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National Fuel Reports First Quarter Earnings

WILLIAMSVILLE, N.Y., Jan. 31, 2019 (GLOBE NEWSWIRE) -- National Fuel Gas Company (“National Fuel” or the “Company”) (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     $ (2,593 )

The Pipeline and Storage segment’s first quarter GAAP earnings decreased $13.4 million versus the prior year, driven primarily by the impact of 2017 Tax Reform on deferred taxes discussed above.  Excluding this item, the Pipeline and Storage segment’s first  quarter earnings increased $0.7 million as higher operating revenues, lower interest expense and a lower effective tax rate were partially offset by higher operating expenses.  Operating revenues increased $1.8 million versus the prior year due primarily to other revenues recorded during the quarter for funds received relating to the early termination of a transportation contract. Operation and Maintenance (“O&M”) expense increased $4.0 million over the prior year due primarily to an increase in compressor and facility maintenance activity during the quarter, higher long term incentive compensation expense, and the impact in the prior year of the reversal of a reserve for preliminary engineering and survey costs relating to projects in development. The combined $0.7 million increase in DD&A expense and property, franchise and other taxes was due to projects and new facilities placed in service over the past year.

The 2017 Tax Reform Act lowered the Company’s statutory federal income tax rate from a blended 24.5 percent in fiscal 2018 to 21 percent in fiscal 2019, which decreased income tax expense by $0.8 million.  Other tax items, due mostly to permanent book to tax differences, lowered income tax expense by another $1.6 million.

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.

  Three Months Ended
  December 31,
(in thousands) 2018   2017   Variance
GAAP Earnings $ 14,183     $ 45,400     $ (31,217 )
Remeasurement of deferred taxes under 2017 Tax Reform $ (500 )   $ (34,900 )   $ 34,400  
Adjusted Operating Results $ 13,683     $ 10,500     $ 3,183  
           
Adjusted EBITDA $ 25,948     $ 20,813     $ 5,135  

The Gathering segment’s first quarter GAAP earnings decreased $31.2 million versus the prior year, driven primarily by the impact of 2017 Tax Reform on deferred taxes discussed above.  Excluding this item, the $3.2 million increase in the Gathering segment’s first quarter earnings was due mainly to higher operating revenues, offset partially by higher operating expenses. Operating revenues increased $5.9 million, or 25 percent, due primarily to an 11.5 Bcf increase in throughput from Seneca’s Appalachian natural gas production. The Trout Run gathering system throughput increased 6.7 Bcf as Seneca increased production during the quarter to fill its new interstate pipeline capacity on the Atlantic Sunrise project. Throughput on the Covington and Clermont gathering systems increased 1.4 Bcf and 4.1 Bcf, respectively.

Operating expenses increased $1.3 million during the first quarter. O&M expense increased $0.7 million due largely to the operation of additional compression facilities along the Covington gathering system, which were acquired from affiliate Seneca in March 2018, and an increase in facilities and related maintenance activity at the Trout Run gathering system.  DD&A expense increased $0.6 million due to an increase in plant assets in-service during the quarter ended December 31, 2018.

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.

  Three Months Ended
  December 31,
(in thousands) 2018   2017   Variance
GAAP Earnings $ 25,649     $ 20,993     $ 4,656  
Remeasurement of deferred taxes under 2017 Tax Reform $     $     $  
Adjusted Operating Results $ 25,649     $ 20,993     $ 4,656  
           
Adjusted EBITDA $ 57,569     $ 54,150     $ 3,419  

The $4.7 million increase in the Utility segment’s first quarter GAAP earnings was due primarily to higher margin (operating revenues less purchased gas expense), lower interest expense and a lower effective tax rate.  The increase in the Utility’s margin was largely attributable to the impacts of higher usage and weather on residential and commercial customer margins. Also contributing to the increase were revenues relating to the recovery of the segment’s increased capital investment in its distribution system under a system modernization mechanism. Interest expense decreased $0.9 million due primarily to the Company’s early refinancing of an 8.75 percent coupon 10-year note that was set to mature in May 2019.

The 2017 Tax Reform Act lowered the Company’s statutory federal income tax rate from a blended 24.5 percent in fiscal 2018 to 21 percent in fiscal 2019, which decreased income tax expense $1.0 million from the prior year first quarter.  In accordance with state regulatory orders, the Utility segment has been recording a refund provision to return the net effect of the 2017 Tax Reform Act to its customers.  The estimated refund provision recorded for the quarter ended December 31, 2018, was $0.5 million lower than the refund provision recorded for the quarter ended December 31, 2017.

Energy Marketing Segment

The Energy Marketing segment's operations are carried out by National Fuel Resources, Inc. (“NFR”).  NFR markets natural gas to industrial, wholesale, commercial, public authority, and residential customers primarily in western and central New York and northwestern Pennsylvania, offering competitively priced natural gas to its customers.

  Three Months Ended
  December 31,
(in thousands) 2018   2017   Variance
GAAP Earnings $ (302 )   $ 1,046     $ (1,348 )
Remeasurement of deferred taxes under 2017 Tax Reform $ (198 )   $ 200     $ (398 )
Adjusted Operating Results $ (500 )   $ 1,246     $ (1,746 )
           
Adjusted EBITDA $ (721 )   $ 1,804     $ (2,525 )

The Energy Marketing segment’s first quarter GAAP earnings decreased $1.3 million versus the prior year, driven partly by the impact of 2017 Tax Reform on deferred taxes discussed above.  Excluding this item, the Energy Marketing segment’s first quarter net loss of $0.5 million was a decrease of $1.7 million over the prior year earnings of $1.2 million.  The decrease is due largely to lower margins (operating revenues less purchased gas costs).  NFR’s customer margins were negatively impacted by stronger natural gas prices at local purchase points relative to NYMEX-based customer sales contracts. The average cost per Mcf of gas purchased on a spot basis at local purchase points increased 42 percent during the quarter, compared to the average increase in NYMEX monthly settlement prices of 24 percent.

Corporate and All Other

Corporate and All Other operations had a combined loss of $0.2 million for the current year first quarter, which was $13.7 million lower than the loss of $13.9 million for prior year first quarter.  The decrease in the loss was primarily attributable to the impact of the 2017 Tax Reform Act, which resulted in a remeasurement of deferred income taxes that increased prior quarter income tax expense by $15.1 million. A removal of a valuation allowance related to the 2017 Tax Reform Act during the quarter ended December 31, 2018, resulted in an adjustment to Corporate and All Other’s remeasured deferred income taxes and lowered current quarter income tax expense by $3.3 million. This increase in earnings was partially offset by the impact of $6.3 million of unrealized losses on investments in equity securities recorded during the quarter. Unrealized gains and losses on investments in equity securities are now recognized in earnings following the adoption of authoritative accounting guidance effective October 1, 2018.  These unrealized gains and losses had been previously recorded as other comprehensive income.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, February 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 “7996513”.  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 “7996513”.  Both the webcast and a telephonic replay will be available until the close of business on Friday, February 8, 2019.

National Fuel is an integrated energy company reporting financial results for five operating segments: Exploration and Production, Pipeline and Storage, Gathering, Utility, and Energy Marketing.  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: 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 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; 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; changes in the price of natural gas or oil; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; 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 potential 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 page 2, the Company is revising its earnings guidance for fiscal 2019.  Additional details on the Company's forecast assumptions and business segment guidance for fiscal 2019 are outlined in the table below.

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.

  Updated FY 2019 Guidance   Previous FY 2019 Guidance
Consolidated Earnings per Share $3.45 to $3.65   $3.35 to $3.65
Consolidated Effective Tax Rate 24% to 25%   ~25%
       
Capital Expenditures (Millions)      
  Exploration and Production $460 - $495   $460 - $495
  Pipeline and Storage $120 - $150   $120 - $150
  Gathering $55 - $65   $55 - $65
  Utility $90 - $100   $90 - $100
  Consolidated Capital Expenditures $725 - $810   $725 - $810
       
Exploration & Production Segment Guidance      
       
  Commodity Price Assumptions      
  NYMEX natural gas price (winter | summer) $3.25 /MMBtu | $2.75 /MMBtu   $3.00 /MMBtu | $2.65 /MMBtu
  Appalachian basin spot price (winter | summer) $2.75 /MMBtu | $2.25 /MMBtu   $2.50 /MMBtu | $2.00 /MMBtu
  NYMEX (WTI) crude oil price $55.00 /Bbl   $70.00 /Bbl
  California oil price (% of WTI) 102%   100%
       
  Production (Bcfe)      
  East Division - Appalachia 194 to 214   194 to 214
  West Division - California ~ 16   ~ 16
  Total Production 210 to 230   210 to 230
       
  E&P Operating Costs ($/Mcfe)      
  LOE $0.85 - $0.90   $0.85 - $0.90
  G&A $0.25 - $0.35   $0.25 - $0.35
  DD&A $0.70 - $0.75   $0.70 - $0.75
       
Other Business Segment Guidance (Millions)      
  Gathering Segment Revenues $130 - $140   $130 - $140
  Pipeline and Storage Segment Revenues ~$285   ~$285


NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
QUARTER ENDED DECEMBER 31, 2018
(Unaudited)
                           
  Upstream   Midstream Businesses   Downstream Businesses        
                           
  Exploration &   Pipeline &           Energy   Corporate /    
(Thousands of Dollars) Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
                           
First quarter 2018 GAAP earnings $ 106,698     $ 38,462     $ 45,400     $ 20,993     $ 1,046     $ (13,945 )   $ 198,654  
Items impacting comparability:                          
Remeasurement of deferred taxes under 2017 Tax Reform (77,300 )   (14,100 )   (34,900 )       200     15,100     (111,000 )
Unrealized loss on hedge ineffectiveness 433                         433  
Tax impact of unrealized loss on hedge ineffectiveness (106 )                       (106 )
First quarter 2018 adjusted operating results 29,725     24,362     10,500     20,993     1,246     1,155     87,981  
                           
Drivers of adjusted operating results**                          
                           
Upstream Revenues                          
Higher (lower) natural gas production 19,897                         19,897  
Higher (lower) crude oil production (4,563 )                       (4,563 )
Higher (lower) realized natural gas prices, after hedging (3,563 )                       (3,563 )
Higher (lower) realized crude oil prices, after hedging 825                         825  
                           
Midstream Revenues                          
Higher (lower) operating revenues     1,339     4,421                 5,760  
                           
Downstream Margins***                          
Impact of higher usage and weather             1,739             1,739  
System modernization tracker revenues             889             889  
Lower (higher) refund provision on tax rate change             413             413  
Higher (lower) marketing margins                 (1,827 )       (1,827 )
                           
Operating Expenses                          
Lower (higher) lease operating and transportation expenses (2,201 )                       (2,201 )
Lower (higher) operating expenses (1,068 )   (2,991 )   (549 )               (4,608 )
Lower (higher) property, franchise and other taxes (2,109 )                       (2,109 )
Lower (higher) depreciation / depletion (5,493 )       (446 )               (5,939 )
                           
Other Income (Expense)                          
(Higher) lower interest expense 159     445     (28 )   713     5     274     1,568  
                           
Income Taxes                          
Impact of tax rate reduction due to 2017 Tax Reform 1,593     796     586     1,007     (30 )   (218 )   3,734  
Lower (higher) income tax expense / effective tax rate (1,184 )   1,635     (600 )   (30 )   162     103     86  
                           
All other / rounding 67     (484 )   (201 )   (75 )   (56 )   202     (547 )
First quarter 2019 adjusted operating results 32,085     25,102     13,683     25,649     (500 )   1,516     97,535  
                           
Remeasurement of deferred taxes under 2017 Tax Reform 990         500         198     3,312     5,000  
Unrealized gain on hedge ineffectiveness 6,505                         6,505  
Tax impact of unrealized gain on hedge ineffectiveness (1,366 )                       (1,366 )
Unrealized (loss) on other investments                     (6,347 )   (6,347 )
Tax impact of unrealized loss on other investments                     1,333     1,333  
First quarter 2019 GAAP earnings $ 38,214     $ 25,102     $ 14,183     $ 25,649     $ (302 )   $ (186 )   $ 102,660  
                           
* Amounts do not reflect intercompany eliminations                          
** Operating results have been calculated using the 24.5% federal statutory rate effective for the 2018 fiscal year. The impact of the change to a 21% federal statutory rate for the 2019 fiscal year is broken out separately under the caption "Income Taxes".
*** Downstream margin defined as operating revenues less purchased gas expense.


NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
QUARTER ENDED DECEMBER 31, 2018
(Unaudited)
                           
  Upstream   Midstream Businesses   Downstream Businesses        
                           
  Exploration &   Pipeline &           Energy   Corporate /    
  Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
                           
First quarter 2018 GAAP earnings per share $ 1.24     $ 0.45     $ 0.53     $ 0.24     $ 0.01     $ (0.17 )   $ 2.30  
Items impacting comparability:                          
Remeasurement of deferred taxes under 2017 Tax Reform (0.90 )   (0.16 )   (0.40 )           0.17     (1.29 )
Unrealized loss on hedge ineffectiveness 0.01                         0.01  
Tax impact of unrealized loss on hedge ineffectiveness                          
Rounding (0.01 )   (0.01 )   (0.01 )       0.01     0.02      
First quarter 2018 adjusted operating results per share 0.34     0.28     0.12     0.24     0.02     0.02     1.02  
                           
Drivers of adjusted operating results**                          
                           
Upstream Revenues                          
Higher (lower) natural gas production 0.23                         0.23  
Higher (lower) crude oil production (0.05 )                       (0.05 )
Higher (lower) realized natural gas prices, after hedging (0.04 )                       (0.04 )
Higher (lower) realized crude oil prices, after hedging 0.01                         0.01  
                           
Midstream Revenues                          
Higher (lower) operating revenues     0.02     0.05                 0.07  
                           
Downstream Margins***                          
Impact of higher usage and weather             0.02             0.02  
System modernization tracker revenues             0.01             0.01  
Lower (higher) refund provision on tax rate change                          
Higher (lower) marketing margins                 (0.02 )       (0.02 )
                           
Operating Expenses                          
Lower (higher) lease operating and transportation expenses (0.03 )                       (0.03 )
Lower (higher) operating expenses (0.01 )   (0.03 )   (0.01 )               (0.05 )
Lower (higher) property, franchise and other taxes (0.02 )                       (0.02 )
Lower (higher) depreciation / depletion (0.06 )       (0.01 )               (0.07 )
                           
Other Income (Expense)                          
(Higher) lower interest expense     0.01         0.01             0.02  
                           
Income Taxes                          
Impact of tax rate reduction due to 2017 Tax Reform 0.02     0.01     0.01     0.01             0.05  
Lower (higher) income tax expense / effective tax rate (0.01 )   0.02     (0.01 )                
                           
All other / rounding (0.01 )   (0.02 )   0.01     0.01     (0.01 )   (0.01 )   (0.03 )
First quarter 2019 adjusted operating results per share 0.37     0.29     0.16     0.30     (0.01 )   0.01     1.12  
                           
Remeasurement of deferred taxes under 2017 Tax Reform 0.01         0.01             0.04     0.06  
Unrealized gain on hedge ineffectiveness 0.08                         0.08  
Tax impact of unrealized gain on hedge ineffectiveness (0.02 )                       (0.02 )
Unrealized (loss) on other investments                     (0.07 )   (0.07 )
Tax impact of unrealized loss on other investments                     0.01     0.01  
Rounding         (0.01 )       0.01          
First quarter 2019 GAAP earnings per share $ 0.44     $ 0.29     $ 0.16     $ 0.30     $     $ (0.01 )   $ 1.18  
                           
* Amounts do not reflect intercompany eliminations                          
** Operating results have been calculated using the 24.5% federal statutory rate effective for the 2018 fiscal year. The impact of the change to a 21% federal statutory rate for the 2019 fiscal year is broken out separately under the caption "Income Taxes".
*** Downstream margin defined as operating revenues less purchased gas expense.


         
         
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
         
(Thousands of Dollars, except per share amounts)        
  Three Months Ended  
  December 31,  
  (Unaudited)  
SUMMARY OF OPERATIONS 2018   2017  
Operating Revenues:        
Utility and Energy Marketing Revenues $ 272,092     $ 225,725    
Exploration and Production and Other Revenues 163,937     140,450    
Pipeline and Storage and Gathering Revenues 54,218     53,480    
  490,247     419,655    
Operating Expenses:        
Purchased Gas 138,660     94,034    
Operation and Maintenance:        
  Utility and Energy Marketing 43,915     44,080    
  Exploration and Production and Other 32,795     35,083    
  Pipeline and Storage and Gathering 24,934     20,311    
Property, Franchise and Other Taxes 24,005     20,848    
Depreciation, Depletion and Amortization 64,255     55,830    
  328,564     270,186    
         
Operating Income 161,683     149,469    
         
Other Income (Expense):        
Other Income (Deductions) (9,602 )   (3,503 )  
Interest Expense on Long-Term Debt (25,439 )   (28,087 )  
Other Interest Expense (1,073 )   (502 )  
         
Income Before Income Taxes 125,569     117,377    
         
Income Tax Expense (Benefit) 22,909     (81,277 )  
         
Net Income Available for Common Stock $ 102,660     $ 198,654    
         
Earnings Per Common Share        
Basic $ 1.19     $ 2.32    
Diluted $ 1.18     $ 2.30    
         
Weighted Average Common Shares:        
Used in Basic Calculation 86,032,729   85,630,296  
Used in Diluted Calculation 86,708,814   86,325,537  


NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
   
  December 31,   September 30,
(Thousands of Dollars)   2018     2018
       
ASSETS      
Property, Plant and Equipment $ 10,604,089     $ 10,439,839  
Less - Accumulated Depreciation, Depletion and Amortization   5,520,472       5,462,696  
Net Property, Plant and Equipment   5,083,617       4,977,143  
       
Current Assets:      
Cash and Temporary Cash Investments   109,754       229,606  
Hedging Collateral Deposits   2,784       3,441  
Receivables - Net   192,604       141,498  
Unbilled Revenue   74,497       24,182  
Gas Stored Underground   30,336       37,813  
Materials and Supplies - at average cost   34,947       35,823  
Unrecovered Purchased Gas Costs   8,700       4,204  
Other Current Assets   69,219       68,024  
Total Current Assets   522,841       544,591  
       
Other Assets:      
Recoverable Future Taxes   114,219       115,460  
Unamortized Debt Expense   15,412       15,975  
Other Regulatory Assets   111,611       112,918  
Deferred Charges   42,994       40,025  
Other Investments   129,715       132,545  
Goodwill   5,476       5,476  
Prepaid Post-Retirement Benefit Costs   84,609       82,733  
Fair Value of Derivative Financial Instruments   34,244       9,518  
Other   42,190       102  
Total Other Assets   580,470       514,752  
Total Assets $ 6,186,928     $ 6,036,486  
       
CAPITALIZATION AND LIABILITIES      
Capitalization:      
Comprehensive Shareholders' Equity      
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and      
Outstanding - 86,270,957 Shares and 85,956,814 Shares, Respectively $ 86,271     $ 85,957  
Paid in Capital   817,076       820,223  
Earnings Reinvested in the Business   1,172,334       1,098,900  
Accumulated Other Comprehensive Loss   (28,690 )     (67,750 )
Total Comprehensive Shareholders' Equity   2,046,991       1,937,330  
Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs   2,131,880       2,131,365  
Total Capitalization   4,178,871       4,068,695  
       
Current and Accrued Liabilities:      
Notes Payable to Banks and Commercial Paper          
Current Portion of Long-Term Debt          
Accounts Payable   127,926       160,031  
Amounts Payable to Customers         3,394  
Dividends Payable   36,663       36,532  
Interest Payable on Long-Term Debt   30,016       19,062  
Customer Advances   7,351       13,609  
Customer Security Deposits   23,842       25,703  
Other Accruals and Current Liabilities   191,172       132,693  
Fair Value of Derivative Financial Instruments   2,112       49,036  
Total Current and Accrued Liabilities   419,082       440,060  
       
Deferred Credits:      
Deferred Income Taxes   598,285       512,686  
Taxes Refundable to Customers   366,448       370,628  
Cost of Removal Regulatory Liability   214,842       212,311  
Other Regulatory Liabilities   150,337       146,743  
Pension and Other Post-Retirement Liabilities   40,842       66,103  
Asset Retirement Obligations   104,343       108,235  
Other Deferred Credits   113,878       111,025  
Total Deferred Credits   1,588,975       1,527,731  
Commitments and Contingencies          
Total Capitalization and Liabilities $ 6,186,928     $ 6,036,486  


         
         
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
    Three Months Ended
    December 31,
(Thousands of Dollars)   2018   2017
         
Operating Activities:        
Net Income Available for Common Stock   $ 102,660     $ 198,654  
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
       
Depreciation, Depletion and Amortization   64,255     55,830  
Deferred Income Taxes   64,175     (94,676 )
Stock-Based Compensation   5,311     3,905  
Other   2,182     3,678  
Change in:        
Receivables and Unbilled Revenue   (101,541 )   (83,357 )
Gas Stored Underground and Materials and Supplies   8,353     10,337  
Unrecovered Purchased Gas Costs   (4,496 )   (3,164 )
Other Current Assets   (1,195 )   3,591  
Accounts Payable   1,502     13,173  
Amounts Payable to Customers   (3,394 )   251  
Customer Advances   (6,258 )   2,697  
Customer Security Deposits   (1,861 )   2,131  
Other Accruals and Current Liabilities   38,412     11,532  
Other Assets   (42,400 )   (5,275 )
Other Liabilities   (21,333 )   (21,775 )
Net Cash Provided by Operating Activities   $ 104,372     $ 97,532  
         
Investing Activities:        
Capital Expenditures   $ (177,567 )   $ (142,613 )
Other   (2,549 )   2,612  
Net Cash Used in Investing Activities   $ (180,116 )   $ (140,001 )
         
Financing Activities:        
Reduction of Long-Term Debt   $     $ (307,047 )
Dividends Paid on Common Stock   (36,532 )   (35,500 )
Net Repurchases of Common Stock   (8,233 )   (1,501 )
Net Cash Used in Financing Activities   $ (44,765 )   $ (344,048 )
         
Net Decrease in Cash, Cash Equivalents, and Restricted Cash   (120,509 )   (386,517 )
Cash, Cash Equivalents, and Restricted Cash at October 1   233,047     557,271  
Cash, Cash Equivalents, and Restricted Cash at December 31   $ 112,538     $ 170,754  


...
             
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
             
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
             
UPSTREAM BUSINESS
             
             
  Three Months Ended  
(Thousands of Dollars, except per share amounts) December 31,  
EXPLORATION AND PRODUCTION SEGMENT 2018   2017