Commentary on this conference call may contain forward-looking statements within the meaning of the federal securities laws.  National Fuel Gas Company (the “Company”) is providing this cautionary statement to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company.

Forward-looking statements include, without limitation, statements regarding future prospects, plans, objectives, goals, projections, estimates of oil and gas quantities, strategies, future events or performance and underlying assumptions, capital structure, anticipated capital expenditures, completion of construction projects, projections for pension and other post-retirement benefit obligations, impacts of the adoption of new accounting rules, and possible outcomes of litigation or regulatory proceedings, as well as statements that are identified by the use of the words "anticipates," "estimates," "expects," "forecasts," "intends," "plans," "predicts," "projects," "believes," "seeks," "will," "may" and similar expressions.  All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by these cautionary statements. 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 are expressed in good faith and are believed by the Company to have a reasonable basis, but there can be no assurance that management's expectations, beliefs or projections will result or be achieved or accomplished.

In addition to other factors, the following are important factors that, in the view of the Company, could cause actual results to differ materially from those discussed in the forward-looking statements:

  1. 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;
  2. 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;
  3. 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;
  4. Impairments under the SEC’s full cost ceiling test for natural gas and oil reserves;
  5. Changes in the price of natural gas or oil;
  6. 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;
  7. 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;
  8. Increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide other post-retirement benefits;
  9. Changes in price differentials between similar quantities of natural gas or oil 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;
  10. Other changes in price differentials between similar quantities of natural gas or oil having different quality, heating value, hydrocarbon mix or delivery date;
  11. The cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company;
  12. Uncertainty of oil and gas reserve estimates;
  13. Significant differences between the Company’s projected and actual production levels for natural gas or oil;
  14. Changes in demographic patterns and weather conditions;
  15. Changes in the availability, price or accounting treatment of derivative financial instruments;
  16. 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;
  17. The creditworthiness or performance of the Company’s key suppliers, customers and counterparties;
  18. Economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities, acts of war, cyber attacks or pest infestation;
  19. Significant differences between the Company’s projected and actual capital expenditures and operating expenses;
  20. 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; or
  21. Increasing costs of insurance, changes in coverage and the ability to obtain insurance.

Forward-looking statements include estimates of oil and gas quantities. Proved oil and gas reserves are those quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible under existing economic conditions, operating methods and government regulations. Other estimates of oil and gas quantities, including estimates of probable reserves, possible reserves, and resource potential, are by their nature more speculative than estimates of proved reserves. Accordingly, estimates other than proved reserves are subject to substantially greater risk of being actually realized.

Any forward-looking statements contained in this conference call speak only as of the date of this call. The Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date of this conference call. Investors are urged to consider closely the disclosure in our Form 10-K and Forms 10-Q, available at www.nationalfuelgas.com. You can also obtain these forms on the SEC’s website at www.sec.gov.

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press-release-details
Press release details

National Fuel Reports Second Quarter Earnings

05/04/2017

WILLIAMSVILLE, N.Y.--(BUSINESS WIRE)-- National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated results for the second quarter of its 2017 fiscal year and for the six months ended March 31, 2017.

FISCAL 2017 SECOND QUARTER SUMMARY

  • Consolidated net income of $89.3 million or $1.04 per share compared to a consolidated net loss of $147.7 million or $1.74 per share in the prior year
  • Adjusted EBITDA of $227.0 million, up from $224.4 million in the prior year (non-GAAP reconciliation on page 22)
  • Net production of 45.6 Bcfe, a 16% increase from prior year
  • Seneca combined LOE, G&A and DD&A expenses of $1.92 per Mcfe, a $0.48 per Mcfe decrease from the prior year
  • Gathering revenues of $28.0 million on 50.6 Bcf of system throughput, a 29% increase from the prior year
  • Weather in Utility's Pennsylvania service territory 4.1% warmer than prior year and 15.5% warmer than normal
  • Raising and tightening fiscal 2017 earnings guidance to a range of $3.20 to $3.35 per share
  • Raising and tightening fiscal 2017 production guidance to a range of 165 to 180 Bcfe

OPERATING RESULTS

 
  Three Months Ended   Six Months Ended
March 31, March 31,
(in thousands except per share amounts) 2017   2016 2017   2016
Reported GAAP earnings (loss) $ 89,284 $ (147,687 ) $ 178,191 $ (336,796 )
Items impacting comparability:
Impairment of oil and gas properties (E&P) 397,443 832,894
Tax impact of impairment of oil and gas properties (166,926 ) (349,814 )
Joint development agreement professional fees (E&P) 4,682
Tax impact of joint development agreement professional fees       (1,966 )
Operating Results $ 89,284   $ 82,830   $ 178,191   $ 149,000  
 
Reported GAAP earnings (loss) per share $ 1.04 $ (1.74 ) $ 2.07 $ (3.97 )
Items impacting comparability:
Impairment of oil and gas properties (E&P) 4.69 9.83
Tax impact of impairment of oil and gas properties (1.97 ) (4.13 )
Joint development agreement professional fees (E&P) 0.06
Tax impact of joint development agreement professional fees (0.02 )
Earnings per share impact of diluted shares   (0.01 )   (0.02 )
Operating Results per diluted share $ 1.04   $ 0.97   $ 2.07   $ 1.75  
 

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: “Strong performance in our Exploration & Production and Gathering segments over each of our last two quarters bodes well for our whole fiscal year. These segments continue to benefit from improving natural gas prices in the Appalachian basin. Given the relative near-term strength we are seeing in local pricing, we are positioning our near-term development and marketing plans to target a 10-plus percent annual growth rate in our Appalachian production over the next three years and lock-in attractive returns on our low-cost drilling program and gathering investments. Seneca is in the process of adding a second rig to prepare for the start of its Atlantic Sunrise capacity and eventually begin Utica Shale development in Tioga County, Pa., in fiscal 2018, providing opportunities for further growth.

“The higher earnings in our unregulated segments more than offset the decline in earnings in our regulated Pipeline & Storage and Utility segments, where a number of minor factors drove earnings modestly lower than the previous year. Since most of the daily operational activities of the regulated companies remain fairly routine from year to year, these minor variances are not uncommon. However, the increasingly difficult regulatory policies in New York are impacting our ability to make reasoned decisions with respect to additional investments in these segments in the state. Nonetheless, our dedicated employees continue to execute our operational plan to ensure safe and reliable natural gas service for our customers in New York and Pennsylvania.

“While we sort through the delay of our Northern Access pipeline project, we will concentrate on our investment opportunities outside the state of New York. As we focus on our Exploration & Production and Gathering segments, along with ongoing investment in the expansion and modernization of our pipeline systems where possible, I am confident that we can continue to grow our integrated businesses.”

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each segment is summarized in a tabular form on pages 7 through 10 of this report. It may be helpful to refer to those tables while reviewing this discussion. Note that management defines Operating Results as reported GAAP earnings before items impacting comparability and Adjusted EBITDA as reported GAAP earnings before the following items: interest expense, depreciation and amortization, interest and other income, impairments, items impacting comparability, and income taxes.

Upstream Business

Exploration and Production Segment

The Exploration and Production segment operations are carried out by Seneca Resources Corporation ("Seneca"). Seneca explores for, develops and produces natural gas and oil reserves, primarily in Pennsylvania and California.

  Three Months Ended   Six Months Ended
March 31, March 31,
(in thousands except per share amounts) 2017   2016   Variance 2017   2016   Variance
Net Income / (Loss) $ 33,769   $ (213,335 )   $ 247,104 $ 68,849   $ (450,421 )   $

519,270

 

Net Income / (Loss) Per Share (Diluted) $ 0.39 $ (2.52 ) $ 2.91 $ 0.80 $ (5.32 ) $ 6.12
Adjusted EBITDA $ 93,970 $ 79,608 $ 14,362 $ 196,447 $ 170,749 $ 25,698
 

Net income in the Exploration and Production segment in the second quarter was $33.8 million or $0.39 per share, compared to a net loss of $213.3 million or $2.52 per share in the prior year second quarter, an increase of $247.1 million or $2.91 per share. Excluding the impact of last year's impairment charge, the increase in the Exploration and Production segment's second quarter earnings is mainly due to higher natural gas production, lower operating expenses and a lower effective income tax rate, offset partially by a decrease in oil production and lower realized natural gas prices after the impact of hedging. In the prior year second quarter, Seneca recorded a $397.4 million ($230.5 million after-tax) ceiling test impairment charge to reduce the value of Seneca’s oil and gas properties. There was no ceiling test impairment charge in the current year’s second quarter.

The full cost method of accounting requires that Seneca perform a quarterly “ceiling test” to compare the present value of future 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. At March 31, 2017, the ceiling exceeded the book value of the oil and gas properties by approximately $201.0 million. Seneca does not expect to incur any impairment charges in fiscal 2017 due to the improvement in oil and gas prices and lower expected operating and well development costs.

Seneca's net production was 45.6 billion cubic feet equivalent ("Bcfe"), an increase of 6.4 Bcfe or 16 percent versus the prior year second quarter, and 0.7 Bcfe or 2 percent versus the first quarter of fiscal 2017. Net natural gas production increased 6.7 Bcf or 19 percent versus the prior year due to higher natural gas production in Appalachia. An improvement in local natural gas pricing in Pennsylvania allowed Seneca to produce all of its available production volumes during the second quarter. Seneca voluntarily curtailed approximately 9.1 Bcf (net) of natural gas production in the prior year second quarter. Seneca’s crude oil production decreased 49 thousand barrels ("Mbbl") or 7 percent due mainly to changes in steam operations and a reduction in well workover activity at its North Midway Sunset field.

Seneca's average realized natural gas price, after the impact of hedging, for the second quarter was $2.96 per thousand cubic feet ("Mcf"), a decrease of $0.03 per Mcf versus the prior year. Seneca's average realized oil price, after the impact of hedging, was $52.92 per barrel ("Bbl"), a decrease of $0.09 per Bbl. Seneca's average realized natural gas and oil prices benefited from an uplift of $0.21 per Mcf and $4.96 per Bbl, respectively, from financial hedges settled during the quarter.

Lease operating and transportation expense ("LOE") increased $5.0 million due mainly to higher production. However, LOE expense on a per unit of production basis decreased from $0.96 per Mcfe to $0.93 per Mcfe. The $0.03 per Mcfe improvement is largely the result of higher Appalachian natural gas production, which carries a lower per unit LOE cost relative to Seneca’s California oil operations, as well as a general reduction in well repair and maintenance costs across Seneca's California and Appalachia divisions.

Seneca’s General & Administrative (“G&A”) expense decreased $2.6 million due to lower personnel costs. Seneca’s per unit of production G&A expense for the quarter was $0.36 per Mcfe, a decrease of $0.13 per Mcfe or 27 percent from the prior year.

Depreciation, depletion and amortization ("DD&A") expense decreased $8.4 million due to lower per unit DD&A, offset partially by the impact of higher production. Seneca’s per unit DD&A decreased by $0.32 per Mcf equivalent ("Mcfe") to $0.63 per Mcfe due to a lower depletable fixed asset balance resulting mainly from the ceiling test impairment charges recorded during the past year.

Seneca’s effective income tax rate decreased in the second quarter due primarily to an enhanced oil recovery tax credit related to Seneca’s California properties. This credit was applicable this year as a result of relatively low domestic crude oil prices.

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   Six Months Ended
March 31, March 31,
(in thousands except per share amounts) 2017   2016   Variance 2017   2016   Variance
Net Income / (Loss) $ 19,256   $ 21,194   $ (1,938 ) $ 38,624   $ 42,470   $ (3,846 )
Net Income / (Loss) Per Share (Diluted) $ 0.22 $ 0.25 $ (0.03 ) $ 0.45 $ 0.50 $ (0.05 )
Adjusted EBITDA $ 49,103 $ 53,672 $ (4,569 ) $ 97,116 $ 104,415 $ (7,299 )
 

The Pipeline and Storage segment's second quarter earnings decreased from the prior year due primarily to a $3.8 million decline in operating revenues. The decrease in revenues was the result of the reduction in Supply Corporation and Empire’s rates related to their rate case settlements that went into effect in 2016, as well as a decline in short-term transportation contracts in the current quarter.

Gathering Segment

The Gathering segment’s operations are carried out by National Fuel Gas Midstream Corporation’s subsidiary 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   Six Months Ended
March 31, March 31,
(in thousands except per share amounts) 2017   2016   Variance 2017   2016   Variance
Net Income / (Loss) $ 10,285   $ 7,568   $ 2,717 $ 21,266   $ 12,490   $

8,776

 

Net Income / (Loss) Per Share (Diluted) $ 0.12 $ 0.09 $ 0.03 $ 0.25 $ 0.15 $ 0.10
Adjusted EBITDA $ 24,172 $ 18,831 $ 5,341 $ 49,273 $ 35,290 $ 13,983
 

The Gathering segment’s second quarter earnings increased $2.7 million or 36 percent versus the prior year on higher revenues offset slightly by higher operating expenses. Operating revenues increased $6.3 million as the increase in Seneca’s gross Appalachian natural gas production, which includes production from joint development wells, helped drive higher volumes across the Company’s gathering systems. The Gathering segment transported 50.6 Bcf on its systems in the second quarter, up 11.4 Bcf or 29 percent from the prior year. Operation and Maintenance (“O&M”) expenses were up $1.0 million versus the prior year due to higher costs associated with operating new compression and dehydration facilities at the segment’s Clermont gathering system.

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   Six Months Ended
March 31, March 31,
(in thousands except per share amounts) 2017   2016   Variance 2017   2016   Variance
Net Income / (Loss) $ 25,581   $ 31,960   $ (6,379 ) $ 46,755   $ 50,566   $ (3,811 )
Net Income / (Loss) Per Share (Diluted) $ 0.30 $ 0.38 $ (0.08 ) $ 0.54 $ 0.60 $ (0.06 )
Adjusted EBITDA $ 61,580 $ 69,467 $ (7,887 ) $ 113,909 $ 115,382 $ (1,473 )
 

The Utility segment’s second quarter earnings decreased $6.4 million or 20 percent due primarily to higher O&M and DD&A expenses and warmer weather. O&M expense increased $6.5 million versus the prior year due mainly to higher pension and benefits costs and uncollectible accounts. DD&A expense increased $1.7 million due to higher plant balances at March 31, 2017, which was primarily driven by the replacement of Distribution’s legacy customer information system that was placed in service in May 2016.

The weather was 4.1 percent warmer than last year and 15.5 percent warmer than normal in Distribution’s Pennsylvania service territory, resulting in lower retail residential and transportation customer throughput and revenues when compared to both the prior year and Company projections for earnings guidance purposes, which assumes normal weather. In New York, the impact of weather variations on earnings is largely mitigated by that jurisdiction’s weather normalization clause.

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   Six Months Ended
March 31, March 31,
(in thousands except per share amounts) 2017   2016   Variance 2017   2016   Variance
Net Income / (Loss) $ 905   $ 3,484   $ (2,579 ) $ 2,687   $ 4,707   $ (2,020 )
Net Income / (Loss) Per Share (Diluted) $ 0.01 $ 0.04 $ (0.03 ) $ 0.03 $ 0.06 $ (0.03 )
Adjusted EBITDA $ 1,382 $ 5,653 $ (4,271 ) $ 4,230 $ 7,500 $ (3,270 )
 

The Energy Marketing segment's second quarter earnings decreased $2.6 million due to lower margin. NFR’s customer margins were negatively impacted by stronger natural gas prices at local pricing points relative to NYMEX-based sales contracts and lower volumes as a result of warmer weather during the period.

Corporate and All Other

The Corporate and All Other category had a loss of $0.5 million or $0.00 per share for the second quarter compared to earnings of $1.4 million or $0.02 per share in the prior year. The $1.9 million decrease is primarily attributable to the non-recurrence of a death benefit gain on life insurance proceeds and related tax benefits that were recognized in the prior year.

GUIDANCE

The Company is raising and tightening its earnings guidance for fiscal 2017 to a range of $3.20 to $3.35 per share to reflect the impact of actual results for the six months ended March 31, 2017, and updates to key forecast assumptions, including positive revisions to the Exploration & Production segment’s forecasted production and operating expense assumptions, as outlined in the table below.

The Company is also updating fiscal 2017 capital expenditure guidance to a range of $450 to $530 million, a decrease of $100 million at the midpoint. Expected capital expenditures for the Pipeline & Storage segment were reduced by $115 million at the midpoint to reflect the delay in the Northern Access pipeline project. Changes to Exploration & Production, up $30 million at the midpoint of the range, and Gathering, down $15 million at the midpoint, were the result of changes in the timing of Seneca’s Appalachian development activities between fiscal 2017 and fiscal 2018. There were no changes to the Utility segment’s capital expenditure budget.

Updated FY 2017 Guidance   Previous FY 2017 Guidance
Consolidated Earnings per Share $3.20 to $3.35 $3.10 to $3.30
 
Capital Expenditures (Millions)
Exploration & Production (1) $210 - $250 $180 - $220
Pipeline & Storage $100 - $120 $200 - $250
Gathering $50 - $60 $65 - $75
Utility $90 - $100 $90 - $100
Consolidated Capital Expenditures $450 - $530 $535 - $645
 
Exploration & Production Segment Guidance
NYMEX Natural Gas Price Assumption $3.25 $3.25
NYMEX Crude Oil Price Assumption $55.00 $55.00
 
Production (Bcfe)
East Division - Appalachia 145 to 160 135 to 153
West Division - California ~ 20 20 to 22
Total Production 165 to 180 155 to 175
 
E&P Operating Costs ($/Mcfe)
LOE $0.95 - $1.00 $0.95 - $1.05
G&A $0.35 - $0.40 $0.35 - $0.40
DD&A $0.60 - $0.65 $0.65 - $0.70

(1)  Net of initial conveyance proceeds received from joint development partner for working interest in joint development wells

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, May 5, 2017, 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) 877-201-0168, using conference ID number “4568855.” 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 “4568855.” Both the webcast and a telephonic replay will be available until the close of business on Friday, May 12, 2017.

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; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; changes in the price of natural gas or oil; financial and economic conditions, including the availability of credit, and occurrences affecting the Company’s ability to obtain financing on acceptable terms for working capital, capital expenditures and other investments, including any downgrades in the Company’s credit ratings and changes in interest rates and other capital market conditions; factors affecting the Company’s ability to successfully identify, drill for and produce economically viable natural gas and oil reserves, including among others geology, lease availability, title disputes, weather conditions, shortages, delays or unavailability of equipment and services required in drilling operations, insufficient gathering, processing and transportation capacity, the need to obtain governmental approvals and permits, and compliance with environmental laws and regulations; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide other post-retirement benefits; changes in price differentials between similar quantities of natural gas or oil sold at different geographic locations, and the effect of such changes on commodity production, revenues and demand for pipeline transportation capacity to or from such locations; other changes in price differentials between similar quantities of natural gas or oil having different quality, heating value, hydrocarbon mix or delivery date; the cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company; uncertainty of oil and gas reserve estimates; significant differences between the Company’s projected and actual production levels for natural gas or oil; changes in demographic patterns and weather conditions; changes in the availability, price or accounting treatment of derivative financial instruments; changes in 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; economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities, acts of war, cyber attacks or pest infestation; significant differences between the Company’s projected and actual capital expenditures and operating expenses; 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; 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
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
QUARTER ENDED MARCH 31, 2017
(Unaudited)
 
   

Midstream

 

Downstream

   
Upstream

Businesses

Businesses

Exploration & Pipeline &     Energy Corporate /
(Thousands of Dollars) Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Second quarter 2016 GAAP earnings $ (213,335 ) $ 21,194 $ 7,568 $ 31,960 $ 3,484 $ 1,442 $ (147,687 )
Items impacting comparability:
Impairment of oil and gas producing properties 397,443 397,443
Tax impact of impairment of oil and gas producing properties (166,926 )                       (166,926 )
Second quarter 2016 operating results 17,182 21,194 7,568 31,960 3,484 1,442 82,830
 
Drivers of operating results
Higher (lower) crude oil prices (39 ) (39 )
Higher (lower) natural gas prices (962 ) (962 )
Higher (lower) natural gas production 12,963 12,963
Higher (lower) crude oil production (1,680 ) (1,680 )
Lower (higher) lease operating and transportation expenses (3,234 ) (3,234 )
Lower (higher) depreciation / depletion 5,475 252 (265 ) (1,076 ) 4,386
 
Higher (lower) transportation and storage revenues (2,288 ) (2,288 )
Higher (lower) gathering and processing revenues 4,098 4,098
Lower (higher) other operating expenses 2,651 (395 ) (647 ) (3,775 ) (2,166 )
 
Regulatory true-up adjustments (341 ) (341 )
Warmer weather (733 ) (733 )
 
Higher (lower) margins (2,686 ) (223 ) (2,909 )
 
Higher (lower) AFUDC** 395 (582 ) (187 )
 
Lower (higher) interest expense (206 ) (206 )
 
Lower (higher) income tax expense / effective tax rate 1,539 (1,037 ) 502
 
All other / rounding (126 )   98     (263 )   128     107     (694 )   (750 )
Second quarter 2017 GAAP earnings and operating results $ 33,769     $ 19,256     $ 10,285     $ 25,581     $ 905     $ (512 )   $ 89,284  
 
* Amounts do not reflect intercompany eliminations
** AFUDC = Allowance for Funds Used During Construction
 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
QUARTER ENDED MARCH 31, 2017
(Unaudited)
 
   

Midstream

 

Downstream

   
Upstream

Businesses

Businesses

Exploration & Pipeline &     Energy Corporate /
Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Second quarter 2016 GAAP earnings $ (2.52 ) $ 0.25 $ 0.09 $ 0.38 $ 0.04 $ 0.02 $ (1.74 )
Items impacting comparability:
Impairment of oil and gas producing properties 4.69 4.69
Tax impact of impairment of oil and gas producing properties (1.97 ) (1.97 )
Earnings per share impact of diluted shares                     (0.01 )   (0.01 )
Second quarter 2016 operating results 0.20 0.25 0.09 0.38 0.04 0.01 0.97
 
Drivers of operating results
Higher (lower) crude oil prices
Higher (lower) natural gas prices (0.01 ) (0.01 )
Higher (lower) natural gas production 0.15 0.15
Higher (lower) crude oil production (0.02 ) (0.02 )
Lower (higher) lease operating and transportation expenses (0.04 ) (0.04 )
Lower (higher) depreciation / depletion 0.06 (0.01 ) 0.05
 
Higher (lower) transportation and storage revenues (0.03 ) (0.03 )
Higher (lower) gathering and processing revenues 0.05 0.05
Lower (higher) other operating expenses 0.03 (0.01 ) (0.04 ) (0.02 )
 
Regulatory true-up adjustments
Warmer weather (0.01 ) (0.01 )
 
Higher (lower) margins (0.03 ) (0.03 )
 
Higher (lower) AFUDC** (0.01 ) (0.01 )
 
Lower (higher) interest expense
 
Lower (higher) income tax expense / effective tax rate 0.02 (0.01 ) 0.01
 
All other / rounding         (0.01 )   (0.01 )           (0.02 )
Second quarter 2017 GAAP earnings and operating results $ 0.39     $ 0.22     $ 0.12     $ 0.30     $ 0.01     $     $ 1.04  
 
* Amounts do not reflect intercompany eliminations
** AFUDC = Allowance for Funds Used During Construction
 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
SIX MONTHS ENDED MARCH 31, 2017
(Unaudited)
 
   

Midstream

 

Downstream

   
Upstream

Businesses

Businesses

Exploration & Pipeline &     Energy Corporate /
(Thousands of Dollars) Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Six months ended March 31, 2016 GAAP earnings $ (450,421 ) $ 42,470 $ 12,490 $ 50,566 $ 4,707 $ 3,392 $ (336,796 )
Items impacting comparability:
Impairment of oil and gas producing properties 832,894 832,894
Tax impact of impairment of oil and gas producing properties (349,814 ) (349,814 )
Joint development agreement professional fees 4,682 4,682
Tax impact of joint development agreement professional fees (1,966 )                       (1,966 )
Six months ended March 31, 2016 operating results 35,375 42,470 12,490 50,566 4,707 3,392 149,000
 
Drivers of operating results
Higher (lower) crude oil prices (2,356 ) (2,356 )
Higher (lower) natural gas prices (5,992 ) (5,992 )
Higher (lower) natural gas production 27,346 27,346
Higher (lower) crude oil production (2,791 ) (2,791 )
Lower (higher) lease operating and transportation expenses (3,680 ) (3,680 )
Lower (higher) depreciation / depletion 15,212 639 (2,040 ) 13,811
 
Higher (lower) transportation and storage revenues (2,373 ) (2,373 )
Higher (lower) gathering and processing revenues 10,014 10,014
Lower (higher) other operating expenses 4,531 (2,116 ) (959 ) (5,647 ) (667 ) (4,858 )
 
Regulatory true-up adjustments 961 961
Colder weather 2,249 2,249
Higher (lower) usage 1,395 1,395
 
Higher (lower) margins (2,090 ) (321 ) (2,411 )
 
Higher (lower) AFUDC** (500 ) (1,060 ) (1,560 )
 
Lower (higher) interest expense 846 428 1,274
 
Lower (higher) income tax expense / effective tax rate 1,012 517 (854 ) (2,072 ) (1,397 )
 
All other / rounding (654 )   (13 )   147     331     70     (322 )   (441 )
Six months ended March 31, 2017 GAAP earnings and operating results $ 68,849     $ 38,624     $ 21,266     $ 46,755     $ 2,687     $ 10     $ 178,191  
 
* Amounts do not reflect intercompany eliminations
** AFUDC = Allowance for Funds Used During Construction
 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
SIX MONTHS ENDED MARCH 31, 2017
(Unaudited)
 
   

Midstream

 

Downstream

   
Upstream

Businesses

Businesses

Exploration & Pipeline &     Energy Corporate /
Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Six months ended March 31, 2016 GAAP earnings $ (5.32 ) $ 0.50 $ 0.15 $ 0.60 $ 0.06 $ 0.04 $ (3.97 )
Items impacting comparability:
Impairment of oil and gas producing properties 9.83 9.83
Tax impact of impairment of oil and gas producing properties (4.13 ) (4.13 )
Joint development agreement professional fees 0.06 0.06
Tax impact of joint development agreement professional fees (0.02 ) (0.02 )
Earnings per share impact of diluted shares             (0.01 )   (0.01 )       (0.02 )
Six months ended March 31, 2016 operating results 0.42 0.50 0.15 0.59 0.05 0.04 1.75
 
Drivers of operating results
Higher (lower) crude oil prices (0.03 ) (0.03 )
Higher (lower) natural gas prices (0.07 ) (0.07 )
Higher (lower) natural gas production 0.32 0.32
Higher (lower) crude oil production (0.03 ) (0.03 )
Lower (higher) lease operating and transportation expenses (0.04 ) (0.04 )
Lower (higher) depreciation / depletion 0.18 0.01 (0.02 ) 0.17
 
Higher (lower) transportation and storage revenues (0.03 ) (0.03 )
Higher (lower) gathering and processing revenues 0.12 0.12
Lower (higher) other operating expenses 0.05 (0.02 ) (0.01 ) (0.07 ) (0.01 ) (0.06 )
 
Regulatory true-up adjustments 0.01 0.01
Colder weather 0.03 0.03
Higher (lower) usage 0.02 0.02
 
Higher (lower) margins (0.02 ) (0.02 )
 
Higher (lower) AFUDC** (0.01 ) (0.01 ) (0.02 )
 
Lower (higher) interest expense 0.01 0.01
 
Lower (higher) income tax expense / effective tax rate 0.01 0.01 (0.01 ) (0.02 ) (0.01 )
 
All other / rounding (0.02 )   (0.01 )       (0.01 )       (0.01 )   (0.05 )
Six months ended March 31, 2017 GAAP earnings and operating results $ 0.80     $ 0.45     $ 0.25     $ 0.54     $ 0.03     $     $ 2.07  
 
* Amounts do not reflect intercompany eliminations
** AFUDC = Allowance for Funds Used During Construction
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
(Thousands of Dollars, except per share amounts)
  Three Months Ended   Six Months Ended
March 31, March 31,
(Unaudited) (Unaudited)

SUMMARY OF OPERATIONS

2017   2016 2017   2016
Operating Revenues:    
Utility and Energy Marketing Revenues $ 308,889 $ 248,173 $ 516,669 $ 417,005
Exploration and Production and Other Revenues 159,997 144,570 321,691 297,454
Pipeline and Storage and Gathering Revenues 53,189   56,389   106,216   109,868  
522,075 449,132 944,576 824,327
Operating Expenses:
Purchased Gas 147,971 81,623 218,214 123,691
Operation and Maintenance:
Utility and Energy Marketing 63,907 57,309 114,329 104,858
Exploration and Production and Other 37,593 42,964 68,055 88,539
Pipeline and Storage and Gathering 23,106 21,541 45,766 41,109
Property, Franchise and Other Taxes 22,542 21,305 42,921 41,662
Depreciation, Depletion and Amortization 56,999 63,947 113,194 134,498
Impairment of Oil and Gas Producing Properties   397,443     832,894  
352,118 686,132 602,479 1,367,251
 
Operating Income (Loss) 169,957 (237,000 ) 342,097 (542,924 )
 
Other Income (Expense):
Interest Income 391 278 1,991 2,077
Other Income 1,744 3,236 3,356 5,654
Interest Expense on Long-Term Debt (28,913 ) (28,994 ) (58,016 ) (59,366 )
Other Interest Expense (924 ) (1,237 ) (1,834 ) (2,617 )
 
Income (Loss) Before Income Taxes 142,255 (263,717 ) 287,594 (597,176 )
 
Income Tax Expense (Benefit) 52,971   (116,030 ) 109,403   (260,380 )
 
Net Income (Loss) Available for Common Stock $ 89,284   $ (147,687 ) $ 178,191   $ (336,796 )
 
Earnings (Loss) Per Common Share:
Basic $ 1.05   $ (1.74 ) $ 2.09   $ (3.97 )
Diluted $ 1.04   $ (1.74 ) $ 2.07   $ (3.97 )
 
Weighted Average Common Shares:
Used in Basic Calculation 85,334,887 84,806,982 85,261,575 84,728,680
Used in Diluted Calculation 86,006,614 84,806,982 85,897,282 84,728,680
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
  March 31,   September 30,
(Thousands of Dollars)   2017   2016
 
ASSETS
Property, Plant and Equipment $ 9,704,134 $ 9,539,581
Less - Accumulated Depreciation, Depletion and Amortization     5,185,077       5,085,099  
Net Property, Plant and Equipment     4,519,057       4,454,482  
 
Current Assets:
Cash and Temporary Cash Investments 231,173 129,972
Hedging Collateral Deposits 1,771 1,484
Receivables - Net 171,162 133,201
Unbilled Revenue 52,852 18,382
Gas Stored Underground 9,027 34,332
Materials and Supplies - at average cost 34,695 33,866
Unrecovered Purchased Gas Costs 4,681 2,440
Other Current Assets     51,585       59,354  
Total Current Assets     556,946       413,031  
 
Other Assets:
Recoverable Future Taxes 179,928 177,261
Unamortized Debt Expense 1,424 1,688
Other Regulatory Assets 314,903 320,750
Deferred Charges 26,128 20,978
Other Investments 117,284 110,664
Goodwill 5,476 5,476
Prepaid Post-Retirement Benefit Costs 18,315 17,649
Fair Value of Derivative Financial Instruments 64,729 113,804
Other     485       604  
Total Other Assets     728,672       768,874  
Total Assets   $ 5,804,675     $ 5,636,387  
 
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders' Equity
Common Stock, $1 Par Value Authorized - 200,000,000
Shares; Issued and Outstanding - 85,375,068 Shares
and 85,118,886 Shares, Respectively $ 85,375 $ 85,119
Paid in Capital 782,688 771,164
Earnings Reinvested in the Business 817,348 676,361
Accumulated Other Comprehensive Loss     (34,091 )     (5,640 )
Total Comprehensive Shareholders' Equity 1,651,320 1,527,004
Long-Term Debt, Net of Unamortized Discount and Debt Issuance Costs     2,087,385       2,086,252  
Total Capitalization     3,738,705       3,613,256  
 
Current and Accrued Liabilities:
Notes Payable to Banks and Commercial Paper
Current Portion of Long-Term Debt
Accounts Payable 111,382 108,056
Amounts Payable to Customers 19,466 19,537
Dividends Payable 34,577 34,473
Interest Payable on Long-Term Debt 34,900 34,900
Customer Advances 300 14,762
Customer Security Deposits 17,512 16,019
Other Accruals and Current Liabilities 106,287 74,430
Fair Value of Derivative Financial Instruments     1,471       1,560  
Total Current and Accrued Liabilities     325,895       303,737  
 
Deferred Credits:
Deferred Income Taxes 837,098 823,795
Taxes Refundable to Customers 93,506 93,318
Cost of Removal Regulatory Liability 196,901 193,424
Other Regulatory Liabilities 91,661 99,789
Pension and Other Post-Retirement Liabilities 291,259 277,113
Asset Retirement Obligations 114,014 112,330
Other Deferred Credits     115,636       119,625  
Total Deferred Credits     1,740,075       1,719,394  
Commitments and Contingencies            
Total Capitalization and Liabilities   $ 5,804,675     $ 5,636,387  
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
  Six Months Ended
March 31,
(Thousands of Dollars)   2017   2016
 
Operating Activities:
Net Income (Loss) Available for Common Stock $ 178,191 $ (336,796 )
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Impairment of Oil and Gas Producing Properties 832,894
Depreciation, Depletion and Amortization 113,194 134,498
Deferred Income Taxes 63,781 (283,912 )
Excess Tax Benefits Associated with Stock-Based Compensation Awards (226 )
Stock-Based Compensation 5,632 2,518
Other 7,713 6,106
Change in:
Hedging Collateral Deposits (287 ) 1,161
Receivables and Unbilled Revenue (92,155 ) (28,211 )
Gas Stored Underground and Materials and Supplies 24,476 22,637
Unrecovered Purchased Gas Costs (2,241 ) (1,245 )
Other Current Assets 7,769 4,177
Accounts Payable 13,997 (31,786 )
Amounts Payable to Customers (71 ) (14,561 )
Customer Advances (14,462 ) (16,203 )
Customer Security Deposits 1,493 (389 )
Other Accruals and Current Liabilities 44,690 22,420
Other Assets (32 ) 3,754
Other Liabilities   202     (4,073 )
Net Cash Provided by Operating Activities   $ 351,890     $ 312,763  
 
Investing Activities:
Capital Expenditures $ (208,231 ) $ (358,981 )
Net Proceeds from Sale of Oil and Gas Producing Properties 26,554 104,938
Other   (3,225 )   (18,249 )
Net Cash Used in Investing Activities   $ (184,902 )   $ (272,292 )
 
Financing Activities:
Excess Tax Benefits Associated with Stock-Based Compensation Awards $ $ 226
Dividends Paid on Common Stock (69,017 ) (66,887 )
Net Proceeds From Issuance of Common Stock   3,230     6,294  
Net Cash Used in Financing Activities   $ (65,787 )   $ (60,367 )
 
Net Increase (Decrease) in Cash and Temporary Cash Investments 101,201 (19,896 )
Cash and Temporary Cash Investments at Beginning of Period   129,972     113,596  
Cash and Temporary Cash Investments at March 31   $ 231,173     $ 93,700  
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
 
UPSTREAM BUSINESS
 
  Three Months Ended   Six Months Ended
(Thousands of Dollars, except per share amounts) March 31, March 31,

EXPLORATION AND PRODUCTION SEGMENT

2017   2016   Variance 2017   2016   Variance
Total Operating Revenues $ 159,553     $ 143,783     $ 15,770   $ 320,485     $ 295,749     $ 24,736  
       
Operating Expenses:
Operation and Maintenance:
General and Administrative Expense 16,530 19,143 (2,613 ) 29,504 39,099 (9,595 )
Lease Operating and Transportation Expense 42,543 37,568 4,975 82,251 76,590 5,661
All Other Operation and Maintenance Expense 2,781 4,247 (1,466 ) 5,332 7,391 (2,059 )
Property, Franchise and Other Taxes 3,729 3,217 512 6,951 6,602 349
Depreciation, Depletion and Amortization 28,851 37,274 (8,423 ) 57,905 81,307 (23,402 )
Impairment of Oil and Gas Producing Properties     397,443     (397,443 )     832,894     (832,894 )
94,434     498,892     (404,458 ) 181,943     1,043,883     (861,940 )
 
Operating Income (Loss) 65,119 (355,109) 420,228 138,542 (748,134) 886,676
 
Other Income (Expense):
Interest Income 147 27 120 233 693 (460 )
Interest Expense (13,303 )   (13,546 )   243   (26,826 )   (28,128 )   1,302  
 
Income (Loss) Before Income Taxes 51,963 (368,628 ) 420,591 111,949 (775,569 ) 887,518
Income Tax Expense (Benefit) 18,194     (155,293 )   173,487   43,100     (325,148 )   368,248  
Net Income (Loss) $ 33,769     $ (213,335 )   $ 247,104   $ 68,849     $ (450,421 )   $ 519,270  
 
Net Income (Loss) Per Share (Diluted) $ 0.39     $ (2.52 )   $ 2.91   $ 0.80     $ (5.32 )   $ 6.12  
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
 
MIDSTREAM BUSINESSES
 
  Three Months Ended   Six Months Ended
(Thousands of Dollars, except per share amounts) March 31, March 31,

PIPELINE AND STORAGE SEGMENT

2017   2016   Variance 2017   2016   Variance
Revenues from External Customers $ 53,163   $ 56,276   $ (3,113 ) $ 106,164   $ 109,630   $ (3,466 )
Intersegment Revenues 22,592     23,292     (700 ) 44,746     45,477     (731 )
Total Operating Revenues 75,755     79,568     (3,813 ) 150,910     155,107     (4,197 )
Operating Expenses:
Purchased Gas (28 ) 245 (273 ) 194 703 (509 )
Operation and Maintenance 19,668 19,060 608 39,911 36,653 3,258
Property, Franchise and Other Taxes 7,012 6,591 421 13,689 13,336 353
Depreciation, Depletion and Amortization 10,476     10,865     (389 ) 20,138     21,121     (983 )
37,128     36,761     367   73,932     71,813     2,119  
 
Operating Income 38,627 42,807 (4,180 ) 76,978 83,294 (6,316 )
 
Other Income (Expense):
Interest Income 319 179 140 591 290 301
Other Income 807 413 394 1,494 1,994 (500 )
Interest Expense (8,342 )   (8,453 )   111   (16,688 )   (16,491 )   (197 )
 
Income Before Income Taxes 31,411 34,946 (3,535 ) 62,375 69,087 (6,712 )
Income Tax Expense 12,155     13,752     (1,597 ) 23,751     26,617     (2,866 )
Net Income $ 19,256     $ 21,194     $ (1,938 ) $ 38,624     $ 42,470     $ (3,846 )
 
Net Income Per Share (Diluted) $ 0.22     $ 0.25     $ (0.03 ) $ 0.45     $ 0.50     $ (0.05 )
 
 
Three Months Ended Six Months Ended
March 31, March 31,

GATHERING SEGMENT

2017   2016   Variance 2017   2016   Variance
Revenues from External Customers $ 26 $ 113 $ (87 ) $ 52 $ 238 $ (186 )
Intersegment Revenues 27,936     21,545     6,391   55,776     40,184     15,592  
Total Operating Revenues 27,962     21,658     6,304   55,828     40,422     15,406  
Operating Expenses:
Operation and Maintenance 3,769 2,775 994 6,523 5,047 1,476
Property, Franchise and Other Taxes 21 52 (31 ) 32 85 (53 )
Depreciation, Depletion and Amortization 3,997     3,589     408   7,877     7,799     78  
7,787     6,416     1,371   14,432     12,931     1,501  
 
Operating Income 20,175 15,242 4,933 41,396 27,491 13,905
 
Other Income (Expense):
Interest Income 207 68 139 353 101 252
Other Income 1 (1 ) 1 2 (1 )
Interest Expense (2,235 )   (1,918 )   (317 ) (4,328 )   (4,987 )   659  
 
Income Before Income Taxes 18,147 13,393 4,754 37,422 22,607 14,815
Income Tax Expense 7,862     5,825     2,037   16,156     10,117     6,039  
Net Income $ 10,285     $ 7,568     $ 2,717   $ 21,266     $ 12,490     $ 8,776  
 
Net Income Per Share (Diluted) $ 0.12     $ 0.09     $ 0.03   $ 0.25     $ 0.15     $ 0.10  
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
 
DOWNSTREAM BUSINESSES
 
  Three Months Ended   Six Months Ended
(Thousands of Dollars, except per share amounts) March 31, March 31,

UTILITY SEGMENT

2017   2016   Variance 2017   2016   Variance
Revenues from External Customers $ 257,949   $ 212,737   $ 45,212 $ 428,919   $ 356,585   $ 72,334
Intersegment Revenues 6,096     5,364     732   7,922     9,028     (1,106 )
Total Operating Revenues 264,045     218,101     45,944   436,841     365,613     71,228  
 
Operating Expenses:
Purchased Gas 128,212 81,181 47,031 188,945 126,250 62,695
Operation and Maintenance 62,748 56,293 6,455 112,277 102,893 9,384
Property, Franchise and Other Taxes 11,505 11,160 345 21,710 21,088 622
Depreciation, Depletion and Amortization 13,314     11,659     1,655   26,415     23,277     3,138  
215,779     160,293     55,486   349,347     273,508     75,839  
 
Operating Income 48,266 57,808 (9,542 ) 87,494 92,105 (4,611 )
 
Other Income (Expense):
Interest Income 144 122 22 278 207 71
Other Income 45 706 (661 ) 137 1,404 (1,267 )
Interest Expense (7,194 )   (7,158 )   (36 ) (14,392 )   (14,491 )   99  
 
Income Before Income Taxes 41,261 51,478 (10,217 ) 73,517 79,225 (5,708 )
Income Tax Expense 15,680     19,518     (3,838 ) 26,762     28,659     (1,897 )
Net Income $ 25,581     $ 31,960     $ (6,379 ) $ 46,755     $ 50,566     $ (3,811 )
 
Net Income Per Share (Diluted) $ 0.30     $ 0.38     $ (0.08 ) $ 0.54     $ 0.60     $ (0.06 )
 
 
Three Months Ended Six Months Ended
March 31, March 31,

ENERGY MARKETING SEGMENT

2017   2016   Variance 2017   2016   Variance
Revenues from External Customers $ 50,940 $ 35,436 $ 15,504 $ 87,750 $ 60,420 $ 27,330
Intersegment Revenues 16     312     (296 ) 35     624     (589 )
Total Operating Revenues 50,956     35,748     15,208   87,785     61,044     26,741  
 
Operating Expenses:
Purchased Gas 47,661 28,321 19,340 79,999 50,044 29,955
Operation and Maintenance 1,913 1,773 140 3,556 3,496 60
Property, Franchise and Other Taxes 1 (1 ) 4 (4 )
Depreciation, Depletion and Amortization 70     69     1   140     139     1  
49,644     30,164     19,480   83,695     53,683     30,012  
 
Operating Income 1,312 5,584 (4,272 ) 4,090 7,361 (3,271 )
 
Other Income (Expense):
Interest Income 138 91 47 271 141 130
Other Income 33 15 18 35 24 11
Interest Expense (11 )   (7 )   (4 ) (24 )   (25 )   1  
 
Income Before Income Taxes 1,472 5,683 (4,211 ) 4,372 7,501 (3,129 )
Income Tax Expense 567     2,199     (1,632 ) 1,685     2,794     (1,109 )
Net Income $ 905     $ 3,484     $ (2,579 ) $ 2,687     $ 4,707     $ (2,020 )
 
Net Income Per Share (Diluted) $ 0.01     $ 0.04     $ (0.03 ) $ 0.03     $ 0.06     $ (0.03 )
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
 
  Three Months Ended   Six Months Ended
(Thousands of Dollars, except per share amounts) March 31, March 31,

ALL OTHER

2017   2016   Variance 2017   2016   Variance
Total Operating Revenues $ 218     $ 561     $ (343 ) $ 772     $ 1,266     $ (494 )
Operating Expenses:        
Operation and Maintenance 394 164 230 909 239 670
Property, Franchise and Other Taxes 150 161 (11 ) 294 304 (10 )
Depreciation, Depletion and Amortization 102     306     (204 ) 343     488     (145 )
646     631     15   1,546     1,031     515  
 
Operating Income (Loss) (428 ) (70 ) (358 ) (774 ) 235 (1,009 )
Other Income (Expense):
Interest Income 49     31     18   89     50     39  
 
Income (Loss) Before Income Taxes (379 ) (39 ) (340 ) (685 ) 285 (970 )
Income Tax Expense (Benefit) (158 )   (16 )   (142 ) (285 )   119     (404 )
Net Income (Loss) $ (221 )   $ (23 )   $ (198 ) $ (400 )   $ 166     $ (566 )
 
Net Income (Loss) Per Share (Diluted) $     $     $   $     $     $  
 
 
Three Months Ended Six Months Ended
March 31, March 31,

CORPORATE

2017   2016   Variance 2017   2016   Variance
Revenues from External Customers $ 226 $ 226 $ $ 434 $ 439 $ (5 )
Intersegment Revenues 977     967     10   1,953     1,933     20  
Total Operating Revenues 1,203     1,193     10   2,387     2,372     15  
Operating Expenses:
Operation and Maintenance 4,003 4,147 (144 ) 7,395 7,038 357
Property, Franchise and Other Taxes 125 123 2 245 243 2
Depreciation, Depletion and Amortization 189     185     4   376     367     9  
4,317     4,455     (138 ) 8,016     7,648     368  
 
Operating Loss (3,114 ) (3,262 ) 148 (5,629 ) (5,276 ) (353 )
 
Other Income (Expense):
Interest Income 30,693 30,339 354 62,498 62,083 415
Other Income 859 2,101 (1,242 ) 1,689 2,230 (541 )
Interest Expense on Long-Term Debt (28,913 ) (28,994 ) 81 (58,016 ) (59,366 ) 1,350
Other Interest Expense (1,145 )   (734 )   (411 ) (1,898 )   17     (1,915 )
 
Loss Before Income Taxes (1,620 ) (550 ) (1,070 ) (1,356 ) (312 ) (1,044 )
Income Tax Benefit (1,329 )   (2,015 )   686   (1,766 )   (3,538 )   1,772  
Net Income (Loss) $ (291 )   $ 1,465     $ (1,756 ) $ 410     $ 3,226     $ (2,816 )
 
Net Income (Loss) Per Share (Diluted) $     $ 0.02     $ (0.02 ) $     $ 0.04     $ (0.04 )
 
 
Three Months Ended Six Months Ended
March 31, March 31,

INTERSEGMENT ELIMINATIONS

2017   2016   Variance 2017   2016   Variance
Intersegment Revenues $ (57,617 )   $ (51,480 )   $ (6,137 ) $ (110,432 )   $ (97,246 )   $ (13,186 )
Operating Expenses:
Purchased Gas (27,874 ) (28,124 ) 250 (50,924 ) (53,306 ) 2,382
Operation and Maintenance (29,743 )   (23,356 )   (6,387 ) (59,508 )   (43,940 )   (15,568 )
(57,617 )   (51,480 )   (6,137 ) (110,432 )   (97,246 )   (13,186 )
 
Operating Income
 
Other Income (Expense):
Interest Income (31,306 ) (30,579 ) (727 ) (62,322 ) (61,488 ) (834 )
Interest Expense 31,306     30,579     727   62,322     61,488     834  
Net Income $     $     $   $     $     $  
 
Net Income Per Share (Diluted) $     $     $   $     $     $  
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
SEGMENT INFORMATION (Continued)
(Thousands of Dollars)
 
  Three Months Ended   Six Months Ended
March 31, March 31,
(Unaudited) (Unaudited)
    Increase     Increase
2017 2016 (Decrease) 2017 2016 (Decrease)
 

Capital Expenditures:

Exploration and Production $ 57,137 (1)(2) $ 79,530 (3) $ (22,393 ) $ 97,826 (1)(2) $ 167,654 (3)(4) $ (69,828 )
Pipeline and Storage 11,386 (1)(2) 26,075 (3) (14,689 ) 36,778 (1)(2) 57,695 (3)(4) (20,917 )
Gathering 3,147 (1)(2) 12,778 (3) (9,631 ) 14,491 (1)(2) 34,523 (3)(4) (20,032 )
Utility 19,244 (1)(2) 26,091 (3) (6,847 ) 36,296 (1)(2) 46,008 (3)(4) (9,712 )
Energy Marketing 5   2   3   11   9   2  
Total Reportable Segments 90,919 144,476 (53,557 ) 185,402 305,889 (120,487 )
All Other 37 (37 ) 39 37 2
Corporate 3 106 (103 ) 64 155 (91 )
Eliminations (777 )   (777 ) (777 )   (777 )
Total Capital Expenditures $ 90,145   $ 144,619   $ (54,474 ) $ 184,728   $ 306,081   $ (121,353 )
 
    (1)  

Capital expenditures for the quarter and six months ended March 31, 2017, include accounts payable and accrued liabilities related to capital expenditures of $23.2 million, $5.8 million, $2.2 million, and $5.7 million in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Utility segment, respectively. These amounts have been excluded from the Consolidated Statement of Cash Flows at March 31, 2017, since they represent non-cash investing activities at that date.

 
(2)

Capital expenditures for the six months ended March 31, 2017, exclude capital expenditures of $25.2 million, $18.7 million, $5.3 million and $11.2 million in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Utility segment, respectively. These amounts were in accounts payable and accrued liabilities at September 30, 2016 and paid during the six months ended March 31, 2017. These amounts were excluded from the Consolidated Statement of Cash Flows at September 30, 2016, since they represented non-cash investing activities at that date. These amounts have been included in the Consolidated Statement of Cash Flows at March 31, 2017.

 
(3)

Capital expenditures for the quarter and six months ended March 31, 2016, include accounts payable and accrued liabilities related to capital expenditures of $34.0 million, $10.2 million, $12.6 million, and $9.3 million in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Utility segment, respectively. These amounts have been excluded from the Consolidated Statement of Cash Flows at March 31, 2016, since they represent non-cash investing activities at that date.

 
(4)

Capital expenditures for the six months ended March 31, 2016, exclude capital expenditures of $46.2 million, $33.9 million, $22.4 million and $16.5 million in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Utility segment, respectively. These amounts were in accounts payable and accrued liabilities at September 30, 2015 and paid during the six months ended March 31, 2016. These amounts were excluded from the Consolidated Statement of Cash Flows at September 30, 2015, since they represented non-cash investing activities at that date. These amounts have been included in the Consolidated Statement of Cash Flows at March 31, 2016.

 

DEGREE DAYS

 
  Percent Colder
(Warmer) Than:

Three Months Ended March 31

Normal   2017   2016 Normal (1)   Last Year (1)
           
Buffalo, NY 3,290 2,866 2,963 (12.9 ) (3.3 )
Erie, PA 3,108 2,627 2,739 (15.5 ) (4.1

)

 

Six Months Ended March 31

 

Buffalo, NY 5,543 4,832 4,640 (12.8 ) 4.1
Erie, PA 5,152 4,377 4,223 (15.0 ) 3.6
(1)  

Percents compare actual 2017 degree days to normal degree days and actual 2017 degree days to actual 2016 degree days.

 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 

EXPLORATION AND PRODUCTION INFORMATION

 
  Three Months Ended   Six Months Ended
March 31, March 31,
    Increase     Increase
2017 2016 (Decrease) 2017 2016 (Decrease)
 

Gas Production/Prices:

Production (MMcf)
Appalachia 40,805 34,113 6,692 80,612 66,900 13,712
West Coast 737   764   (27 ) 1,513   1,547   (34 )
Total Production 41,542   34,877   6,665   82,125   68,447   13,678  
 
Average Prices (Per Mcf)
Appalachia $     2.71 $     1.85 $ 0.86 $     2.54 $     1.91 $ 0.63
West Coast 4.57 2.87 1.70 4.40 3.27 1.13
Weighted Average 2.75 1.87 0.88 2.57 1.94 0.63
Weighted Average after Hedging 2.96 2.99 (0.03 ) 2.96 3.08 (0.12 )
 

Oil Production/Prices:

Production (Thousands of Barrels)
Appalachia 2 5 (3 ) 2 11 (9 )
West Coast 672   718   (46 ) 1,393   1,460   (67 )
Total Production 674   723   (49 ) 1,395   1,471   (76 )
 
Average Prices (Per Barrel)
Appalachia $ 49.87 $ 32.81 $ 17.06 $ 49.04 $ 36.74 $ 12.30
West Coast 47.96 27.02 20.94 45.75 31.61 14.14
Weighted Average 47.96 27.06 20.90 45.82 31.65 14.17
Weighted Average after Hedging 52.92 53.01 (0.09 ) 53.85 56.45 (2.60 )
 
Total Production (Mmcfe) 45,586   39,215   6,371   90,495   77,273   13,222  
 

Selected Operating Performance Statistics:

General & Administrative Expense per Mcfe (1) $ 0.36 $ 0.49 $ (0.13 ) $ 0.33 $ 0.51 $ (0.18 )
Lease Operating and Transportation Expense per Mcfe (1)(2) $ 0.93 $ 0.96 $ (0.03 ) $ 0.91 $ 0.99 $ (0.08 )
Depreciation, Depletion & Amortization per Mcfe (1) $ 0.63 $ 0.95 $ (0.32 ) $ 0.64 $ 1.05 $ (0.41 )
(1)  

Refer to page 14 for the General and Administrative Expense, Lease Operating Expense and Depreciation, Depletion, and Amortization Expense for the Exploration and Production segment.

 
(2)

Amounts include transportation expense of $0.54 and $0.51 per Mcfe for the three months ended March 31, 2017 and March 31, 2016, respectively. Amounts include transportation expense of $0.54 and $0.51 per Mcfe for the six months ended March 31, 2017 and March 31, 2016, respectively.

 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 

EXPLORATION AND PRODUCTION INFORMATION

 
Hedging Summary for the Remaining Six Months of Fiscal 2017
 

Volume

 

Average Hedge Price

Oil Swaps  
Brent 48,000 BBL $ 91.00 / BBL
NYMEX 792,000 BBL $ 58.34 / BBL
Total 840,000 BBL $ 60.21 / BBL
 
Gas Swaps
NYMEX 19,980,000 MMBTU $ 4.35 / MMBTU
Dominion Transmission Appalachian (DOM) 900,000 MMBTU $ 3.82 / MMBTU
Dawn Ontario (DAWN) 6,660,000 MMBTU $ 3.71 / MMBTU
Fixed Price Physical Sales 31,359,518 MMBTU $ 2.54 / MMBTU
Total 58,899,518 MMBTU $ 3.30 / MMBTU
 
Hedging Summary for Fiscal 2018

Volume

Average Hedge Price

Oil Swaps
Brent 24,000 BBL $ 91.00 / BBL
NYMEX 1,275,000 BBL $ 54.79 / BBL
Total 1,299,000 BBL $ 55.46 / BBL
 
Gas Swaps
NYMEX 42,570,000 MMBTU $ 3.34 / MMBTU
DOM 180,000 MMBTU $ 3.82 / MMBTU
DAWN 8,400,000 MMBTU $ 3.08 / MMBTU
Fixed Price Physical Sales 35,260,266 MMBTU $ 2.39 / MMBTU
Total 86,410,266 MMBTU $ 2.93 / MMBTU
 
Hedging Summary for Fiscal 2019

Volume

Average Hedge Price

Oil Swaps
NYMEX 912,000 BBL $ 53.84 / BBL
Total 912,000 BBL $ 53.84 / BBL
 
Gas Swaps
NYMEX 27,060,000 MMBTU $ 3.17 / MMBTU
DAWN 7,200,000 MMBTU $ 3.00 / MMBTU
Fixed Price Physical Sales 15,806,706 MMBTU $ 2.83 / MMBTU
Total 50,066,706 MMBTU $ 3.04 / MMBTU
 
Hedging Summary for Fiscal 2020

Volume

Average Hedge Price

Gas Swaps
NYMEX 16,880,000 MMBTU $ 3.07 / MMBTU
DAWN 7,200,000 MMBTU $ 3.00 / MMBTU
Fixed Price Physical Sales 11,277,025 MMBTU $ 2.42 / MMBTU
Total 35,357,025 MMBTU $ 2.85 / MMBTU
 
Hedging Summary for Fiscal 2021

Volume

Average Hedge Price

Gas Swaps
NYMEX 4,840,000 MMBTU $ 3.01 / MMBTU
DAWN 600,000 MMBTU $ 3.00 / MMBTU
Fixed Price Physical Sales 7,665,000 MMBTU $ 2.03 / MMBTU
Total 13,105,000 MMBTU $ 2.44 / MMBTU
 
Hedging Summary for Fiscal 2022

Volume

Average Hedge Price

 
Fixed Price Physical Sales 3,822,000 MMBTU $ 2.03 / MMBTU
Total 3,822,000 MMBTU $ 2.03 / MMBTU
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
Pipeline & Storage Throughput - (millions of cubic feet - MMcf)
 
Three Months Ended   Six Months Ended
March 31, March 31,
    Increase   Increase

2017

2016

(Decrease) 2017   2016 (Decrease)
Firm Transportation - Affiliated

 

43,243

 

42,624

 

619

 

74,850

 

67,333

 

7,517

Firm Transportation - Non-Affiliated 170,124 166,326 3,798 329,298 317,448 11,850
Interruptible Transportation   971     6,483     (5,512 )   4,017     12,115     (8,098 )
  214,338     215,433     (1,095 )   408,165     396,896     11,269  
 
Gathering Volume - (MMcf)
Three Months Ended Six Months Ended
March 31, March 31,
Increase Increase
2017 2016 (Decreas