National Fuel Reports Fourth Quarter and Full Year Fiscal 2019 Earnings

WILLIAMSVILLE, N.Y., Oct. 31, 2019 (GLOBE NEWSWIRE) -- National Fuel Gas Company ("National Fuel" or the "Company") 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 49^th 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

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.

Seneca's fourth quarter GAAP earnings increased $5.6 million versus the prior year, which includes the net impact of non-cash mark-to-market adjustments recorded during the current and prior year relating to hedge ineffectiveness and certain items that impacted earnings in the prior year that did not recur in the current year (see table above).  Excluding these items, Seneca's fourth quarter earnings increased $0.8 million as the positive impacts of higher production and better realized crude oil prices on operating revenues, along with a lower effective income tax rate, were mostly offset by the negative impacts of lower realized natural gas prices on operating revenues and higher operating expenses.

Seneca produced 59.1 Bcfe during the fourth quarter, an increase of 11.8 Bcfe, or 25%, from the prior year. Natural gas production increased 11.7 billion cubic feet ("Bcf"), or 27%, due primarily to production from new Marcellus and Utica wells completed and connected to sales in Appalachia. Net production in Seneca's Eastern Development Area increased 7.7 Bcf to 30.7 Bcf due largely to increased Utica development in the EDA-Tioga area and Marcellus development in the EDA-Lycoming area. Net gas production increased 4.0 Bcf to 24.1 Bcf in the WDA-Clermont area, where Seneca continues to experience stronger production and shallower declines from its Utica development program. Seneca's oil production for the fourth quarter increased 14 thousand barrels ("Mbbl") from the prior year due to new wells coming online in the Pioneer development area in California.

Seneca's average realized natural gas price, after the impact of hedging and transportation costs, was $2.26 per Mcf, a decrease of $0.19 per Mcf from the prior year. This decline was largely due to lower NYMEX prices and lower spot pricing at local sales points in Pennsylvania. Seneca's average realized oil price, after the impact of hedging, was $61.00 per barrel ("Bbl"), an increase of $3.29 per Bbl over the prior year.  The improvement in oil price realizations was due primarily to stronger price differentials at local sales points in California relative to West Texas Intermediate (WTI) prices.

The $22.3 million increase in Seneca's total operating expenses was largely due to the higher production during the quarter.  On a unit of production basis, operating expenses excluding DD&A expense declined $0.07 per thousand cubic feet equivalent ("Mcfe"), or 5%, to $1.25 per Mcfe from the $1.32 per Mcfe realized in the prior year. Lease operating and transportation ("LOE") expense, which increased $8.8 million, includes the fees paid to the Company's Gathering segment for gathering and compression services used to connect Seneca's Marcellus and Utica production to sales points along interstate pipelines. The $10.6 million increase in DD&A expense was also due to a higher DD&A rate, which was driven by an increase in capitalized costs in Seneca's full cost pool. The decline in Seneca's effective tax rate was largely driven by the positive impact of the 2017 Tax Reform Act, a higher Enhanced Oil Recovery credit, and lower state taxes in the current year.

Proved Reserves Year-End Update

Seneca's total proved natural gas and crude oil reserves at September 30, 2019 were 3,099 Bcfe, an increase of 575 Bcfe, or 23%, from the proved reserves reported at September 30, 2018.  Seneca's proved developed reserves at the end of fiscal 2019 were 2,081 Bcfe, representing 67% of total proved reserves. The proved reserves base is approximately 95% natural gas and 5% oil.  In fiscal 2019, Seneca recorded 691 Bcfe of proved reserve extensions and discoveries, due primarily to Utica and Marcellus locations in Appalachia, and 96 Bcfe of net positive revisions due largely to improvements in well performance and Seneca's shift towards drilling wells with longer laterals. As a result, Seneca replaced 372% of its fiscal 2019 production.  Seneca's three-year average finding and development cost at the end of fiscal 2019 was $0.56 per Mcfe, down $0.18 per Mcfe from the three-year average of $0.74 per Mcfe at the end of fiscal 2018.

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.

The Pipeline and Storage segment's fourth quarter GAAP earnings were largely unchanged versus the prior year, as lower operating revenues were offset by lower operation and maintenance ("O&M") and interest expenses.  The $4.5 million decrease in operating revenues was due largely to the expiration of a significant firm transportation contract on the Empire system in December 2018.  The impact of the contract expiration was partially offset by an increase in Empire's transportation rates following the settlement of Empire's rate case that became effective in January 2019.  O&M expense decreased $2.7 million due primarily to lower compressor and facility maintenance costs.  Interest expense decreased $0.8 million due primarily to lower borrowing rates.

Gathering Segment

The Gathering segment's operations are carried out by National Fuel Gas Midstream Company, LLC's limited liability companies. The Gathering segment constructs, owns and operates natural gas gathering pipelines and compression facilities in the Appalachian region, which currently delivers Seneca's gross Appalachian production to the interstate pipeline system.

The Gathering segment's fourth quarter GAAP earnings increased $2.1 million over the prior year.  The increase was driven primarily by higher operating revenues, which were partially offset by modest increases in O&M expense and DD&A expense and the impact of a higher effective tax rate.  Operating revenues increased $6.7 million, or 24%, due primarily to a 12.7 Bcf increase in gathered volume from Seneca's Appalachian natural gas production. The $0.6 million increase in O&M expense was due to an increase in compressor station operating and preventative maintenance activity as a result of higher throughput during the quarter. The $0.6 million increase in DD&A expense was due primarily to a $46 million increase in average plant assets in-service versus the prior year.

The increase in the Gathering segment's effective tax rate was largely due to a deferred state tax adjustment that lowered prior year income tax expense. This nonrecurring item was partially offset by the impact of the 2017 Tax Reform Act, which lowered the Company's statutory federal income tax rate from a blended 24.5% in fiscal 2018 to 21% in fiscal 2019.

Downstream Businesses

Utility Segment

The Utility segment operations are carried out by National Fuel Gas Distribution Corporation ("Distribution"), which sells or transports natural gas to customers located in western New York and northwestern Pennsylvania.

The $0.7 million increase in the Utility segment's fourth quarter net loss was due largely to lower margin (operating revenues less purchased gas sold), partially offset by lower interest expense.  A number of items contributed to the decrease in customer margin, including warmer weather and the net impact of revenue adjustments related to regulatory rate mechanisms.  These items were offset partially by an increase in revenues relating to a system modernization tracking mechanism that became effective in December 2018.  Interest expense decreased $1.0 million due primarily to lower borrowing rates following the Company's early refinancing of an 8.75% coupon 10-year note at the end of the prior year.

Corporate and All Other

The Company's operations that are included in Corporate and All Other, which now include the Company's energy marketing business, generated a combined net loss of $2.5 million in the current year fourth quarter, which was $2.1 million lower than the loss of $4.6 million in the prior-year fourth quarter.  The reduction in the net loss was driven primarily by lower interest expense and lower income tax expense. The lower income tax expense was due, in part, to the impact of the 2017 Tax Reform Act, which resulted in a remeasurement of deferred taxes that increased income tax expense in the prior year.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, November 1, 2019, at 11 a.m. Eastern Time to discuss this announcement.  There are two ways to access this call.  For those with Internet access, visit the NFG Investor Relations News & Events page at National Fuel's website at investor.nationalfuelgas.com.  For those without Internet access, audio access is also provided by dialing (toll-free) 833-287-0795, using conference ID number "4581569".  For those unable to listen to the live conference call, an audio replay will be available approximately two hours following the teleconference at the same website link and by phone at (toll-free) 800-585-8367 using conference ID number "4581569".  Both the webcast and a telephonic replay will be available until the close of business on Friday, November 8, 2019.

National Fuel is an integrated energy company reporting financial results for four operating segments: Exploration and Production, Pipeline and Storage, Gathering, and Utility.  Additional information about National Fuel is available at www.nationalfuelgas.com.

Certain statements contained herein, including statements identified by the use of the words "anticipates," "estimates," "expects," "forecasts," "intends," "plans," "predicts," "projects," "believes," "seeks," "will," "may" and similar expressions, and statements which are other than statements of historical facts, are "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The Company's expectations, beliefs and projections contained herein are expressed in good faith and are believed to have a reasonable basis, but there can be no assurance that such expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors, the following are important factors that could cause actual results to differ materially from those discussed in the forward-looking statements: changes in laws, regulations or judicial interpretations to which the Company is subject, including those involving derivatives, taxes, safety, employment, climate change, other environmental matters, real property, and exploration and production activities such as hydraulic fracturing; delays or changes in costs or plans with respect to Company projects or related projects of other companies, including difficulties or delays in obtaining necessary governmental approvals, permits or orders or in obtaining the cooperation of interconnecting facility operators; governmental/regulatory actions, initiatives and proceedings, including those involving rate cases (which address, among other things, target rates of return, rate design and retained natural gas), environmental/safety requirements, affiliate relationships, industry structure, and franchise renewal; changes in the price of natural gas or oil; impairments under the SEC's full cost ceiling test for natural gas and oil reserves; financial and economic conditions, including the availability of credit, and occurrences affecting the Company's ability to obtain financing on acceptable terms for working capital, capital expenditures and other investments, including any downgrades in the Company's credit ratings and changes in interest rates and other capital market conditions; factors affecting the Company's ability to successfully identify, drill for and produce economically viable natural gas and oil reserves, including among others geology, lease availability, title disputes, weather conditions, shortages, delays or unavailability of equipment and services required in drilling operations, insufficient gathering, processing and transportation capacity, the need to obtain governmental approvals and permits, and compliance with environmental laws and regulations; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide other post-retirement benefits; changes in price differentials between similar quantities of natural gas or oil sold at different geographic locations, and the effect of such changes on commodity production, revenues and demand for pipeline transportation capacity to or from such locations; other changes in price differentials between similar quantities of natural gas or oil having different quality, heating value, hydrocarbon mix or delivery date; the cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company; uncertainty of oil and gas reserve estimates; significant differences between the Company's projected and actual production levels for natural gas or oil; changes in demographic patterns and weather conditions; changes in the availability, price or accounting treatment of derivative financial instruments; changes in laws, actuarial assumptions, the interest rate environment and the return on plan/trust assets related to the Company's pension and other post-retirement benefits, which can affect future funding obligations and costs and plan liabilities; changes in economic conditions, including global, national or regional recessions, and their effect on the demand for, and customers' ability to pay for, the Company's products and services; the creditworthiness or performance of the Company's key suppliers, customers and counterparties; the impact of  information technology, cybersecurity or data security breaches; economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities or acts of war; significant differences between the Company's projected and actual capital expenditures and operating expenses; or increasing costs of insurance, changes in coverage and the ability to obtain insurance. The Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date thereof.

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES

GUIDANCE SUMMARY

As discussed on pages 2 and 3, the Company is revising its earnings guidance for fiscal 2020.  Additional details on the Company's forecast assumptions and business segment guidance are outlined in the table below.