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National Fuel Reports Second Quarter Earnings

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WILLIAMSVILLE, N.Y., May 02, 2019 (GLOBE NEWSWIRE) -- National Fuel Gas Company ("National Fuel" or the "Company") (NYSE:NFG) today announced consolidated results for the second quarter of its 2019 fiscal year and for the six months ended March 31, 2019.

FISCAL 2019 SECOND QUARTER SUMMARY

  • GAAP earnings of $90.6 million, or $1.04 per share, compared to $91.8 million, or $1.06 per share, in the prior year
  • Adjusted operating results of $92.9 million, or $1.07 per share, compared to $95.6 million, or $1.11 per share, in the prior year (see non-GAAP reconciliation below)
  • Consolidated Adjusted EBITDA of $225.8 million compared to $232.4 million in the prior year (see non-GAAP reconciliation on page 24)
  • E&P segment net production of 48.8 Bcfe, an increase of 6% from the prior year
  • Appalachian net natural gas production of 499 MMcf/d, up 8% from the prior year and up 1% from the first quarter
  • Average natural gas prices, after the impact of hedging, of $2.58 per Mcf, up $0.06 per Mcf from the prior year
  • Average oil prices, after the impact of hedging, of $61.01 per Bbl, up $2.70 per Bbl from the prior year
  • Gathering segment operating revenues increased $1.6 million on 5% increase in gathered volumes
  • Utility segment net income increased $2.2 million, or 7%, on higher customer margins and lower interest expense


                 
    Three Months Ended   Six Months Ended
    March 31,   March 31,
(in thousands except per share amounts)   2019   2018   2019   2018
Reported GAAP Earnings   $ 90,595     $ 91,847     $ 193,256     $ 290,501  
Items impacting comparability                
Remeasurement of deferred income taxes under 2017 Tax Reform       4,000     (5,000 )   (107,000 )
Unrealized (gain) loss on hedge ineffectiveness (E&P)   6,742     (335 )   237     98  
Tax impact of unrealized (gain) loss on hedge ineffectiveness   (1,416 )   82     (50 )   (24 )
Unrealized (gain) loss on other investments (Corporate / All Other)   (3,831 )       2,516      
Tax impact of unrealized (gain) loss on other investments   805         (528 )    
Adjusted Operating Results   $ 92,895     $ 95,594     $ 190,431     $ 183,575  
                 
Reported GAAP Earnings per share   $ 1.04     $ 1.06     $ 2.23     $ 3.37  
Items impacting comparability                
Remeasurement of deferred income taxes under 2017 Tax Reform       0.05     (0.06 )   (1.24 )
Unrealized (gain) loss on hedge ineffectiveness (E&P)   0.08              
Tax impact of unrealized (gain) loss on hedge ineffectiveness   (0.02 )            
Unrealized (gain) loss on other investments (Corporate / All Other)   (0.04 )       0.03      
Tax impact of unrealized (gain) loss on other investments   0.01         (0.01 )    
Rounding           0.01      
Adjusted Operating Results per share   $ 1.07     $ 1.11     $ 2.20     $ 2.13  
                                 

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: "The Company's second fiscal quarter results evidence the value of our integrated business model, where the consistent earnings from each of our major operating segments contributed to our balanced consolidated earnings.  Our financial results were in line with our forecast for the quarter, and keep us on track to deliver results in line with our fiscal year earnings guidance, which remains unchanged.

"Financial results in our regulated businesses were consistent with the prior year, where higher earnings in the utility business offset a portion of the expected decline in the interstate pipeline business caused by the expiration of a large transportation contract.  In our Exploration & Production business, we experienced a few operational delays during the quarter, which deferred a portion of our production that was scheduled to come online this quarter into the latter part of fiscal 2019.   We still expect, however, that our steady, three-rig drilling program will deliver average production growth of 15 to 20 percent through our fiscal 2022 forecast period.  Given our large undeveloped acreage position, our production growth can be sustained throughout the next decade.

"We are excited that that our various Pipeline & Storage projects under development continue to take meaningful strides forward, including the recent receipt of the FERC Certificate for our Empire North project, positive legal and regulatory developments on our Northern Access project, and the commencement of construction on our Line N to Monaca project.  Each of these projects will help to meet the increasing regional demand for domestic and abundant natural gas supplies. As the nation's electric grid continues to decrease reliance on aging coal-fired plants and integrate more intermittent renewable generation facilities, more reliance will be placed on natural gas electric generation, much like many of our residential customers depend on their gas-powered back-up generators."

FISCAL 2019 GUIDANCE

National Fuel is reaffirming its full year earnings guidance for fiscal 2019.  The Company projects 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 Company's earnings guidance range reflects the impact of actual results for the six months ended March 31, 2019, an update to the Company's commodity price assumptions to reflect the current futures market, including a $10 per barrel increase in NYMEX crude oil, offset by the consolidated impact of the reduction in its production guidance discussed below.  Further changes in NYMEX or Appalachian basin spot natural gas prices are not expected to have a significant impact on current year earnings as the realizations on a large portion of the Company's remaining natural gas production are locked in with firm sales and financial hedges. Projections for consolidated and individual segment capital expenditures are unchanged.

The Company is revising its Exploration and Production segment's fiscal 2019 net production guidance to be in the range of 205 to 215 billion cubic feet equivalent ("Bcfe").  At the midpoint of the range, the Company's revised fiscal 2019 production guidance represents an 18 percent increase over fiscal 2018.

The 10 Bcfe, or 5 percent, decrease from the midpoint of the Company's previous guidance range is primarily due to the following factors:

  • Drilling and completion delays at DCNR tracts 007 and 100 in the EDA, which has deferred forecasted production online dates;
  • The impact of the Company's ongoing testing efforts to optimize its Utica drilling and completion design in the WDA; and
  • The Company's continued trend towards drilling longer laterals, which is expected to benefit the program's economics, but defers the online dates related to future development pads beyond the previous plan.

While the delays in new well turn on dates have the effect of pushing production to future periods, they are not expected to have a material impact on the ultimate recovery of the Company's reserves or the economics of its Marcellus and Utica programs.

The Company's earnings guidance range does not include the impact of certain items that impacted the comparability of earnings during the six months ended March 31, 2019, 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 six months ended March 31, 2019 by $0.06 per share; (2) the full year impact of the Exploration and Production segment's unrealized gain on hedging ineffectiveness; and (3) the unrealized loss on other investments due to the change in an accounting rule discussed on page 6, which lowered earnings by $0.02 per share.  While the Company expects to record additional adjustments to one or more of these items during the remaining six 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 earnings of each operating segment for the quarter ended March 31, 2019 is summarized in a tabular form on pages 9 and 10 of this report (earnings drivers for the six months ended March 31, 2019 are summarized on pages 11 and 12).  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.

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
  March 31,
(in thousands) 2019   2018   Variance
GAAP Earnings $ 21,873     $ 26,537     $ (4,664 )
Remeasurement of deferred taxes under 2017 Tax Reform $     $ 790     $ (790 )
Unrealized (gain) loss on hedge ineffectiveness $ 6,742     $ (335 )   $ 7,077  
Tax impact of unrealized (gain) loss on hedge ineffectiveness $ (1,416 )   $ 82     $ (1,498 )
Adjusted Operating Results $ 27,199     $ 27,074     $ 125  
           
Adjusted EBITDA $ 83,580     $ 78,728     $ 4,852  

The Exploration and Production segment's second quarter GAAP earnings decreased $4.7 million versus the prior year, driven primarily by the net impact of unrealized gains and losses that were recognized due to hedge accounting ineffectiveness and an $0.8 million adjustment recorded in the prior year second quarter relating to the remeasurement of deferred income taxes under the 2017 Tax Reform Act.  Excluding these items (see table above), the Exploration and Production segment's second quarter earnings increased $0.1 million as the positive impacts of higher natural gas production and better realized natural gas and crude oil prices were offset by lower crude oil p

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