuance that occurred during the quarter ended June 30, 2015, as well as lower capitalized interest expense on plant construction in progress.

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 decrease in the Utility segment's earnings is largely attributable to the impact of warmer weather in Distribution's Pennsylvania service territory, partially offset by lower Operation and Maintenance ("O&M") expense. Weather in Distribution's Pennsylvania service territory was 25.5% warmer than last year, resulting in lower retail residential and transportation customer throughput and revenues, which decreased the Utility segment's earnings by approximately $0.04 per share. The impact of weather variations on earnings in Distribution's New York service territory is largely mitigated by the New York rate jurisdiction's weather normalization clause. The decrease in O&M expense is mainly due to lower bad debt expense and a reduction in personnel costs.

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 decrease in the Energy Marketing segment's earnings is due to lower margins. Margins were negatively impacted by warmer weather, which lowered retail customer usage, and lower per unit margins, which were the result of stronger pricing basis in the Northeast.

Corporate and All Other

The Corporate and All Other category earnings of $2.0 million in the quarter ended December 31, 2015, compares to earnings of $0.2 million in the prior year’s first quarter. The increase is due to lower income tax expense.

EARNINGS GUIDANCE

The Company is updating earnings guidance for fiscal 2016 to reflect first quarter results and revised forecast assumptions. Updated consolidated earnings guidance and Exploration and Production segment operational guidance is summarized in the tables below:

While the Company currently expects to incur additional ceiling test impairment charges in the remaining quarters of fiscal 2016, the amount of these charges is not reasonably determinable at this time. The amount of any ceiling test charge is determined at the end of the applicable quarter and will depend on many factors, including additions to or subtractions from proved reserves, fluctuations in oil and gas prices, and income tax effects related to the differences between the book and tax basis of the Company’s oil and gas properties. Some or all of these factors are likely to be significant. Because the amount of the expected ceiling test impairment charges is not reasonably determinable at this time, the Company is unable to provide earnings guidance other than on a non-GAAP basis that excludes those charges.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, February 5, 2016, 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) 1-866-202-0886, using passcode “36905811.” 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 “20223279.” Both the webcast and telephonic replay will be available until the close of business on Friday, February 12, 2016.

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.

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: impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; changes in the price of natural gas or oil; 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; 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; 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, target rates of return, rate design and retained natural gas), environmental/safety requirements, affiliate relationships, industry structure, and franchise renewal; 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 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; 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.