Press Release Details

WILLIAMSVILLE, N.Y., Nov 03, 2011 (BUSINESS WIRE) --

National Fuel Gas Company ("National Fuel" or the "Company") (NYSE: NFG) today announced consolidated earnings for the fourth quarter and fiscal year ended September 30, 2011, of $37.4 million, or $0.45 per share, and $258.4 million, or $3.09 per share, respectively.

HIGHLIGHTS

• Operating results before items impacting comparability ("Operating Results") for the fourth quarter of fiscal 2011 of $37.4 million, or $0.45 per share, increased $5.0 million, or $0.06 per share, compared to the prior year fourth quarter, due to higher Operating Results in the Exploration and Production, Pipeline and Storage, and Utility segments.
• Operating Results for the fiscal year were $227.0 million, or $2.71 per share, an increase of $7.9 million or $0.06 per share. Increased production of natural gas and higher crude oil prices realized in the Exploration and Production segment during the current fiscal year were the main drivers of the increase.
• Seneca Resources Corporation's ("Seneca") fourth quarter production of crude oil and natural gas increased approximately 3.8 billion cubic feet equivalent ("Bcfe"), or 29%, to 16.8 Bcfe. Appalachian production increased approximately 130% to 12.0 Bcfe, including production from the Marcellus Shale of 10.1 Bcfe. Total production for fiscal 2011 increased approximately 36% to 67.6 Bcfe, an increase of 18 Bcfe.
• Seneca's total reserves at September 30, 2011, were 935 Bcfe, an increase of 235 Bcfe or 34%. Seneca replaced 448% of fiscal 2011 production.
• A conference call is scheduled for Friday, November 4, 2011, at 11 a.m. Eastern Time.

MANAGEMENT COMMENTS

David F. Smith, Chairman and Chief Executive Officer of National Fuel Gas Company, stated: "This quarter marked the completion of another impressive fiscal year for National Fuel. We continued to achieve significant success throughout the year, rapidly growing our natural gas production from our Marcellus acreage, delivering on our pipeline infrastructure expansion plans in Appalachia, and maintaining the financial and operational reliability from the Utility and Energy Marketing segments. In spite of lower natural gas prices compared to the prior year, earnings were up from last year, and we look forward to continued growth in fiscal 2012 as we invest in our Appalachia asset base.

"In our Exploration and Production segment, Seneca grew production by an exceptional 36 percent versus the prior year, driven by a 390 percent increase in production from the Marcellus Shale. The contiguous nature of our acreage position, its proximity to pipeline infrastructure and our strategic approach to development should help achieve robust growth for this segment into the foreseeable future.

"For the Pipeline and Storage segment, fiscal 2011 was an inflection point. Recent market dynamics led to reduced earnings in the segment, but over the course of the year substantial progress had been made on several of our planned expansion initiatives that should provide significant earnings uplift to this segment in fiscal 2012. We are starting our new fiscal year with the October completion of Supply Corporation's Line N Expansion project and the soon-to-be completed Empire Tioga County Extension Project.

"As we move forward, we will continue to execute on our significant growth opportunities, maintaining a strong balance sheet and our commitment to delivering value to our shareholders."

SUMMARY OF RESULTS

National Fuel had consolidated earnings for the quarter ended September 30, 2011, of $37.4 million, or $0.45 per share, compared to the prior year's fourth quarter earnings of $38.4 million, or $0.46 per share, a decrease of $1.0 million or $0.01 per share. (Note: All references to earnings per share are to diluted earnings per share. All amounts are stated in U.S. dollars, and all amounts used in the discussion of earnings and operating results before items impacting comparability ("Operating Results") are after tax unless otherwise noted.)

Consolidated earnings for the fiscal year ended September 30, 2011, of $258.4 million, or $3.09 per share, increased $32.5 million, or $0.36 per share, from the prior fiscal year, where earnings were $225.9 million or $2.73 per share.

As outlined in the table above, certain items included in GAAP earnings impacted the comparability of the Company's financial results when comparing the quarter and fiscal year ended September 30, 2011, to the comparable periods in fiscal 2010. Excluding these items, Operating Results for the current fourth quarter of $37.4 million, or $0.45 per share, increased $5.0 million, or $0.06 per share, and Operating Results for fiscal year ended September 30, 2011, of $227.0 million, or $2.71 per share, increased $7.9 million, or $0.06 per share, from the prior fiscal year. Items impacting comparability will be discussed in more detail within the discussion of segment earnings below.

DISCUSSION OF RESULTS BY SEGMENT

(The following discussion of earnings for each segment is summarized in a tabular form at pages 9 through 12 of this report. It may be helpful to refer to those tables while reviewing this discussion.)

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 in California and Appalachia. Seneca completed the sale of its offshore Gulf of Mexico assets in April 2011.

The Exploration and Production segment's earnings in the fourth quarter of fiscal 2011 of $30.7 million, or $0.37 per share, increased $3.2 million, or $0.04 per share, when compared with the prior year's fourth quarter. The increase is mainly due to natural gas production that was 4.4 Bcf higher than the fourth quarter of fiscal 2010.

Overall production of natural gas and crude oil for the current quarter of 16.8 Bcfe increased approximately 3.8 Bcfe, or 28.8 percent, compared to the prior year's fourth quarter. Production from Seneca's Appalachia properties increased approximately 130 percent, mainly due a 7.2 Bcfe increase in production from Marcellus wells. Gulf of Mexico production decreased 3.0 Bcfe, due to the April 2011 sale of Seneca's offshore assets. Production in California was relatively flat.

Changes in commodity prices realized after hedging also impacted earnings. The weighted average natural gas prices received by Seneca (after hedging) for the quarter ended September 30, 2011, was $5.49 per thousand cubic feet ("Mcf"), a decrease of $0.23 per Mcf compared to the prior year's fourth quarter. Higher crude oil prices realized after hedging contributed to the increase in earnings. The weighted average crude oil price received by Seneca (after hedging) for the quarter ended September 30, 2011, was $82.24 per barrel ("Bbl"), an increase of $8.19 per Bbl.

Depletion, lease operating expenses ("LOE"), and general and administrative ("G&A") expenses for the current year's fourth quarter increased over last year's fourth quarter, due to the higher production activity discussed above. However, on a per unit basis, LOE decreased $0.18 per thousand cubic feet equivalent ("Mcfe") largely due to the increase in Marcellus production which has a lower LOE rate than our Upper Devonian or California production. Depletion increased $0.05 per Mcfe due to higher capital spending in the East. G&A increased $0.36 per Mcfe due to a $2.5 million bad debt recovery in the fourth quarter of 2010 that did not recur in the current fourth quarter, and higher labor expenses including additional staffing and relocation costs related to the opening of the Pittsburgh office in the East division.

The Exploration and Production segment's earnings of $124.2 million, or $1.48 per share, for the fiscal year ended September 30, 2011, increased $11.7 million, or $0.12 per share, when compared to the prior fiscal year. The increase was mainly due to natural gas production that was approximately 20.1 Bcfe higher than the prior fiscal year.

Overall production for the fiscal year ended September 30, 2011, increased 36.2 percent to 67.6 Bcfe, compared to the prior fiscal year. Production from Seneca's Appalachia properties increased approximately 162 percent to 43.2 Bcfe, mainly due to a 28.1 Bcfe increase in production from Marcellus wells. Gulf of Mexico production decreased by 8.2 Bcfe due to the April sale of Seneca's offshore assets. Production in California was relatively flat.

Changes in commodity prices realized after hedging also impacted earnings. The weighted average natural gas price received by Seneca (after hedging) for the fiscal year ended September 30, 2011, was $5.39 per Mcf, a decrease of $0.65 per Mcf compared to the prior fiscal year. Higher crude oil prices realized after hedging contributed to the increase in earnings. The weighted average crude oil price received by Seneca (after hedging) for the fiscal year ended September 30, 2011, was $81.13 per Bbl, an increase of $5.88 per Bbl compared to the prior fiscal year.

Depletion, LOE and G&A expenses for the fiscal year ended September 30, 2011, increased compared to the prior fiscal year due to the higher production activity discussed above. However, on a per unit basis, LOE decreased $0.16 per Mcfe, depletion increased $0.03 per Mcfe and G&A expense increased $0.09 per Mcfe due to the reasons described above.

Pipeline and Storage Segment

The Pipeline and Storage segment 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 western Pennsylvania.

The Pipeline and Storage segment's earnings of $7.5 million, or $0.09 per share, for the quarter ended September 30, 2011, increased $0.8 million, or $0.01 per share, when compared with the same period in the prior fiscal year. The increase in earnings is mainly due to higher efficiency gas revenues, lower operating expenses due to a lower reserve for preliminary survey costs and a higher allowance for funds used during construction (AFUDC) associated with the Line N, Tioga County Extension, and Northern Access expansion projects. Lower transportation revenues due to the continued impact of capacity turnbacks at Niagara reduced earnings.

The Pipeline and Storage segment's earnings of $31.5 million, or $0.38 per share, for the fiscal year ended September 30, 2011, decreased $5.2 million, or $0.06 per share, when compared with the fiscal year ended September 30, 2010. The decrease in earnings for the current fiscal year was due to increased operating expenses mainly due to increased pension expense and compressor station maintenance, and lower firm transportation revenues for the reason described above. Higher depreciation expense and higher property taxes also reduced earnings in the current fiscal year. Higher efficiency gas revenues and higher AFUDC associated with expansion projects had a positive impact on earnings.

Utility Segment

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

The Utility segment's earnings of $0.8 million, or $0.01 per share, for the quarter ended September 30, 2011, increased $0.6 million, or $0.01 per share, when compared with the same period in the prior fiscal year. The increase is primarily due to lower operating expenses mainly due to lower bad debt expense, lower interest expense on over recoveries of purchased gas costs and lower income taxes. The impact of certain regulatory adjustments decreased earnings.

The Utility segment's earnings of $63.2 million for the fiscal year ended September 30, 2011, increased $0.7 million from the $62.5 million that the Utility segment earned in the prior fiscal year. Colder weather and higher customer usage in Pennsylvania was offset by the impact of certain regulatory adjustments. The impact of weather variations on earnings in New York is mitigated by that jurisdiction's weather normalization clause. Lower operating expenses in both the New York and Pennsylvania divisions and lower interest expense on over recoveries of purchased gas costs had a positive impact on earnings. Depreciation expense, property taxes and income taxes in both jurisdictions were higher than the previous year.

Energy Marketing

National Fuel Resources, Inc. ("NFR") comprises the Company's Energy Marketing segment. 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.

The Energy Marketing segment's loss for the quarter ended September 30, 2011, of $0.3 million compared to earnings of $0.3 million in the prior year's fourth quarter. The decrease in earnings in the current year's fourth quarter is mainly due to proceeds NFR received as a member of a class of claimants in a class action litigation settlement in last year's fourth quarter. Lower margins in the current fourth quarter also reduced earnings. The Energy Marketing segment's earnings for the fiscal year ended September 30, 2011, of $8.8 million were consistent with earnings of $8.8 million in the prior fiscal year.

Corporate and All Other

The Corporate and All Other category includes the following active, wholly owned subsidiaries of the Company: National Fuel Gas Midstream Corporation ("Midstream"), formed to build, own and operate natural gas processing and pipeline gathering facilities in the Appalachian region; and the Northeast division of Seneca Resources Corporation that markets high quality hardwoods from Appalachian land holdings.

The Corporate and All Other category had a loss of $1.4 million for the quarter ended September 30, 2011, compared to earnings of $3.7 million in the prior year's fourth quarter. The comparability of the results for the quarters ended September 30, 2011, and September 30, 2010, was impacted by the September 1, 2010, sale of the Company's landfill gas operations. As a result of this transaction, the Company presented the landfill gas operations as discontinued operations. Earnings in the fourth quarter of fiscal 2010 include earnings from discontinued operations of $6.0 million, which included a $0.3 million loss from discontinued operations during the quarter plus a $6.3 million gain on the sale of the landfill gas operations.

Excluding discontinued operations, Operating Results in the Corporate and All Other category improved from a loss of $2.3 million in the prior year's fourth quarter to a loss of $1.4 million in the current year's fourth quarter mainly due to higher earnings from Midstream's pipeline gathering and natural gas processing operations.

Earnings in the Corporate and All Other category for the fiscal year ended September 30, 2011, of $30.7 million increased $25.3 million compared to earnings of $5.4 million in the prior fiscal year. The comparability of the results for the years ended September 30, 2011, and September 30, 2010, was impacted by a $31.4 million gain realized on the February 2011 sale of Horizon Power, Inc.'s interest in certain entities that owned landfill gas electric generation assets, the $6.3 million gain on the Company's sale of its landfill gas operations, and $0.5 million of income from discontinued operations as described above.

Excluding these items discussed in the immediate preceding paragraph above, Operating Results for the fiscal year ended September 30, 2011, improved from a loss of $1.4 million for fiscal 2010 to a loss of $0.7 million for fiscal 2011. Higher earnings from Midstream's pipeline gathering and processing operations more than offset lower earnings from timber sales (due to the sale of the sawmill operations), lower income from unconsolidated subsidiaries (due to the sale of landfill gas electric generation assets described above), higher corporate operating expenses and higher income taxes.

EARNINGS GUIDANCE

The Company is reaffirming its earnings guidance for fiscal 2012 in the range of $2.85 to $3.15 per share. This includes oil and gas production for the Exploration and Production segment in the range of 87 to 101 Bcfe and is based on an assumed flat NYMEX price of $4.50 per Million British Thermal Units ("MMBtu") for natural gas and $95.00 per Bbl for crude oil.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, November 4, 2011, 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 Investor Relations page on National Fuel's website at investor.nationalfuelgas.com. For those without Internet access, access is also provided by dialing (toll-free) 1-866-800-8649, using the passcode "17257925." For those unable to listen to the live conference call, a replay will be available at approximately 2 p.m. Eastern Time at the same website link and by phone at (toll-free) 1-888-286-8010, using passcode "92486219." Both the webcast and telephonic replay will be available until the close of business on Friday, November 11, 2011.

National Fuel is an integrated energy company with $5.3 billion in assets comprised of the following four operating segments: Exploration and Production, Pipeline and Storage, Utility and Energy Marketing. Additional information about National Fuel is available at www.nationalfuelgas.com or through its investor information service at 1-800-334-2188.

Certain statements contained herein, including those regarding estimated future earnings, and 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, 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: financial and economic conditions, including the availability of credit, and occurrences affecting the Company's ability to obtain financing on acceptable terms for working capital, capital expenditures and other investments, including any downgrades in the Company's credit ratings and changes in interest rates and other capital market conditions; changes in 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 terrorist activities, acts of war, major accidents, fires, severe weather, pest infestation or natural disasters; 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; changes in laws and regulations to which the Company is subject, including those involving derivatives, taxes, safety, employment, climate change, other environmental matters, and exploration and production activities such as hydraulic fracturing; uncertainty of oil and gas reserve estimates; significant differences between the Company's projected and actual production levels for natural gas or oil; significant changes in market dynamics or competitive factors affecting the Company's ability to retain existing customers or obtain new customers; changes in demographic patterns and weather conditions; changes in the availability and/or price of natural gas or oil and the effect of such changes on the accounting treatment of derivative financial instruments; impairments under the SEC's full cost ceiling test for natural gas and oil reserves; changes in the availability and/or cost of derivative financial instruments; changes in the price differential between similar quantities of natural gas at different geographic locations, and the effect of such changes on the demand for pipeline transportation capacity to or from such locations; other changes in price differentials between similar quantities of oil or natural gas having different quality, heating value or geographic location; changes in the projected profitability of pending or potential projects, investments or transactions; significant differences between the Company's projected and actual capital expenditures and operating expenses; 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 derivatives, acquisitions, financings, rate cases (which address, among other things, allowed rates of return, rate design and retained natural gas), affiliate relationships, industry structure, franchise renewal, and environmental/safety requirements; unanticipated impacts of restructuring initiatives in the natural gas and electric industries; ability to successfully identify and finance acquisitions or other investments and ability to operate and integrate existing and any subsequently acquired business or properties; changes in 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; significant changes in tax rates or policies or in rates of inflation or interest; significant changes in the Company's relationship with its employees or contractors and the potential adverse effects if labor disputes, grievances or shortages were to occur; changes in accounting principles or the application of such principles to the Company; the cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide other post-retirement benefits; 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.