Market Overview

National Fuel Reports Third Quarter Earnings and Provides Initial Guidance for Fiscal 2019

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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    
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