National Fuel Reports Fourth Quarter and Full Year Fiscal 2020 Earnings

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WILLIAMSVILLE, N.Y., Nov. 05, 2020 (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, 2020.

FISCAL 2020 HIGHLIGHTS

  • Completed highly-accretive acquisition of Appalachian upstream and midstream gathering assets in July, which is expected to generate in excess of $100 million of consolidated E&P and Gathering segment free cash flow in fiscal 2021

  • E&P segment capital expenditures reduced by $107 million, or 22% from the prior year, excluding the Company's Appalachian upstream acquisition (see page 20)

  • E&P segment net production of 241.5 Bcfe, an increase of 29.7 Bcfe, or 14%, from the prior year, with corresponding 13% increase in Gathering segment throughput

  • Increased E&P segment reserves to approximately 3.5 Tcfe, an increase of 12% versus fiscal 2019, driven largely by the Company's recent acquisition, which added 684 Bcf of proved developing producing reserves at a cost of $0.36 per Mcf

  • Placed Empire North project into service in mid-September, which is expected to generate $27 million in incremental annual Pipeline & Storage segment revenue

  • Invested $71.4 million in Utility system modernization and reliability, replacing over 150 miles of older vintage mains and services, and bringing 5-year total to over $341 million

  • Increased shareholder dividend for the 50th consecutive year to an annual rate of $1.78 per share

  • Published initial Corporate Responsibility Report in September 2020, which is available on the Company's corporate responsibility website, responsibility.natfuel.com

FISCAL 2020 FOURTH QUARTER SUMMARY

  • GAAP net loss of $145.5 million, or $1.60 per share, which includes a $183.7 million non-cash, after-tax impairment of oil and gas properties, compared to GAAP net income of $47.3 million, or $0.54 per share, in the prior year

  • Adjusted operating results of $36.3 million, or $0.40 per share, compared to $47.0 million, or $0.54 per share, in the prior year (see non-GAAP reconciliation on page 2)

  • Adjusted EBITDA of $159.6 million compared to $157.3 million in the prior year (non-GAAP reconciliation on page 25)

  • Pipeline & Storage segment Adjusted EBITDA of $47.0 million, an increase of 31% from the prior year

  • Gathering segment Adjusted EBITDA of $33.1 million, an increase of 11% from the prior year

  • E&P segment net production of 67.3 Bcfe, an increase of 8.2 Bcfe, or 14%, from the prior year, which includes the impact of the Company's recently-closed Appalachian acquisition and approximately 6 Bcf of price-related natural gas curtailments

  • Average natural gas prices of $1.92 per Mcf, after hedge gains of $0.28 per Mcf, down $0.34 per Mcf from the prior year

  • Average oil prices of $55.70 per Bbl, after hedge gains of $14.49 per Bbl, down $5.30 per Bbl from the prior year

MANAGEMENT COMMENTS

David P. Bauer, President and Chief Executive Officer of National Fuel Gas Company, stated: National Fuel turned a challenging 2020 fiscal year into one of opportunity, with several important milestones achieved in our fourth quarter. Over the past few months, we completed a highly-accretive acquisition, brought online the $129 million Empire North expansion project, and received the FERC certificate for our $279 million FM100 Project, giving us line of sight on significant growth in the years ahead. In addition, our Utility completed its annual system modernization program, through which over 150 miles of older vintage pipelines were replaced, further reducing our greenhouse gas emissions. And, in September, the Company published its initial Corporate Responsibility Report, an important step in the continuous improvement of our environmental, social, and governance initiatives and disclosures.

These milestones were not possible without the significant efforts of National Fuels 2,100 dedicated and hard-working employees, who have continued to meet the increased demands of our business during the pendency of the COVID-19 pandemic. Throughout the year, as we confronted the constantly evolving landscape of the health crisis, as well as significant commodity price headwinds, our integrated, diversified business model continued to provide an important measure of stability and predictability.

As we move into fiscal 2021, National Fuel is well-positioned for growth, and we expect our Appalachian acquisition, which included significant, highly-economic drilling inventory, as well as the substantial growth of our FERC-regulated pipelines, to drive long-term value for our shareholders.  Combining this with a large base of stable, regulated cash flows, we are poised to generate strong consolidated returns, and grow our earnings and cash flows in the years ahead, while maintaining the strength of the Companys investment-grade balance sheet and our focus on the sustainability of our operations.

RECONCILIATION OF GAAP EARNINGS TO ADJUSTED OPERATING RESULTS

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 Fiscal Year Ended

 

 September 30,

 

 September 30,

(in thousands except per share amounts)

2020

 

2019

 

2020

 

2019

Reported GAAP Earnings

$

(145,545

)

 

$

47,281

 

 

$

(123,772

)

 

$

304,290

 

Items impacting comparability:

 

 

 

 

 

 

 

Impairment of oil and gas properties (E&P)

253,441

 

 

 

 

449,438

 

 

 

Tax impact of impairment of oil and gas properties

(69,698

)

 

 

 

(123,187

)

 

 

Deferred tax valuation allowance as of March 31, 2020

 

 

 

 

56,770

 

 

 

Remeasurement of deferred income taxes under 2017 Tax Reform

 

 

 

 

 

 

(5,000

)

Mark-to-market adjustments due to hedge ineffectiveness (E&P)

 

 

(1,313

)

 

 

 

(2,096

)

Tax impact of mark-to-market adjustments due to hedge ineffectiveness

 

 

276

 

 

 

 

440

 

Unrealized (gain) loss on other investments (Corporate / All Other)

(2,439

)

 

949

 

 

(1,645

)

 

2,045

 

Tax impact of unrealized (gain) loss on other investments

512

 

 

(199

)

 

345

 

 

(429

)

Adjusted Operating Results

$

36,271

 

 

$

46,994

 

 

$

257,949

 

 

$

299,250

 

 

 

 

 

 

 

 

 

Reported GAAP Earnings Per Share

$

(1.60

)

 

$

0.54

 

 

$

(1.41

)

 

$

3.51

 

Items impacting comparability:

 

 

 

 

 

 

 

Impairment of oil and gas properties, net of tax (E&P)

2.02

 

 

 

 

3.71

 

 

 

Deferred tax valuation allowance as of March 31, 2020

 

 

 

 

0.65

 

 

 

Remeasurement of deferred income taxes under 2017 Tax Reform

 

 

 

 

 

 

(0.06

)

Mark-to-market adjustments due to hedge ineffectiveness, net of tax (E&P)

 

 

(0.01

)

 

 

 

(0.02

)

Unrealized (gain) loss on other investments, net of tax (Corporate / All Other)

(0.02

)

 

0.01

 

 

(0.01

)

 

0.02

 

Earnings per share impact of diluted shares

 

 

 

 

(0.02

)

 

 

Adjusted Operating Results Per Share

$

0.40

 

 

$

0.54

 

 

$

2.92

 

 

$

3.45

 

FISCAL 2021 GUIDANCE UPDATE

National Fuel is revising its fiscal 2021 earnings guidance to reflect updated forecast assumptions and projections, including the impact of increased near-term natural gas price expectations since the Companys preliminary guidance was announced in August 2020.  The Company is now projecting that earnings will be within the range of $3.55 to $3.85 per share, an increase of 27% from the Companys 2020 adjusted operating results at the midpoint of the updated guidance range. The increase from the preliminary guidance is primarily due to higher expected price realizations on Senecas natural gas production and lower expected depreciation, depletion and amortization (DD&A) rates at Seneca as a result of the Companys fourth quarter fiscal 2020 impairment, which is expected to be partially offset by lower expected price realizations on Senecas crude oil production.

The Company is now assuming that NYMEX natural gas prices will average $3.00 per MMBtu in fiscal 2021, an increase of $0.35 per MMBtu from the $2.65 per MMBtu assumed in the preliminary guidance.  Additionally, the Company is now assuming that WTI oil prices will average $37.50 per Bbl in fiscal 2021, a $5.00 decrease from the $42.50 per Bbl assumed in the previous guidance.  For guidance purposes, the Companys updated projections approximate 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, and financial hedge contracts.

During the fourth quarter, Seneca executed approximately 30 billion cubic feet (Bcf) of new NYMEX natural gas swap contracts for fiscal 2021. Seneca currently has firm sales contracts in place for 275 Bcf, or approximately 90% of its projected fiscal 2021 Appalachian production, limiting its exposure to in-basin markets.  Approximately 234 Bcf of those sales, or 77% of Senecas expected Appalachian production, are either matched by a financial hedge, including a combination of swaps and no-cost collars, or were entered into at a fixed price.

In connection with the continued development of the Leidy South and FM100 projects, both of which are on track to come online in the fourth quarter of calendar 2021, the Company now plans to add a second horizontal drilling rig in Appalachia in early calendar 2021.  Production from the first pad that will be drilled in connection with this activity addition is expected in early fiscal 2022. Overall, the Company's increased activity will allow Seneca to utilize its 330,000 dekatherms per day of incremental pipeline capacity on Leidy South to reach premium markets during the winter heating season.  The Company expects this second drilling rig to focus on the development of its highly-economic Eastern Development Area (EDA) assets, including its recently-acquired inventory in Tioga, County, Pa.  In order to further mitigate the risk of commodity price exposure for this additional activity, Seneca executed approximately 16 Bcf of new NYMEX natural gas swap contracts for fiscal 2022 at an average price of $2.90 per Mcf.  In total, Seneca now has approximately 170 Bcf of its fiscal 2022 Appalachian production secured by either financial hedges or fixed price physical sales contracts.

As a result of Senecas additional activity, the Company is increasing its Exploration and Production segment capital expenditure range to $350 million to $390 million, an increase of $60 million at the midpoint of the Companys updated guidance range, and a decrease of approximately $15 million from Senecas 2020 fiscal year capital expenditures.  Based on the Company's fiscal 2021 assumptions, the Company expects its consolidated Exploration and Production and Gathering segment funds from operations to significantly exceed those segments' capital expenditures for the year, generating in excess of $100 million in consolidated free cash flow from these businesses.

In total, the Companys consolidated capital expenditures in fiscal 2021 are now expected to be in the range of $720 million to $830 million.  Based on the Companys fiscal 2021 assumptions, it still anticipates its cash flow from operations to exceed its capital expenditures for the year.

The Companys other guidance assumptions remain largely unchanged from the previous guidance. Additional details on the Company's updated forecast assumptions and business segment guidance for fiscal 2021 are outlined in the table on page 8.

DISCUSSION OF FOURTH QUARTER RESULTS BY SEGMENT  

The following earnings discussion of each operating segment for the quarter ended September 30, 2020 is summarized in a tabular form on pages 9 and 10 of this report (earnings drivers for the fiscal year ended September 30, 2020 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

 

September 30,

(in thousands)

2020

 

2019

 

Variance

GAAP Earnings

$

(169,171

)

 

$

25,208

 

 

$

(194,379

)

Impairment of oil and gas properties, net of tax

183,743

 

 

 

 

183,743

 

Mark-to-market adjustments due to hedge ineffectiveness, net of tax

 

 

(1,037

)

 

1,037

 

Adjusted Operating Results

$

14,572

 

 

$

24,171

 

 

$

(9,599

)

 

 

 

 

 

 

Adjusted EBITDA

$

75,439

 

 

$

89,509

 

 

$

(14,070

)

Senecas fourth quarter GAAP earnings decreased $194.4 million versus the prior year.  This was primarily driven by a non-cash, pre-tax impairment charge of $253.4 million ($183.7 million after-tax) to write-down the value of Senecas oil and natural gas reserves under the full cost method of accounting. This method requires Seneca to perform a quarterly ceiling test comparing the present value of future net revenues from its oil and natural gas reserves based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the 12-month period prior to the end of the reporting period (the ceiling) with the book value of those reserves at the balance sheet date.  If the book value of the reserves exceeds the ceiling, a non-cash impairment charge must be recorded in order to reduce the book value of the reserves to the calculated ceiling.  Seneca could potentially record non-cash impairments in future quarters depending on the commodity price environment.

Excluding this item, as well as the net impact of non-cash mark-to-market adjustments recorded in the prior year relating to hedge ineffectiveness (see table above), Senecas fourth quarter earnings decreased $9.6 million as the positive impacts of higher natural gas production and a lower effective income tax rate after the effect of the impairment were more than offset by the negative impacts of lower realized natural gas and crude oil prices, lower crude oil production, higher operating expenses resulting from increased production and higher interest expense.

Seneca produced 67.3 Bcfe during the fourth quarter, an increase of 8.2 Bcfe, or 14%, from the prior year.  Natural gas production increased 8.6 Bcf, or 15%, due primarily to production from the Company's acquisition of Appalachian upstream assets on July 31, 2020, and new Marcellus and Utica wells in Appalachia, partially offset by approximately 6 Bcf of price-related curtailments.  Net production increased 5.5 Bcf to 36.2 Bcf in the Eastern Development Area ("EDA"), primarily due to higher production from the Company's recent Appalachian acquisition, partly offset by natural production declines and the impact of price-related curtailments. Net production increased 3.2 Bcf to 27.3 Bcf in Senecas Western Development Area ("WDA"), primarily due to the ongoing development program in the region partially offset by price-related curtailments.  Oil production for the fourth quarter decreased 56,000 Bbls, or 9%, from the prior year due to a decline in production from assets in the Midway Sunset area of California driven by a reduction in steam injection rates in response to decreased oil prices, as well as workover activities, partially offset by new production brought on-line in Senecas Coalinga development area.

Seneca's average realized natural gas price, after the impact of transportation costs and $0.28 per Mcf of hedging gains, was $1.92 per Mcf, a decrease of $0.34 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 $14.49 per Bbl of hedging gains, was $55.70 per Bbl, a decrease of $5.30 per Bbl compared to the prior year.  The decline in oil price realizations was due primarily to lower market prices for unhedged crude oil during the quarter and reduced price differentials at local sales points in California.

Lease operating and transportation (LOE) expense increased $4.6 million primarily due to higher transportation costs in Appalachia from increased production, partly offset by a decline in well repairs, workover activity and steam fuel costs in California.  LOE expense includes the fees paid to the Companys Gathering segment for gathering and compression services used to connect Senecas Marcellus and Utica production to sales points along interstate pipelines.  DD&A expense decreased $0.7 million due largely to the ceiling test impairments recorded during fiscal 2020, partially offset by higher natural gas production.  On a unit of production basis, Seneca's combined general and administrative ("G&A"), LOE and DD&A expenses during the quarter collectively decreased $0.15 per Mcfe, or 8%, during the quarter.  Interest expense increased by $1.3 million from the prior year, primarily driven by additional long-term borrowings from the Company's long-term debt issuance in June 2020 that was used to fund a portion of the Company's Appalachian acquisition.  The reduction in Seneca's effective income tax rate was largely driven by a reduction to deferred state income taxes as a result of the recent Appalachian acquisition.

Proved Reserves Year-End Update

Senecas total proved natural gas and crude oil reserves at September 30, 2020 were 3,458 Bcfe, an increase of 359 Bcfe, or 12%, from September 30, 2019.  Senecas proved developed reserves at the end of fiscal 2020 were 2,906 Bcfe, representing 84% of total proved reserves, compared to 67% a year ago. The proved reserves base is approximately 96% natural gas and 4% oil.  In fiscal 2020, Seneca recorded 684 Bcfe of proved developed producing reserves as a result of its recent Appalachian acquisition, 9 Bcfe of proved reserve extensions and discoveries, primarily in Appalachia, and 93 Bcfe of downward revisions due primarily to changes in development plans and certain price-related revisions.

Midstream Businesses

Pipeline and Storage Segment

The Pipeline and Storage segments 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

 

September 30,

(in thousands)

2020

 

2019

 

Variance

GAAP Earnings

$

16,045

 

$

15,368

 

$

677

 

 

 

 

 

 

Adjusted EBITDA

$

46,966

 

$

35,747

 

$

11,219

The Pipeline and Storage segments fourth quarter GAAP earnings increased $0.7 million versus the prior year, with higher operating revenues and lower operation and maintenance ("O&M") expenses partially offset by higher DD&A expense, higher interest expense, a decrease in other income and a higher effective income tax rate.  The increase in operating revenues of $10.4 million, or 15%, was largely due to an increase in Supply Corporation's transportation and storage rates effective February 1, 2020, in accordance with Supply Corporation's rate case settlement, coupled with new demand charges for transportation service from the Company's Empire North expansion project, which was placed in service during the fourth quarter, and from Supply Corporation's Line N to Monaca expansion project.  O&M expense decreased $0.9 million due to lower pipeline integrity, compressor and facility maintenance costs.  The increase in DD&A expense of $3.3 million was primarily attributable to an increase in Supply Corporation's depreciation rates associated with its rate case settlement.  The increase in interest expense of $3.6 million was primarily driven by additional long-term borrowings from the Company's long-term debt issuance in June 2020.  The decrease in other income of $2.5 million was primarily due to higher non-service pension and post-retirement benefit costs coupled with a decrease in allowance for funds used during construction (AFUDC).  The increase in the effective income tax rate was largely due to differences in book and tax treatment of stock compensation.

Gathering Segment

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

 

Three Months Ended

 

September 30,

(in thousands)

2020

 

2019

 

Variance

GAAP Earnings

$

17,550

 

$

16,902

 

$

648

 

 

 

 

 

 

Adjusted EBITDA

$

33,062

 

$

29,895

 

$

3,167

The Gathering segments fourth quarter GAAP earnings increased $0.6 million versus the prior year. The increase was primarily driven by higher operating revenues and the impact of a lower effective income tax rate, which were partially offset by higher DD&A expense, higher O&M expenses and higher interest expense.  Operating revenues increased $4.4 million primarily due to an 8.3 Bcf increase in gathered volumes resulting from the Company's recent Appalachian acquisition that included certain midstream gathering assets and from new Appalachian wells that were brought on-line, partially offset by decreases in gathered volumes resulting from natural production declines and the impact of price-related curtailments.  The increase in DD&A expense of $1.6 million was primarily attributable to incremental depreciation expense related to the fourth quarter Appalachian acquisition.  This acquisition also contributed in part to the $1.2 million increase in O&M expense, with the remainder of the increase due to higher compressor facility and maintenance costs.  The increase in interest expense of $1.7 million was primarily driven by additional long-term borrowings from the Company's long-term debt issuance in June 2020 that was used to fund a portion of the Appalachian acquisition.   The reduction in the Gathering segment's effective income tax rate was primarily due to a reduction to estimated deferred state income taxes as a result of the recent Appalachian acquisition.

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

 

September 30,

(in thousands)

2020

 

2019

 

Variance

GAAP Earnings

$

(6,969

)

 

$

(7,728

)

 

$

759

 

 

 

 

 

 

Adjusted EBITDA

$

8,550

 

 

$

6,714

 

 

$

1,836

The Utility segments fourth quarter net loss was $0.8 million lower than the prior-year fourth quarter primarily due to higher customer margin (operating revenues less purchased gas sold), partially offset by higher O&M expense.  The increase in customer margin was due primarily to an increase in customer usage and the impact of adjustments related to regulatory rate and cost recovery mechanisms subject to annual reconciliation.

The $2.7 million increase in O&M expense was primarily attributable to higher personnel costs and incremental expense recorded to increase the allowance for uncollectible accounts due to the potential for future customer non-payment resulting from the current economic backdrop brought on by COVID-19.

Corporate and All Other

The Companys operations that are included in Corporate and All Other generated a combined net loss of $3.0 million in the current year fourth quarter, generally consistent with the combined net loss of $2.5 million generated in the prior-year fourth quarter.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, November 6, 2020, at 11 a.m. Eastern Time to discuss this announcement.  Pre-registration is required to access the teleconference by phone in a listen-only mode by following this link:  http://www.directeventreg.com/registration/event/5657046 .  To access the webcast, visit the Events Calendar under the News & Events page on the NFG Investor Relations website at investor.nationalfuelgas.com .  A replay of the conference call will be available approximately two hours following the teleconference at the same website link and by phone (toll-free) at 800-585-8367 using conference ID number 5657046.  Both the webcast and conference call replay will be available until the close of business on Friday, November 13, 2020.

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 Companys 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:  the Company's ability to successfully integrate acquired assets, including Shell's upstream assets and midstream gathering assets in Pennsylvania, and achieve expected cost synergies; the length and severity of the recent COVID-19 pandemic, including its impacts across our businesses on demand, operations, global supply chains and liquidity; changes in economic conditions, including global, national or regional recessions, and their effect on the demand for, and customers ability to pay for, the Companys products and services; changes in the price of natural gas or oil; impairments under the SECs full cost ceiling test for natural gas and oil reserves; the creditworthiness or performance of the Companys key suppliers, customers and counterparties; financial and economic conditions, including the availability of credit, and occurrences affecting the Companys ability to obtain financing on acceptable terms for working capital, capital expenditures and other investments, including any downgrades in the Companys credit ratings and changes in interest rates and other capital market conditions; 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 disruptions due to the COVID-19 pandemic, as well as difficulties or delays in obtaining necessary governmental approvals, permits or orders or in obtaining the cooperation of interconnecting facility operators; the Company's ability to complete planned strategic transactions; 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 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; the impact of  information technology disruptions, cybersecurity or data security breaches; factors affecting the Companys 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; 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 Companys 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 Companys pension and other post-retirement benefits, which can affect future funding obligations and costs and plan liabilities; economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities or acts of war; significant differences between the Companys 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 2021.  Additional details on the Company's forecast assumptions and business segment guidance are outlined in the table below.

While the Company could potentially record non-cash impairments in future quarters depending on the commodity price environment, the amount of these charges is not reasonably determinable at this time. The amount of any ceiling test charge is determined at the end of the applicable quarter and will depend on many factors, including additions to or subtractions from proved reserves, fluctuations in oil and gas prices, and income tax effects related to the differences between the book and tax basis of the Companys oil and gas properties. Some or all of these factors are likely to be significant. Because any potential ceiling test impairment charges and other potential items impacting comparability are not reasonably determinable at this time, the Company is unable to provide earnings guidance other than on a non-GAAP basis that excludes these items.

 

Preliminary FY 2021 Guidance

 

Updated FY 2021 Guidance

Consolidated Earnings per Share, excluding items impacting comparability

$3.40 to $3.70

 

$3.55 to $3.85

Consolidated Effective Tax Rate

~ 26%

 

~ 26%

 

 

 

 

Capital Expenditures (Millions)

 

 

 

Exploration and Production

$290 - $330

 

$350 - $390

Pipeline and Storage

$250 - $300

 

$250 - $300

Gathering

$30 - $40

 

$30 - $40

Utility

$90 - $100

 

$90 - $100

Consolidated Capital Expenditures

$660 - $770

 

$720 - $830

 

 

 

 

Exploration & Production Segment Guidance

 

 

 

 

 

 

 

Commodity Price Assumptions

 

 

 

NYMEX natural gas price

$2.65 /MMBtu

 

$3.00 /MMBtu

Appalachian basin spot price (winter I summer)

$2.25 /MMBtu | $2.00 /MMBtu

 

$2.50 /MMBtu | $2.10 /MMBtu

NYMEX (WTI) crude oil price

$42.50 /Bbl

 

$37.50 /Bbl

California oil price premium (% of WTI)

95%

 

94%

 

 

 

 

Production (Bcfe)

 

 

 

East Division - Appalachia

290 to 320

 

290 to 320

West Division - California

~ 15

 

~ 15

Total Production

305 to 335

 

305 to 335

 

 

 

 

E&P Operating Costs ($/Mcfe)

 

 

 

LOE

$0.83 - $0.85

 

$0.83 - $0.86

G&A

$0.21 - $0.23

 

$0.21 - $0.23

DD&A

$0.65 - $0.70

 

$0.60 - $0.65

 

 

 

 

Other Business Segment Guidance (Millions)

 

 

 

Gathering Segment Revenues

$185 - $200

 

$185 - $200

Pipeline and Storage Segment Revenues

$330 - $340

 

$330 - $340

 

 

 

 


NATIONAL FUEL GAS COMPANY

RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS

QUARTER ENDED SEPTEMBER 30, 2020

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream

 

Midstream

 

Downstream

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exploration &

 

Pipeline &

 

 

 

 

 

Corporate /

 

 

(Thousands of Dollars)

Production

 

Storage

 

Gathering

 

Utility

 

All Other

 

Consolidated*

 

 

 

 

 

 

 

 

 

 

 

 

Fourth quarter 2019 GAAP earnings

$

25,208

 

 

$

15,368

 

 

$

16,902

 

 

$

(7,728

)

 

$

(2,469

)

 

$

47,281

 

 

 

 

 

 

 

 

 

 

 

 

 

Items impacting comparability:

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market adjustments due to hedge ineffectiveness

(1,313

)

 

 

 

 

 

 

 

 

 

(1,313

)

Tax impact of mark-to-market adjustments due to hedge ineffectiveness

276

 

 

 

 

 

 

 

 

 

 

276

 

Unrealized (gain) loss on other investments

 

 

 

 

 

 

 

 

949

 

 

949

 

Tax impact of unrealized (gain) loss on other investments

 

 

 

 

 

 

 

 

(199

)

 

(199

)

Fourth quarter 2019 adjusted operating results

24,171

 

 

15,368

 

 

16,902

 

 

(7,728

)

 

(1,719

)

 

46,994

 

 

 

 

 

 

 

 

 

 

 

 

 

Drivers of adjusted operating results**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream Revenues

 

 

 

 

 

 

 

 

 

 

 

Higher (lower) natural gas production

15,257

 

 

 

 

 

 

 

 

 

 

15,257

 

Higher (lower) crude oil production

(2,694

)

 

 

 

 

 

 

 

 

 

(2,694

)

Higher (lower) realized natural gas prices, after hedging

(16,951

)

 

 

 

 

 

 

 

 

 

(16,951

)

Higher (lower) realized crude oil prices, after hedging

(2,329

)

 

 

 

 

 

 

 

 

 

(2,329

)

 

 

 

 

 

 

 

 

 

 

 

 

Midstream Revenues

 

 

 

 

 

 

 

 

 

 

 

Higher (lower) operating revenues

 

 

8,231

 

 

3,474

 

 

 

 

 

 

11,705

 

 

 

 

 

 

 

 

 

 

 

 

 

Downstream Margins***

 

 

 

 

 

 

 

 

 

 

 

Impact of usage and weather

 

 

 

 

 

 

1,417

 

 

 

 

1,417

 

System modernization tracker revenues

 

 

 

 

 

 

225

 

 

 

 

225

 

Regulatory revenue adjustments

 

 

 

 

 

 

1,423

 

 

 

 

1,423

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Lower (higher) lease operating and transportation expenses

(3,613

)

 

 

 

 

 

 

 

 

 

(3,613

)

Lower (higher) operating expenses

(563

)

 

684

 

 

(969

)

 

(2,154

)

 

 

 

(3,002

)

Lower (higher) depreciation / depletion

532

 

 

(2,568

)

 

(1,251

)

 

 

 

(703

)

 

(3,990

)

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

(Higher) lower other deductions

(434

)

 

(2,194

)

 

 

 

 

 

(1,254

)

 

(3,882

)

(Higher) lower interest expense

(1,058

)

 

(2,815

)

 

(1,357

)

 

 

 

(659

)

 

(5,889

)

 

 

 

 

 

 

 

 

 

 

 

 

Income Taxes

 

 

 

 

 

 

 

 

 

 

 

Lower (higher) income tax expense / effective tax rate

2,476

 

 

(824

)

 

581

 

 

(22

)

 

(679

)

 

1,532

 

 

 

 

 

 

 

 

 

 

 

 

 

All other / rounding

(222

)

 

163

 

 

170

 

 

(130

)

 

87

 

 

68

 

Fourth quarter 2020 adjusted operating results

14,572

 

 

16,045

 

 

17,550

 

 

(6,969

)

 

(4,927

)

 

36,271

 

 

 

 

 

 

 

 

 

 

 

 

 

Items impacting comparability:

 

 

 

 

 

 

 

 

 

 

 

Impairment of oil and gas properties

(253,441

)

 

 

 

 

 

 

 

 

 

(253,441

)

Tax impact of impairment of oil and gas properties

69,698

 

 

 

 

 

 

 

 

 

 

69,698

 

Unrealized gain (loss) on other investments

 

 

 

 

 

 

 

 

2,439

 

 

2,439

 

Tax impact of unrealized gain (loss) on other investments

 

 

 

 

 

 

 

 

(512

)

 

(512

)

Fourth quarter 2020 GAAP earnings

$

(169,171

)

 

$

16,045

 

 

$

17,550

 

 

$

(6,969

)

 

$

(3,000

)

 

$

(145,545

)

 

 

 

 

 

 

 

 

 

 

 

 

* Amounts do not reflect intercompany eliminations

** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.

*** 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 SEPTEMBER 30, 2020

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream

 

Midstream

 

Downstream

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exploration &

 

Pipeline &

 

 

 

 

 

Corporate /

 

 

 

Production

 

Storage

 

Gathering

 

Utility

 

All Other

 

Consolidated*

 

 

 

 

 

 

 

 

 

 

 

 

Fourth quarter 2019 GAAP earnings per share

$

0.29

 

 

$

0.18

 

 

$

0.19

 

 

$

(0.09

)

 

$

(0.03

)

 

$

0.54

 

Items impacting comparability:

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market adjustments due to hedge ineffectiveness, net of tax

(0.01

)

 

 

 

 

 

 

 

 

 

(0.01

)

Unrealized (gain) loss on other investments, net of tax

 

 

 

 

 

 

 

 

0.01

 

 

0.01

 

Fourth quarter 2019 adjusted operating results per share

0.28

 

 

0.18

 

 

0.19

 

 

(0.09

)

 

(0.02

)

 

0.54

 

 

 

 

 

 

 

 

 

 

 

 

 

Drivers of adjusted operating results**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream Revenues

 

 

 

 

 

 

 

 

 

 

 

Higher (lower) natural gas production

0.17

 

 

 

 

 

 

 

 

 

 

0.17

 

Higher (lower) crude oil production

(0.03

)

 

 

 

 

 

 

 

 

 

(0.03

)

Higher (lower) realized natural gas prices, after hedging

(0.19

)

 

 

 

 

 

 

 

 

 

(0.19

)

Higher (lower) realized crude oil prices, after hedging

(0.03

)

 

 

 

 

 

 

 

 

 

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

Midstream Revenues

 

 

 

 

 

 

 

 

 

 

 

Higher (lower) operating revenues

 

 

0.09

 

 

0.04

 

 

 

 

 

 

0.13

 

 

 

 

 

 

 

 

 

 

 

 

 

Downstream Margins***

 

 

 

 

 

 

 

 

 

 

 

Impact of usage and weather

 

 

 

 

 

 

0.02

 

 

 

 

0.02

 

System modernization tracker revenues

 

 

 

 

 

 

 

 

 

 

 

Regulatory revenue adjustments

 

 

 

 

 

 

0.02

 

 

 

 

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Lower (higher) lease operating and transportation expenses

(0.04

)

 

 

 

 

 

 

 

 

 

(0.04

)

Lower (higher) operating expenses

(0.01

)

 

0.01

 

 

(0.01

)

 

(0.02

)

 

 

 

(0.03

)

Lower (higher) depreciation / depletion

0.01

 

 

(0.03

)

 

(0.01

)

 

 

 

(0.01

)

 

(0.04

)

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

(Higher) lower other deductions

 

 

(0.02

)

 

 

 

 

 

(0.01

)

 

(0.03

)

(Higher) lower interest expense

(0.01

)

 

(0.03

)

 

(0.01

)

 

 

 

(0.01

)

 

(0.06

)

 

 

 

 

 

 

 

 

 

 

 

 

Income Taxes

 

 

 

 

 

 

 

 

 

 

 

Lower (higher) income tax expense / effective tax rate

0.03

 

 

(0.01

)

 

0.01

 

 

 

 

(0.01

)

 

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

All other / rounding

(0.02

)

 

(0.01

)

 

(0.02

)

 

(0.01

)

 

0.01

 

 

(0.05

)

Fourth quarter 2020 adjusted operating results per share

0.16

 

 

0.18

 

 

0.19

 

 

(0.08

)

 

(0.05

)

 

0.40

 

 

 

 

 

 

 

 

 

 

 

 

 

Items impacting comparability:

 

 

 

 

 

 

 

 

 

 

 

Impairment of oil and gas properties, net of tax

(2.02

)

 

 

 

 

 

 

 

 

 

(2.02

)

Unrealized gain (loss) on other investments, net of tax

 

 

 

 

 

 

 

 

0.02

 

 

0.02

 

Fourth quarter 2020 GAAP earnings per share

$

(1.86

)

 

$

0.18

 

 

$

0.19

 

 

$

(0.08

)

 

$

(0.03

)

 

$

(1.60

)

 

 

 

 

 

 

 

 

 

 

 

 

* Amounts do not reflect intercompany eliminations

** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.

*** Downstream margin defined as operating revenues less purchased gas expense.

 


NATIONAL FUEL GAS COMPANY

RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS

TWELVE MONTHS ENDED SEPTEMBER 30, 2020

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream

 

Midstream

 

Downstream

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exploration &

 

Pipeline &

 

 

 

 

 

Corporate /

 

 

(Thousands of Dollars)

Production

 

Storage

 

Gathering

 

Utility

 

All Other

 

Consolidated*

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2019 GAAP earnings

$

111,807

 

 

$

74,011

 

 

$

58,413

 

 

$

60,871

 

 

$

(812

)

 

$

304,290

 

 

 

 

 

 

 

 

 

 

 

 

 

Items impacting comparability:

 

 

 

 

 

 

 

 

 

 

 

Remeasurement of deferred taxes under 2017 Tax Reform

(990

)

 

 

 

(500

)

 

 

 

(3,510

)

 

(5,000

)

Mark-to-market adjustments due to hedge ineffectiveness

(2,096

)

 

 

 

 

 

 

 

 

 

(2,096

)

Tax impact of mark-to-market adjustments due to hedge ineffectiveness

440

 

 

 

 

 

 

 

 

 

 

440

 

Unrealized (gain) loss on other investments

 

 

 

 

 

 

 

 

2,045

 

 

2,045

 

Tax impact of unrealized (gain) loss on other investments

 

 

 

 

 

 

 

 

(429

)

 

(429

)

Fiscal 2019 adjusted operating results

109,161

 

 

74,011

 

 

57,913

 

 

60,871

 

 

(2,706

)

 

299,250

 

 

 

 

 

 

 

 

 

 

 

 

 

Drivers of adjusted operating results**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upstream Revenues

 

 

 

 

 

 

 

 

 

 

 

Higher (lower) natural gas production

56,872

 

 

 

 

 

 

 

 

 

 

56,872

 

Higher (lower) crude oil production

1,192

 

 

 

 

 

 

 

 

 

 

1,192

 

Higher (lower) realized natural gas prices, after hedging

(66,562

)

 

 

 

 

 

 

 

 

 

(66,562

)

Higher (lower) realized crude oil prices, after hedging

(8,707

)

 

 

 

 

 

 

 

 

 

(8,707

)

 

 

 

 

 

 

 

 

 

 

 

 

Midstream Revenues

 

 

 

 

 

 

 

 

 

 

 

Higher (lower) operating revenues

 

 

16,844

 

 

12,496

 

 

 

 

 

 

29,340

 

 

 

 

 

 

 

 

 

 

 

 

 

Downstream Margins***

 

 

 

 

 

 

 

 

 

 

 

Impact of usage and weather

 

 

 

 

 

 

(1,063

)

 

 

 

(1,063

)

System modernization tracker revenues

 

 

 

 

 

 

3,113

 

 

 

 

3,113

 

Regulatory revenue adjustments

 

 

 

 

 

 

2...

,755 2,755 Higher (lower) energy marketing margins 3,022 3,022 Operating Expenses Lower (higher) lease operating and transportation expenses(13,465) (13,465)Lower (higher) operating expenses(662) 5,743 (3,350) (8,474) 404 (6,339)Lower (higher) property, franchise and other taxes1,643 (1,818) (175)Lower (higher) depreciation / depletion(13,699) (7,113) (1,898) (1,119) (23,829) Other Income (Expense) (Higher) lower other deductions(1,559) (3,271) 502 (4,328)(Higher) lower interest expense(2,624) (2,835) (1,162) 725 (2,554) (8,450) Income Taxes Lower (higher) income tax expense / effective tax rate(666) (3,228) 1,013 (189) (1,338) (4,408) All other / rounding(1,114) 527 (150) 245 223 (269)Fiscal 2020 adjusted operating results59,810 78,860 64,862 57,366 (2,949) 257,949 Items impacting comparability: Impairment of oil and gas properties(449,438) (449,438)Tax impact of impairment of oil and gas properties123,187 123,187 Deferred tax valuation allowance(60,463) 3,769 (76) (56,770)Unrealized gain (loss) on other investments 1,645 1,645 Tax impact of unrealized gain (loss) on other investments (345) (345)Fiscal 2020 GAAP earnings$(326,904) $78,860 $68,631 $57,366 $(1,725) $(123,772) * Amounts do not reflect intercompany eliminations ** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.*** Downstream margin defined as operating revenues less purchased gas expense.


NATIONAL FUEL GAS COMPANY

RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE

TWELVE MONTHS ENDED SEPTEMBER 30, 2020

(Unaudited)

Upstream

Midstream

Downstream

Exploration &

Pipeline &

Corporate /

Production

Storage

Gathering

Utility

All Other

Consolidated*

Fiscal 2019 GAAP earnings per share

$

1.29

$

0.85

$

0.67

$

0.70

$

$

3.51

Items impacting comparability:

Remeasurement of deferred taxes under 2017 Tax Reform

(0.01

)

(0.01

)

(0.04

)

(0.06

)

Mark-to-market adjustments due to hedge ineffectiveness, net of tax

(0.02

)

(0.02

)

Unrealized (gain) loss on other investments, net of tax

0.02

0.02

Rounding

0.01

(0.01

)

Fiscal 2019 adjusted operating results per share

1.26

0.85

0.67

0.70

(0.03

)

3.45

Drivers of adjusted operating results**

Upstream Revenues