Market Overview

National Fuel Reports First Quarter Earnings

Share:

WILLIAMSVILLE, N.Y., Jan. 31, 2019 (GLOBE NEWSWIRE) -- National Fuel Gas Company ("National Fuel" or the "Company") (NYSE:NFG) today announced consolidated results for the first quarter of its 2019 fiscal year.

FISCAL 2019 FIRST QUARTER SUMMARY

  • GAAP earnings of $102.7 million, or $1.18 per share, compared to $198.7 million, or $2.30 per share, in the prior year
  • Adjusted operating results of $97.5 million, or $1.12 per share, compared to $88.0 million, or $1.02 per share, in the prior year (see non-GAAP reconciliation below)
  • Consolidated Adjusted EBITDA of $219.4 million compared to $205.7 million in the prior year (see non-GAAP reconciliation on page 22)
  • E&P segment net production of 49.2 Bcfe, an increase of 23% from the prior year
  • Average natural gas prices, after the impact of hedging, of $2.61 per Mcf, down $0.11 per Mcf from the prior year
  • Average oil prices, after the impact of hedging, of $61.70 per Bbl, up $1.91 per Bbl from the prior year
  • E&P cash operating expenses averaged $1.35 per Mcfe, a decrease of $0.13 per Mcfe from the prior year
  • Gathering segment operating revenues increased $5.9 million, or 25% on higher system throughput
  • Utility segment net income increased $4.7 million, or 22%, on higher customer margins
  • Lower consolidated interest expense of $2.1 million resulting from the early refinancing of an 8.75% coupon 10-year note that was set to mature in May 2019


         
    Three Months Ended
    December 31,
(in thousands except per share amounts)   2018   2017
Reported GAAP Earnings   $ 102,660     $ 198,654  
Items impacting comparability        
Remeasurement of deferred income taxes under 2017 Tax Reform   (5,000 )   (111,000 )
Unrealized (gain) loss on hedge ineffectiveness (E&P)   (6,505 )   433  
Tax impact of unrealized (gain) loss on hedge ineffectiveness   1,366     (106 )
Unrealized loss on other investments (Corporate / All Other)   6,347      
Tax impact of unrealized loss on other investments   (1,333 )    
Adjusted Operating Results   $ 97,535     $ 87,981  
         
Reported GAAP Earnings per share   $ 1.18     $ 2.30  
Items impacting comparability        
Remeasurement of deferred income taxes under 2017 Tax Reform   (0.06 )   (1.29 )
Unrealized (gain) loss on hedge ineffectiveness (E&P)   (0.08 )   0.01  
Tax impact of unrealized (gain) loss on hedge ineffectiveness   0.02      
Unrealized loss on other investments (Corporate / All Other)   0.07      
Tax impact of unrealized loss on other investments   (0.01 )    
Adjusted Operating Results per share   $ 1.12     $ 1.02  

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: "We've started off our 2019 fiscal year with a strong first quarter and we expect our momentum will continue through the whole year.  As we transitioned into the winter heating season, the operating teams in our Utility and Pipeline and Storage businesses have our pipeline systems ready to safely deliver natural gas to the more than 750,000 customers within our service territories and across the northeast, ensuring that homes and businesses continue to benefit from the reliability of natural gas when needed most. Our operations' employees were also able to provide mutual aid to other northeast utilities that recently experienced operational issues on their systems.

"In our Exploration and Production and Gathering operations, both quarterly production and gathering throughput continue to grow at a healthy clip, and we're on track to achieve our targeted production growth while also growing our earnings and cash flows. With a balanced portfolio of long-term sales and transportation contracts and line of sight on incremental transportation capacity out of the basin, we remain focused on efficiently developing both the Marcellus and Utica shale horizons across our more than 700,000-acre, fee-owned acreage position in the Western Development Area.

"As has been the case for decades, across our operations we remain focused on prudently deploying capital, driving shareholder value with the development of our integrated assets, and returning capital to shareholders through our long-standing dividend."

FISCAL 2019 GUIDANCE

National Fuel is tightening and raising its full-year earnings guidance for fiscal 2019.  The Company is now projecting that earnings on a non-GAAP basis will be within the range of $3.45 to $3.65 per share, or $3.55 per share at the midpoint of the range. The $0.05 per share increase from the midpoint of the previous guidance range reflects the impact of actual results for the three months ended December 31, 2018, and updates to key forecast assumptions, including natural gas and oil prices. The Company is also reaffirming its guidance for its Exploration and Production segment's fiscal 2019 net production of 210 to 230 billion cubic feet equivalent ("Bcfe"), which represents a 24 percent increase over fiscal 2018 at the midpoint of the range. Projections for consolidated and individual segment capital expenditures are also unchanged.

The revised earnings guidance range does not include the impact of certain items that impacted the comparability of earnings during the first quarter, including: (1) the remeasurement of deferred income taxes resulting from the 2017 Tax Reform Act, which reduced the Company's income tax expense and benefited consolidated earnings in the first quarter by $0.06 per share; (2) the full year impact of the Exploration and Production segment's unrealized gain on hedging ineffectiveness, which increased earnings by $0.06 per share in the first quarter ($3.2 million, or $0.03 per share, of the unrealized gain relates to hedge contracts that will settle during the remaining nine months ending September 30, 2019); and (3) the unrealized loss on other investments due to the change in an accounting rule discussed on page 6, which lowered earnings by $0.06 per share.  While the Company expects to record additional adjustments to one or more of these items during the remaining nine months ending September 30, 2019, the amounts of these and other potential adjustments are not reasonably determinable at this time.   As such, the Company is unable to provide earnings guidance other than on a non-GAAP basis.

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 and 10 of this report.  It may be helpful to refer to those tables while reviewing this discussion.  Note that management defines Adjusted Operating Results as reported GAAP earnings adjusted for items impacting comparability, and Adjusted EBITDA as reported GAAP earnings before the following items: interest expense, income taxes, depreciation, depletion and amortization, other income and deductions, impairments, and other items reflected in operating income that impact comparability.

The 2017 Tax Reform Act, which was passed during the prior year first quarter, reduced the statutory federal tax rate and resulted in the remeasurement of the Company's deferred income taxes.  For the Company's non-rate regulated activities, the net decrease in the Company's deferred income taxes lowered income tax expense and benefited the prior year first quarter consolidated earnings by $111.0 million, or $1.29 per share. A removal of a valuation allowance related to the remeasurement of deferred income taxes from the 2017 Tax Reform Act during the current year first quarter lowered income tax expense and benefited consolidated earnings by $5.0 million, or $0.06 per share. The remeasurement of deferred income taxes due to 2017 Tax Reform, which was a significant driver of the Company's first quarter segment GAAP earnings when compared to the prior year, is outlined in the tables below that reconcile GAAP earnings to Adjusted Operating Results by segment.

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
  December 31,
(in thousands) 2018   2017   Variance
GAAP Earnings $ 38,214     $ 106,698     $ (68,484 )
Remeasurement of deferred taxes under 2017 Tax Reform $ (990 )   $ (77,300 )   $ 76,310  
Unrealized (gain) loss on hedge ineffectiveness $ (6,505 )   $ 433     $ (6,938 )
Tax impact of unrealized (gain) loss on hedge ineffectiveness $ 1,366     $ (106 )   $ 1,472  
Adjusted Operating Results $ 32,085     $ 29,725     $ 2,360  
           
Adjusted EBITDA $ 89,896     $ 80,221     $ 9,675  

The Exploration and Production segment's first quarter GAAP earnings decreased $68.5 million versus the prior year, driven primarily by the impact of 2017 Tax Reform on deferred taxes discussed above and the net impact of unrealized gains and losses that were recognized due to hedge accounting ineffectiveness (see further discussion below).  Excluding these items, the Exploration and Production segment's first quarter earnings increased $2.4 million as higher natural gas production and better realized crude oil prices were partially offset by the negative impacts of lower realized natural gas prices, lower crude oil production, and higher operating expenses.

Seneca's first quarter net production was 49.2 billion cubic feet equivalent ("Bcfe"), an increase of 9.1 Bcfe, or 23 percent, from the prior year.  Natural gas production increased 9.7 billion cubic feet ("Bcf"), or 27 percent, due primarily to production from new Marcellus and Utica wells completed and connected to sales in Pennsylvania.  Seneca increased production by 5.7 Bcf in the EDA-Lycoming area, where development was timed to fill interstate pipeline capacity contracted on the Atlantic Sunrise project which went in service during the quarter.  Production from the WDA-Clermont area increased 3.3 Bcf due to increased Utica development.  Seneca's average realized natural gas price, after the impact of hedging and transportation costs, was $2.61 per thousand cubic feet ("Mcf"), a decrease of $0.11 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, offset partially by improved realizations on unhedged production tied to NYMEX and sold into the spot markets in Pennsylvania.

Seneca's oil production for the first quarter decreased 101 thousand barrels ("Mbbl") due largely to the impact of the sale of Seneca's Sespe properties in California in the third quarter of fiscal 2018.  Seneca's average realized oil price, after the impact of hedging, was $61.70 per barrel ("Bbl"), an increase of $1.91 per Bbl over the prior year.  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. The improving local price differentials also required Seneca to record the net $6.5 million unrealized mark-to-market gain on its WTI and Brent financial swap contracts due to accounting rules on measuring hedge ineffectiveness.

Total operating expenses increased $14.4 million during the first quarter.  Lease operating and transportation ("LOE") expense increased $2.9 million due mostly to higher gathering expenses in Appalachia resulting from the increase in natural gas production, partially offset by lower operating costs in California following the sale of Seneca's Sespe properties.  General and Administrative ("G&A") expense increased $1.6 million due mainly to higher personnel costs.  Depreciation, depletion and amortization ("DD&A") expense increased $7.3 million due to the increase in production and a higher per unit depletion rate.  Property, franchise, and other taxes increased $2.8 million due to higher impact fees in Pennsylvania, which increase and decrease along with natural gas index prices on a calendar year basis.  On a per unit of production basis, cash operating expenses (total operating expenses excluding DD&A) were $1.35 per thousand cubic feet equivalent ("Mcfe"), a decrease of $0.13 per Mcfe from the prior year.

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
  December 31,
(in thousands) 2018   2017   Variance
GAAP Earnings $ 25,102     $ 38,462     $ (13,360 )
Remeasurement of deferred taxes under 2017 Tax Reform $     $ (14,100 )   $ 14,100  
Adjusted Operating Results $ 25,102     $ 24,362     $ 740  
           
Adjusted EBITDA $ 47,824     $ 50,417  
View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com