Market Overview

National Fuel Reports Fourth Quarter and Full Year Fiscal 2018 Earnings

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WILLIAMSVILLE, N.Y., Nov. 01, 2018 (GLOBE NEWSWIRE) -- National Fuel Gas Company ("National Fuel" or the "Company") (NYSE:NFG) today announced consolidated results for the three months and fiscal year ended September 30, 2018.

FISCAL 2018 FOURTH QUARTER SUMMARY

  • GAAP earnings of $38.0 million, or $0.44 per share, compared to $45.6 million, or $0.53 per share, in the prior year
  • Adjusted operating results of $42.2 million, or $0.49 per share (see reconciliation below)
  • Consolidated Adjusted EBITDA of $143.8 million compared to $142.8 million in the prior year (non-GAAP reconciliation on page 25)
  • Net production of 47.3 Bcfe, an increase of 17% from the prior year
  • Average natural gas prices, after the impact of hedging, of $2.45 per Mcf, down $0.46 per Mcf from the prior year
  • Average oil prices, after the impact of hedging, of $57.71 per Bbl, up $2.94 per Bbl from the prior year
  • Gathering segment operating income of $19.2 million, up 12% on higher system throughput

FISCAL 2018 HIGHLIGHTS

  • GAAP earnings of $391.5 million, or $4.53 per share, compared to $283.5 million, or $3.30 per share, in the prior year
  • Adjusted operating results of $288.8 million, or $3.34 per share (see reconciliation below)
  • Net cash provided by operating activities exceeded net cash used in investing activities by $84.7 million
  • Net production of 178.1 Bcfe, an increase of 3% over fiscal 2017 and the highest output in Company history
  • Proved reserves at September 30, 2018, of 2.5 Tcfe, an increase of 17% from September 30, 2017
  • Increased shareholder dividend for the 48th consecutive year to an annualized distribution of $1.70 per share
                 
    Three Months Ended   Fiscal Year Ended
    September 30,   September 30,
(in thousands except per share amounts)   2018   2017   2018   2017
Reported GAAP Earnings   $ 37,994     $ 45,577     $ 391,521     $ 283,482  
Items impacting comparability                
Remeasurement of deferred income taxes
under 2017 Tax Reform
  3,516         (103,484 )    
Premium paid on early redemption of debt (E&P)   962         962      
Tax impact on premium paid on early redemption of debt   (235 )       (235 )    
Adjusted Operating Results   $ 42,237     $ 45,577     $ 288,764     $ 283,482  
                 
Reported GAAP Earnings per share   $ 0.44     $ 0.53     $ 4.53     $ 3.30  
Items impacting comparability                
Remeasurement of deferred income taxes
under 2017 Tax Reform
  0.04         (1.20 )    
Premium paid on early redemption of debt, net of tax   0.01         0.01      
Adjusted Operating Results per share   $ 0.49     $ 0.53     $ 3.34     $ 3.30  
                                 

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: "National Fuel concluded another successful fiscal year with strong results.  Over the course of the year, we were busy setting Company records for Seneca's Appalachian proved natural gas reserves and production, along with a record high level of throughput in our Gathering segment.  We continued our investments dedicated to the modernization and safety of our interstate and utility pipeline systems, and maintained our strong record of customer service and reliability.  Lower taxes from tax legislation enacted late last year helped to offset the decline in realized pricing on Seneca's production, and the benefits of lower taxes in our Utility segment are being passed along to our utility customers.  In what appears to be a ‘new normal' period of lower natural gas prices, we nonetheless generated positive free cash flow for the third consecutive year - a testament to the quality of our assets and our focus on cost control and achieving operational efficiencies.

"Already a month into our 2019 fiscal year, we are well positioned to build on our success.  Recently commissioned capacity on the Atlantic Sunrise project provides us with an avenue to further develop our acreage in Lycoming County, Pa., one of the most prolific positions in Appalachia.  We will continue to transition to development of the Utica shale in the Western Development Area to enhance consolidated upstream and midstream returns and take advantage of improving pricing in the basin, all the while minimizing the environmental footprint of our operations as we utilize existing infrastructure.  Combined with the stability of the rate-regulated businesses, we expect to responsibly grow the Company in a manner that strengthens our financial position and maximizes the value of our assets for our shareholders for years to come."

FISCAL 2019 GUIDANCE

National Fuel is revising the preliminary guidance for fiscal 2019 that was announced in conjunction with the Company's third quarter earnings release.  The Company is now projecting that earnings will be within the range of $3.35 to $3.65 per share, or $3.50 per share at the midpoint of the range, which represents a $0.16 per share increase from fiscal 2018's adjusted operating results.  The $0.05 per share increase from the preliminary guidance is primarily due to higher expected price realizations on Seneca's production and lower projected operating expenses at the Utility and Pipeline and Storage segments.

Seneca's net production is expected to be in the range of 210 to 230 Bcfe, unchanged from the preliminary guidance, and a 24 percent increase over fiscal 2018 at the midpoint of the range.  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 guidance range, Gathering segment revenues are forecasted to increase by approximately $27 million, or 25 percent, to $135 million for fiscal 2019. Under current development plans in Appalachia, the Company expects to grow its production and gathering throughput at a 15 to 20 percent compound annual growth rate through fiscal 2022.

In addition to higher earnings expectations, the Company's consolidated capital expenditures in fiscal 2019 are expected to be lower than disclosed in last quarter's preliminary guidance due to reductions at the Exploration and Production and Pipeline and Storage segments.  The new range is expected to be $725 million to $810 million, at the midpoint a $167 million increase from the Company's fiscal 2018 capital expenditures. The primary driver of the year over year increase is Seneca's development activity in Appalachia, where the Company plans to operate three drilling rigs for the entirety of the fiscal year.  Despite the increase in Seneca's spending, the capital budget for the Gathering segment is expected to be relatively flat year over year as Seneca shifts its Utica development into areas in the WDA where gathering infrastructure already exists and is currently being utilized to move Marcellus production.

Seneca currently has physical firm sales contracts in place with third parties that provide fixed pricing basis protection on 177 Bcf, or more than 85 percent, of its projected fiscal 2019 natural gas production.  A majority of these sales, nearly 150 Bcf, are also matched with a financial hedge that locks in revenues on that production at a weighted average realized price of $2.43 per Mcf, net of firm transportation costs.  With price certainty on a majority of its natural gas production, strong margins on California oil production, growing Gathering segment revenues, and stable earnings from the Company's rate-regulated Pipeline and Storage and Utility segments, the Company expects that substantially all of its fiscal 2019 capital expenditures will 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 on page 8.

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each operating segment is summarized in a tabular form on pages 9 through 12 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   Fiscal Year Ended
  September 30,   September 30,
(in thousands except per share amounts) 2018   2017   Variance   2018   2017   Variance
Net Income $ 19,580     $ 30,354     $ (10,774 )   $ 180,632     $ 129,326     $ 51,306  
Net Income Per Share (Diluted) $ 0.23     $ 0.35     $ (0.12 )   $ 2.09
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