Market Overview

National Fuel Reports Fourth Quarter and Full Year Fiscal 2019 Earnings

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WILLIAMSVILLE, N.Y., Oct. 31, 2019 (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, 2019.

FISCAL 2019 FOURTH QUARTER SUMMARY

  • GAAP earnings of $47.3 million, or $0.54 per share, compared to $38.0 million, or $0.44 per share, in the prior year
  • Adjusted operating results of $47.0 million, or $0.54 per share, compared to $42.5 million, or $0.49 per share, in the prior year (see non-GAAP reconciliation on page 2)
  • Adjusted EBITDA of $157.3 million compared to $148.2 million in the prior year (non-GAAP reconciliation on page 24)
  • E&P segment net production of 59.1 Bcfe, an increase of 25% from the prior year and 8% from the third quarter
  • Average natural gas prices, after the impact of hedging, of $2.26 per Mcf, down $0.19 per Mcf from the prior year
  • Average oil prices, after the impact of hedging, of $61.00 per Bbl, up $3.29 per Bbl from the prior year
  • Gathering segment revenues increased $6.7 million, or 24%, on higher throughput from Seneca

FISCAL 2019 HIGHLIGHTS

  • GAAP earnings of $304.3 million, or $3.51 per share, compared to $391.5 million, or $4.53 per share, in the prior year
  • Adjusted operating results of $299.3 million, or $3.45 per share, compared to $289.4 million, or $3.35 per share, in the prior year (see non-GAAP reconciliation on page 2)
  • Adjusted EBITDA of $785.4 million, an increase of $23.9 million over fiscal 2018 (non-GAAP reconciliation on page 24)
  • E&P segment net production of 211.8 Bcfe, an increase of 19% over fiscal 2018 and the highest output in Company history
  • Proved reserves at September 30, 2019, of 3.1 Tcfe, an increase of 23% from September 30, 2018
  • Gathering segment revenues increased $19.2 million, or 18%, on higher throughput from Seneca
  • Utility segment net income of $60.9 million, an increase of $9.7 million, or 19%, over fiscal 2018
  • Increased shareholder dividend for the 49th consecutive year to an annual rate of $1.74 per share

MANAGEMENT COMMENTS

David P. Bauer, President and Chief Executive Officer of National Fuel Gas Company, stated: "National Fuel capped off our 2019 fiscal year with an excellent fourth quarter, including operating results that were up approximately 10% from the prior year.  Despite a challenging commodity price environment, the Company also grew its earnings year over year, evidencing the value of our integrated business model.  The high degree of integration between our Exploration and Production and Gathering operations provided meaningful consolidated benefits, as Seneca's record annual production drove a significant increase in our Gathering segment revenues this year, offsetting the impact of lower natural gas realizations.  Our regulated Downstream and Midstream operations continue to provide diversification and predictable cash flows.  The Utility segment delivered strong results in 2019, driven largely by modest customer growth and our ongoing investments in the modernization of our distribution network. These investments, which exceeded $74 million this fiscal year, further enhanced the safety and integrity of our pipeline systems, and contributed to earnings and rate base growth."

RECONCILIATION OF GAAP EARNINGS TO ADJUSTED OPERATING RESULTS

                 
    Three Months Ended   Fiscal Year Ended
    September 30,   September 30,
(in thousands except per share amounts)   2019   2018   2019   2018
Reported GAAP Earnings   $ 47,281     $ 37,994     $ 304,290     $ 391,521  
Items impacting comparability                
Remeasurement of deferred income taxes under 2017 Tax Reform       3,516     (5,000 )   (103,484 )
Mark-to-market adjustments due to hedge ineffectiveness (E&P)   (1,313 )   346     (2,096 )   782  
Tax impact of mark-to-market adjustments due to hedge ineffectiveness   276     (85 )   440     (192 )
Unrealized (gain) loss on other investments (Corporate / All Other)   949         2,045      
Tax impact of unrealized (gain) loss on other investments   (199 )       (429 )    
Premium paid on early redemption of debt (E&P)       962         962  
Tax impact of premium paid on early redemption of debt       (235 )       (235 )
Adjusted Operating Results   $ 46,994     $ 42,498     $ 299,250     $ 289,354  
                 
Reported GAAP Earnings per share   $ 0.54     $ 0.44     $ 3.51     $ 4.53  
Items impacting comparability                
Remeasurement of deferred income taxes under 2017 Tax Reform       0.04     (0.06 )   (1.20 )
Mark-to-market adjustments due to hedge ineffectiveness, net of tax (E&P)   (0.01 )       (0.02 )   0.01  
Unrealized (gain) loss on other investments, net of tax (Corporate / All Other)   0.01         0.02      
Premium paid on early redemption of debt, net of tax (E&P)       0.01         0.01  
Adjusted Operating Results per share   $ 0.54     $ 0.49     $ 3.45     $ 3.35  
                                 

FISCAL 2020 GUIDANCE UPDATE

National Fuel is revising its fiscal 2020 earnings guidance to reflect updated forecast assumptions and projections, including the expected impact of the decline in near-term natural gas prices that has occurred since the Company's preliminary guidance was announced in August 2019.  The Company is now projecting that earnings will be within the range of $3.00 to $3.30 per share, or $3.15 per share at the midpoint of the range. The decrease from the preliminary guidance is primarily due to lower expected price realizations on Seneca's production, higher expected depreciation, depletion and amortization ("DD&A") rates at Seneca, and higher expected pension and other post-retirement benefit expenses. The increase in Seneca's projected DD&A rate is largely due to higher expected future plugging and abandonment costs in California. The increase in pension and other post-retirement benefit costs is being driven by changes in actuarial assumptions, primarily a lower discount rate resulting from the recent decline in interest rates.

The Company is now assuming that NYMEX natural gas prices will average $2.40 per MMBtu in fiscal 2020, a decrease of $0.15 per MMBtu from the $2.55 per MMBtu assumed in the preliminary guidance. For guidance purposes, the Company's updated projections reflect the current NYMEX forward markets for natural gas and oil and consider the impact of local sales point differentials and new physical firm sales, transportation, or financial hedge contracts. During the fourth quarter, Seneca executed approximately 42 billion cubic feet ("Bcf") of new NYMEX swap contracts. The Company currently has financial hedges and fixed price physical firm sales contracts in place on approximately 60% of Seneca's expected fiscal 2020 production that, on average, lock-in a price realization of $2.30 per thousand cubic feet ("Mcf").

The Exploration and Production segment's fiscal 2020 net production forecast remains unchanged in the range of 235 to 245 billion cubic feet equivalent ("Bcfe").  The Company's fiscal 2020 consolidated and individual segment capital expenditures guidance also remains unchanged from the preliminary guidance. The Company announced in August that it plans to reduce Seneca's development activity in Appalachia in response to the decline in near-term natural gas prices.  As planned, during the second quarter of fiscal 2020, Seneca expects to drop one of the three horizontal drilling rigs it is currently operating in Appalachia.  Because the Company owns a majority of its natural gas interests in fee, Seneca has the flexibility to further reduce its capital investments should market conditions continue to weaken in order to preserve the economics of its development program.

Mr. Bauer added: "As we look to the future, despite the headwind of natural gas prices in fiscal 2020, we are well-positioned to responsibly grow the Company in a manner that maintains the strength of our balance sheet and drives value for our shareholders.  With line of sight on new firm transportation capacity to premium markets, Seneca will maintain its focus on prudently developing its Utica Shale reserves in our Western Development Area, where we are able to utilize our existing infrastructure, including gathering facilities, to enhance our consolidated upstream and midstream returns.  Our Gathering business will continue to grow in lockstep with Seneca's production, and is expected to see near-term annual revenue growth of approximately 10%.  Our Pipeline and Storage business is targeting the completion of multiple expansion projects by the close of calendar 2021, which we expect to collectively grow annual revenues by approximately $65 million.  And, our Utility business will continue to make investments to modernize its facilities, and to enhance the long-term reliability of our distribution systems, which we expect to modestly grow rate base and margin.  All told, National Fuel is poised for continuing long-term success."

Additional details on the Company's updated forecast assumptions and business segment guidance for fiscal 2020 are outlined in the table on page 7.

DISCUSSION OF FOURTH QUARTER RESULTS BY SEGMENT

The following discussion of earnings of each operating segment for the quarter ended September 30, 2019, is summarized in a tabular form on pages 8 and 9 of this report (earnings drivers for the fiscal year ended September 30, 2019 are summarized on pages 10 and 11).  It may be helpful to refer to those tables while reviewing this discussion.  As of the quarter ended September 30, 2019, the Company is no longer reporting the Energy Marketing operations as a reportable segment.  The Energy Marketing operations have been included in the All Other category in the disclosures and tables that follow below.  Prior year segment information has been restated to reflect this change in presentation.

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
  September 30,
(in thousands) 2019  
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