National Fuel Reports Second Quarter Earnings

WILLIAMSVILLE, N.Y.--()--National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated earnings for the second quarter of fiscal 2014 and for the six months ended March 31, 2014.

HIGHLIGHTS

  • Earnings for the second quarter of fiscal 2014 of $95.2 million, or $1.12 per share, increased $9.5 million, or $0.10 per share, compared to $85.7 million, or $1.02 per share, for the prior year’s second quarter.
  • Earnings for the second quarter of fiscal 2014 were reduced by adjustments netting to $1.8 million (see table on page 3) that impacted the comparability of the Company’s financial results when comparing the quarter ended March 31, 2014, to the prior year’s second quarter. Excluding these items, consolidated earnings before items impacting comparability (“Operating Results”) for the second quarter of fiscal 2014 were $97.0 million, or $1.15 per share, an increase of $11.3 million or $0.13 per share.
  • Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) for the six months ended March 31, 2014, were $528.7 million compared to $446.6 million for the prior year’s six-month period, an increase of 18%.
  • Seneca Resources Corporation’s (“Seneca”) second quarter production of natural gas and crude oil was 36.9 billion cubic feet equivalent (“Bcfe”), an increase of 8.0 Bcfe or approximately 28% over the prior year’s second quarter. Average daily production during the quarter was 410 million cubic feet equivalent (“MMcfe”) per day.
  • The Company is revising its production guidance range for fiscal 2014 to a range of 155 to 165 Bcfe. The previous production range was 145 to 165 Bcfe. The new range represents a 28% to 37% increase over fiscal 2013 production.
  • The Company is revising its GAAP earnings guidance range for fiscal 2014 to a range of $3.40 to $3.55 per share. The previous earnings guidance had been a range of $3.20 to $3.40 per share. This guidance assumes a flat NYMEX price of $4.50 per Million British Thermal Units ("MMBtu") for natural gas and $95 per barrel ("Bbl") for crude oil for unhedged production for the remainder of the fiscal year.
  • A conference call is scheduled for Friday, May 9, 2014, at 11 a.m. Eastern Time.

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: “National Fuel had an outstanding second quarter, with all of our major business segments contributing to a nearly 13 percent increase in Operating Results over the prior year’s second quarter. Operationally, the challenges of a harsh winter were met with great success by employees across our system, as they ensured both the safety and reliability that are critical to our long-term results. The prolonged extreme temperatures also increased regional demand for natural gas, leading to higher throughput in our regulated businesses and stronger market prices for our exploration and production subsidiary Seneca Resources.

"As expected, Seneca’s production, while up 28 percent from the prior year’s quarter, was flat compared with the quarter ended December 31, 2013. Over the course of the next few months, Seneca expects to commence production from 3 new multi-well pads in our Eastern Development Area. In addition, our development program in the Greater Clermont Area in our Western Development Area is well underway and should begin production this summer. Based on these development activities, we have raised the lower end of Seneca’s production guidance for the entire fiscal year. With about 70 percent and 48 percent of our 2014 and 2015 Appalachian production currently subject to firm sale commitments, we are confident in our ability to continue our growth in production.”

EXPLORATION AND PRODUCTION SEGMENT OPERATIONS UPDATE

Seneca’s activities during the second quarter were primarily focused on multi-well pads in DCNR Tract 100 in Lycoming County, Pa., in the Eastern Development Area (“EDA”) and its Greater Clermont Area in Elk and Cameron counties, located in its Western Development Area (“WDA”).

Recently, Seneca brought 7 new wells on line in Tract 100 with 24-hour peak production rates that averaged 18.7 million cubic feet (“MMcf”) per day per well. These wells had an average lateral length of 5,109 feet. Additionally, the wells were completed using a reduced cluster spacing (“RCS”) design, with an average of 34 stages per well. Procurement initiatives and continued improvements in efficiencies are driving faster spud-to-sales timing and lower well costs, with the average well cost on the most recent pad estimated at $6.0 million per well to drill and complete.

In the EDA, an additional 10 wells located on Tract 100 and 6 wells on DCNR Tract 595 are targeted to commence production during the fourth quarter of this fiscal year.

In its Greater Clermont Area, completion operations are ongoing on a total of 15 wells from its first 2 multi-well pads. The first 9-well pad will be brought on line early in the fiscal 2014 fourth quarter in conjunction with the placing into service of National Fuel Gas Midstream Corporation’s Clermont Gathering System. The remaining 6-well pad will follow late in the fourth quarter.

Combined, Seneca plans to bring 31 wells on line during the fiscal 2014 fourth quarter, which should drive its fiscal year exit production to record highs.

Seneca plans to operate 2 of its 3 horizontal drilling rigs in the WDA for the remainder of the fiscal year. The third rig will be focused on development drilling in the EDA along with several delineation wells targeting both the Marcellus and Utica shales.

SUMMARY OF RESULTS

National Fuel had consolidated earnings for the quarter ended March 31, 2014, of $95.2 million, or $1.12 per share, compared to the prior year’s second quarter of $85.7 million, or $1.02 per share, an increase of $9.5 million or $0.10 per share. The increase is due to higher earnings in the Midstream and Downstream businesses and the Corporate and All Other category. (Note: All references to earnings per share are to diluted earnings per share and all amounts used in the discussion of earnings are after tax unless otherwise noted.)

Consolidated earnings for the six months ended March 31, 2014, of $177.5 million, or $2.09 per share, increased $23.8 million, or $0.26 per share, from the same period in the prior year where earnings were $153.7 million or $1.83 per share.

         

OPERATING RESULTS

 
Three Months Six Months
Ended March 31, Ended March 31,
2014   2013 2014   2013
(in thousands except per share amounts)
Reported GAAP earnings

$  

95,211

$  

85,720

$  

177,463

$  

153,664
Items impacting comparability1:
Plugging and abandonment accrual 2,445 3,251
Deferred state income tax adjustment 3,000 3,000
Gain on life insurance policies (3,635 ) (3,635 )
             
Operating Results $ 97,021   $ 85,720   $ 180,079   $ 153,664
 
Reported GAAP earnings per share $ 1.12 $ 1.02 $ 2.09 $ 1.83
Items impacting comparability1:
Plugging and abandonment accrual 0.03 0.04
Deferred state income tax adjustment 0.04 0.04
Gain on life insurance policies (0.04 ) (0.04 )
             
Operating Results $ 1.15   $ 1.02   $ 2.13   $ 1.83

1 See discussion of these individual items below.

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 six months ended March 31, 2014, to the comparable periods in fiscal 2013. Excluding these items, Operating Results for the current quarter of $97.0 million, or $1.15 per share, increased $11.3 million, or $0.13 per share, from the prior year’s second quarter when Operating Results were $85.7 million or $1.02 per share. Excluding these items, Operating Results for the six months ended March 31, 2014, of $180.1 million, or $2.13 per share, increased $26.4 million, or $0.30 per share, from the same period in the prior year when Operating Results were $153.7 million or $1.83 per share. Items impacting comparability will be discussed in more detail with the discussion of segment earnings below.

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each segment is summarized in a tabular form at pages 11 through 14 of this report. It may be helpful to refer to those tables while reviewing this discussion.

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 in Pennsylvania, California and Kansas.

The Exploration and Production segment’s earnings in the second quarter of fiscal 2014 of $24.4 million, or $0.29 per share, decreased $3.3 million, or $0.04 per share, when compared with the prior year’s second quarter. Earnings for the current year’s second quarter were reduced by a $3.8 million (pre-tax) accrual for well plugging and abandonment costs associated with an offshore Gulf of Mexico mineral lease (High Island 74) that Seneca had previously farmed out to an operator who subsequently filed for bankruptcy. As the original lessee, Seneca has become responsible for a portion of the costs to plug and abandon wells on the lease. In addition, Seneca increased its state deferred income tax liability by $3.0 million to reflect the net impact of its growing presence in Pennsylvania ($5.8 million increase) and a reduction in New York state corporate income tax rates ($2.8 million decrease). Excluding these items, Operating Results in the Exploration and Production segment of $29.8 million, or $0.36 per share, increased $2.1 million, or $0.03 per share, when compared to the prior year’s second quarter.

Overall production of natural gas and crude oil for the current quarter of 36.9 Bcfe increased approximately 8.0 Bcfe, or 27.8 percent, compared to the prior year’s second quarter. Production from Seneca’s Appalachia properties increased approximately 7.5 Bcfe or 31.3 percent. California production of 5.3 Bcfe increased 10.4 percent compared with the prior year’s second quarter.

Lower commodity prices realized after hedging reduced earnings. The weighted average natural gas price received by Seneca (after hedging) for the quarter ended March 31, 2014, was $3.89 per thousand cubic feet (“Mcf”), a decrease of $0.17 per Mcf compared to the prior year’s second quarter. The weighted average crude oil price realized after hedging for the quarter ended March 31, 2014, was $96.85 per Bbl, a decrease of $2.23 per Bbl compared to the prior year’s second quarter.

On a per unit basis, depletion expense of $1.88 per thousand cubic feet equivalent (“Mcfe”), decreased $0.17 per Mcfe due to higher natural gas reserve balances at March 31, 2014, compared to the prior year’s second quarter. On a per unit basis, lease operating and transportation expenses (“LOE”) at $1.08 per Mcfe increased $0.11 per Mcfe compared to the prior year’s second quarter due to higher transportation costs associated with production from Tract 100 in Lycoming County, Pa., and higher steam fuel costs in California. General and administrative expenses (“G&A”) decreased $0.13 per Mcfe compared to the prior year’s second quarter, also due to higher production. Operating Results were also impacted by higher property taxes in California and a higher Pennsylvania impact fee due to increased well activity.

The Exploration and Production segment’s earnings were $55.5 million, or $0.65 per share, for the six months ended March 31, 2014, compared to earnings of $54.4 million, or $0.65 per share for the six months ended March 31, 2013. Excluding the accrual for well plugging and abandonment costs and the increase to state deferred income taxes discussed above, Operating Results in the Exploration and Production segment of $61.7 million, or $0.73 per share, increased $7.3 million or $0.08 per share, when compared to the prior year’s six-month period.

Overall production of natural gas and crude oil for the six months ended March 31, 2014, of 74.0 Bcfe increased approximately 20.6 Bcfe, or 38.6 percent, compared to the prior year’s six-month period. Production from Seneca’s Appalachia properties increased approximately 20.1 Bcfe or 46.1 percent. California production of 10.3 Bcfe increased 5.3 percent compared with the prior year’s six-month period.

Lower commodity prices realized after hedging in the current six-month period reduced earnings. The weighted average natural gas price received by Seneca (after hedging) for the six months ended March 31, 2014, was $3.79 per Mcf, a decrease of $0.33 per Mcf compared to the prior year’s six-month period. The weighted average crude oil price realized after hedging for the six months ended March 31, 2014, was $95.47 per Bbl, a decrease of $2.39 per Bbl.

On a per unit basis for the six months ended March 31, 2014, depletion expense of $1.90 per Mcfe decreased $0.18 per Mcfe due to higher natural gas reserve balances at March 31, 2014, LOE of $1.02 per Mcfe increased $0.02 per Mcfe due to higher transportation costs, and G&A of $0.44 per Mcfe decreased $0.15 per Mcfe compared to the prior year’s six-month period, also due to higher production. Operating Results for the six months ended March 31, 2014, were reduced by higher property taxes in California, a higher Pennsylvania impact fee, and higher interest expense due to a higher outstanding debt balance.

Midstream Businesses

Pipeline and Storage Segment

The Pipeline and Storage segment’s operations are carried out by National Fuel Gas Supply Corporation (“Supply Corporation”) and Empire Pipeline, Inc. (“Empire”). The Pipeline and Storage segment provides natural gas transportation and storage services to affiliated and non-affiliated companies through an integrated system of pipelines and underground natural gas storage fields in western New York and Pennsylvania.

The Pipeline and Storage segment’s earnings of $21.4 million, or $0.25 per share, for the quarter ended March 31, 2014, increased $4.6 million, or $0.05 per share, when compared with the same period in the prior fiscal year. The increase in earnings is mainly due to higher non-affiliated transportation revenues from new transportation contracts. As a result of colder weather and the ongoing pricing basis differentials in the Marcellus basin, the Pipeline and Storage segment continues to see increased demand for transportation services from producers and marketers. Earnings for the quarter also benefitted from lower pension and other post retirement benefit costs.

The Pipeline and Storage segment’s earnings of $40.5 million, or $0.48 per share, for the six months ended March 31, 2014, increased $6.8 million, or $0.08 per share, when compared with the same period in the prior fiscal year. The increase was mostly due to higher non-affiliated transportation revenues from the Northern Access and Line N 2012 Expansion projects and lower pension and other post retirement benefit costs. Earnings for the current six-month period were reduced by a lower allowance for funds used during construction due to the completion in the prior year of the expansion projects mentioned above.

Gathering Segment

The Gathering segment’s operations are carried out by National Fuel Gas Midstream Corporation’s (“Midstream”) subsidiary limited liability companies. The Gathering segment constructs, owns and operates natural gas pipeline gathering and processing facilities in the Appalachian region and currently provides the critical gathering infrastructure for transporting Seneca’s Marcellus Shale production to the interstate pipeline system.

The Gathering segment’s earnings of $7.3 million, or $0.09 per share, for the quarter ended March 31, 2014, increased $4.2 million, or $0.05 per share, when compared with the same period in the prior fiscal year. The increase in earnings is mainly due to higher gathering revenues from Midstream’s Trout Run gathering system in Lycoming County, Pa.

The Gathering segment’s earnings of $13.5 million, or $0.16 per share, for the six months ended March 31, 2014, increased $8.4 million, or $0.10 per share, when compared with the same period in the prior fiscal year. The increase in earnings is mainly due to higher gathering revenues from Midstream’s Trout Run gathering system in Lycoming County, Pa.

Downstream Businesses

Utility Segment

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

The Utility segment’s earnings of $35.5 million, or $0.42 per share, for the quarter ended March 31, 2014, increased $1.0 million, or $0.01 per share, when compared with the same period in the prior fiscal year. Colder weather in Pennsylvania was a major reason for the increase in earnings in the current year’s second quarter. Temperatures in Pennsylvania were 21.2 percent colder in the quarter ended March 31, 2014, than in the prior year’s second quarter. In New York, the impact of weather variations on earnings is mitigated by that jurisdiction’s weather normalization clause. Higher operating expenses, consisting mostly of higher pension related costs, and an accrual for earnings sharing, which was primarily the result of the settlement of the rate proceeding in New York, reduced earnings in the current year’s second quarter.

The Utility segment’s earnings of $59.8 million, or $0.70 per share, for the six months ended March 31, 2014, increased $2.4 million, or $0.02 per share, when compared with the same period in the prior fiscal year. Colder weather in Pennsylvania was a major reason for the increase in earnings in the current year’s six-month period. Temperatures in Pennsylvania were 17.4 percent colder in the six months ended March 31, 2014, than in the prior year’s six-month period. In New York, the impact of weather variations on earnings is mitigated by that jurisdiction’s weather normalization clause. Lower interest expense due to a lower outstanding debt balance also increased earnings. Higher operating expenses, consisting mostly of higher pension related costs, which were primarily the result of the settlement of the rate proceeding in New York, reduced earnings in the current year’s six-month period. Higher income taxes, due to a non-recurring tax benefit recorded in the prior year six-month period, also reduced earnings.

Energy Marketing Segment

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 earnings for the quarter and six months ended March 31, 2014, of $3.8 million and $5.4 million, respectively, were largely unchanged from the equivalent periods in the prior year.

Corporate and All Other

The Corporate and All Other category primarily includes corporate operations. The category also includes the remaining operations of Seneca’s Northeast division that markets high quality hardwoods from Appalachian land holdings.

The Corporate and All Other category earnings of $2.8 million, for the quarter ended March 31, 2014, compares to a loss of $0.7 million for the prior year’s second quarter. The comparability of the quarterly results is impacted by a $3.6 million gain recognized on corporate-owned executive life insurance policies. Excluding this item, Operating Results for the quarter, a loss of $0.8 million, compares to a loss of $0.7 million in the prior year’s second quarter. The lower Operating Results were due to higher operating expenses.

The Corporate and All Other category earnings of $2.9 million, for the six months ended March 31, 2014, compares to a loss of $1.7 million for the prior year’s six-month period. The comparability of the six month results is impacted by a $3.6 million gain recognized on corporate-owned executive life insurance policies. Excluding this item, Operating Results for the six-month period, a loss of $0.8 million, compares to a loss of $1.7 million in the prior year’s six-month period. The improved Operating Results were due to higher margins from the Company’s timber operations.

EARNINGS GUIDANCE

The Company is revising its GAAP earnings guidance range for fiscal 2014 to a range of $3.40 to $3.55 per share. The previous earnings guidance had been a range of $3.20 to $3.40 per share. This guidance includes forecast oil and gas production for fiscal 2014 in the range between 155 to 165 Bcfe (previous guidance 145 to 165 Bcfe), hedges currently in place and a flat NYMEX price of $4.50 per MMBtu for natural gas and $95 per Bbl for crude oil for unhedged production for the remainder of the fiscal year.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, May 9, 2014, 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 at National Fuel’s website at investor.nationalfuelgas.com. For those without Internet access, access is also provided by dialing (toll-free) 1-877-280-4957, using passcode “82946243.” For those unable to listen to the live conference call, a replay will be available at approximately 3 p.m. Eastern Time at the same website link and by phone at (toll-free) 1-888-286-8010, using passcode “28597692.” Both the webcast and telephonic replay will be available until the close of business on Friday, May 16, 2014.

National Fuel is an integrated energy company with $6.6 billion in assets comprised of the following 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: 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, 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; governmental/regulatory actions, initiatives and proceedings, including those involving rate cases (which address, among other things, allowed rates of return, rate design and retained natural gas), environmental/safety requirements, affiliate relationships, industry structure, and franchise renewal; changes in the price of natural gas or oil; changes in price differential 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 and oil having different quality, heating value, hydrocarbon mix or delivery date; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; 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; 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; 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 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; 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.

                 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
QUARTER ENDED MARCH 31, 2014
 
 
Upstream Midstream Businesses

Downstream
Businesses

 
Exploration & Pipeline & Energy Corporate /
(Thousands of Dollars) Production   Storage   Gathering  

      Utility      

  Marketing   All Other   Consolidated*
 
Second quarter 2013 GAAP earnings $ 27,711 $ 16,796 $ 3,093 $ 34,516 $ 4,283 $ (679 ) $ 85,720
 
Drivers of operating results
Higher (lower) crude oil prices (1,091 ) (1,091 )
Higher (lower) natural gas prices (3,565 ) (3,565 )
Higher (lower) natural gas production 20,119 20,119
Higher (lower) crude oil production 4,094 4,094
Derivative mark to market adjustments (898 ) (898 )
Lower (higher) lease operating and transportation expenses (7,861 ) (7,861 )
Lower (higher) depreciation / depletion (6,555 ) (6,555 )
 
Higher (lower) transportation revenues 3,835 3,835
Higher (lower) gathering and processing revenues 4,826 4,826
Lower (higher) operating expenses (1,463 ) 1,007 (1,299 ) (615 ) (2,370 )
Lower (higher) property, franchise and other taxes (1,091 ) 267 (824 )
 
Colder weather 4,471 4,471
Regulatory true-up adjustments (891 ) (891 )
 
Higher (lower) margins (522 ) (522 )
 
Income (loss) from unconsolidated subsidiaries 258 258
 
Lower (higher) income tax expense / effective tax rate (643 ) (1,333 ) (1,976 )
 
All other / rounding 435     (266 )   48     81     4     (51 )   251  
Second quarter 2014 operating results 29,835 21,372 7,324 35,545 3,765 (820 ) 97,021
Items impacting comparability:
Plugging and abandonment accrual (2,445 ) (2,445 )
Deferred state income tax adjustment (3,000 ) (3,000 )
Gain on life insurance policies                               3,635     3,635  
Second quarter 2014 GAAP earnings $ 24,390     $ 21,372     $ 7,324     $ 35,545     $ 3,765     $ 2,815     $ 95,211  

 

* Amounts do not reflect intercompany eliminations
 
                 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
QUARTER ENDED MARCH 31, 2014
 
 
Upstream Midstream Businesses

Downstream
Businesses

 
Exploration & Pipeline & Energy Corporate /
Production   Storage   Gathering  

    Utility    

  Marketing   All Other   Consolidated*
 
Second quarter 2013 GAAP earnings $ 0.33 $ 0.20 $ 0.04 $ 0.41 $ 0.05 $ (0.01 ) $ 1.02
 
Drivers of operating results
Higher (lower) crude oil prices (0.01 ) (0.01 )
Higher (lower) natural gas prices (0.04 ) (0.04 )
Higher (lower) natural gas production 0.24 0.24
Higher (lower) crude oil production 0.05 0.05
Derivative mark to market adjustments (0.01 ) (0.01 )
Lower (higher) lease operating and transportation expenses (0.09 ) (0.09 )
Lower (higher) depreciation / depletion (0.08 ) (0.08 )
 
Higher (lower) transportation revenues 0.05 0.05
Higher (lower) gathering and processing revenues 0.06 0.06
Lower (higher) operating expenses (0.02 ) 0.01 (0.02 ) (0.01 ) (0.04 )
Lower (higher) property, franchise and other taxes (0.01 ) (0.01 )
 
Colder weather 0.05 0.05
Regulatory true-up adjustments (0.01 ) (0.01 )
 
Higher (lower) margins (0.01 ) (0.01 )
 
Income (loss) from unconsolidated subsidiaries
 
Lower (higher) income tax expense / effective tax rate (0.01 ) (0.02 ) (0.03 )
 
All other / rounding     (0.01 )       0.01         0.01     0.01  
Second quarter 2014 operating results 0.36 0.25 0.09 0.42 0.04 (0.01 ) 1.15
Items impacting comparability:
Plugging and abandonment accrual (0.03 ) (0.03 )
Deferred state income tax adjustment (0.04 ) (0.04 )
Gain on life insurance policies                               0.04     0.04  
Second quarter 2014 GAAP earnings $ 0.29     $ 0.25     $ 0.09     $ 0.42     $ 0.04     $ 0.03     $ 1.12  
 
* Amounts do not reflect intercompany eliminations
 
                 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
SIX MONTHS ENDED MARCH 31, 2014
 
 
Upstream Midstream Businesses

Downstream
Businesses

 
Exploration & Pipeline & Energy Corporate /
(Thousands of Dollars) Production   Storage   Gathering  

    Utility    

  Marketing   All Other   Consolidated*
 
Six months ended March 31, 2013 GAAP earnings $ 54,391 $ 33,728 $ 5,035

$  

57,394 $ 4,778 $ (1,662 ) $ 153,664
 
Drivers of operating results
Higher (lower) crude oil prices (2,291 ) (2,291 )
Higher (lower) natural gas prices (13,669 ) (13,669 )
Higher (lower) natural gas production 54,129 54,129
Higher (lower) crude oil production 4,136 4,136
Derivative mark to market adjustments 305 305
Insurance settlement proceeds 1,261 342 1,603
Lower (higher) lease operating and transportation expenses (14,020 ) (14,020 )
Lower (higher) depreciation / depletion (19,027 ) (547 ) (508 ) 314 (19,768 )
 
Higher (lower) transportation revenues 7,498 7,498
Higher (lower) gathering and processing revenues 10,613 10,613
Lower (higher) operating expenses (152 ) 2,667 (472 ) (3,715 ) (1,008 ) (2,680 )
Lower (higher) property, franchise and other taxes (1,745 ) 360 (1,385 )
 
Colder weather 6,378 6,378
 
Higher (lower) margins 632 338 970
 
Income (loss) from unconsolidated subsidiaries 268 268
 
Higher (lower) AFUDC** (1,446 ) (1,446 )
 
Lower (higher) interest expense (1,797 ) (396 ) 798 (1,395 )
 
Lower (higher) income tax expense / effective tax rate (866 ) (846 ) (1,302 ) (1,644 ) (4,658 )
 
All other / rounding 1,083     (148 )   105     549     (41 )   279     1,827  
Six months ended March 31, 2014 operating results 61,738 40,510 13,471 59,760 5,369 (769 ) 180,079
Items impacting comparability:
Plugging and abandonment accrual (3,251 ) (3,251 )
Deferred state income tax adjustment (3,000 ) (3,000 )
Gain on life insurance policies                               3,635     3,635  
Six months ended March 31, 2014 GAAP earnings $ 55,487     $ 40,510     $ 13,471     $ 59,760     $ 5,369     $ 2,866     $ 177,463  
 
* 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, 2014
 
 
Upstream Midstream Businesses

Downstream
Businesses

 
Exploration & Pipeline & Energy Corporate /
Production   Storage   Gathering  

     Utility     

  Marketing   All Other   Consolidated*
 
Six months ended March 31, 2013 GAAP earnings $ 0.65 $ 0.40 $ 0.06 $ 0.68 $ 0.06 $ (0.02 ) $ 1.83
 
Drivers of operating results
Higher (lower) crude oil prices (0.03 ) (0.03 )
Higher (lower) natural gas prices (0.16 ) (0.16 )
Higher (lower) natural gas production 0.64 0.64
Higher (lower) crude oil production 0.05 0.05
Derivative mark to market adjustments
Insurance settlement proceeds 0.01 0.01
Lower (higher) lease operating and transportation expenses (0.17 ) (0.17 )
Lower (higher) depreciation / depletion (0.22 ) (0.01 ) (0.01 ) (0.24 )
 
Higher (lower) transportation revenues 0.09 0.09
Higher (lower) gathering and processing revenues 0.13 0.13
Lower (higher) operating expenses 0.03 (0.01 )

 

(0.04

) (0.01 ) (0.03 )
Lower (higher) property, franchise and other taxes (0.02 ) (0.02 )
 
Colder weather

 

0.08

0.08
 
Higher (lower) margins 0.01 0.01
 
Income (loss) from unconsolidated subsidiaries
 
Higher (lower) AFUDC** (0.02 ) (0.02 )
 
Lower (higher) interest expense (0.02 )

 

0.01

(0.01 )
 
Lower (higher) income tax expense / effective tax rate (0.01 ) (0.01 ) (0.02 )

 

(0.02

) (0.06 )
 
All other / rounding 0.01         0.01    

 

(0.01

)   (0.01 )   0.03     0.03  
Six months ended March 31, 2014 operating results 0.73 0.48 0.16

 

0.70

0.06 2.13
Items impacting comparability:
Plugging and abandonment accrual (0.04 ) (0.04 )
Deferred state income tax adjustment (0.04 ) (0.04 )
Gain on life insurance policies                                 0.04     0.04  
Six months ended March 31, 2014 GAAP earnings $ 0.65     $ 0.48     $ 0.16    

$

0.70

    $ 0.06     $ 0.04     $ 2.09  
 
* 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

2014   2013 2014   2013
Operating Revenues $ 756,242   $ 597,826  

$  

1,306,314  

$  

1,050,680  
 
Operating Expenses:
Purchased Gas 322,772 209,817 490,378 331,735
Operation and Maintenance 137,716 122,303 245,562 230,035
Property, Franchise and Other Taxes 25,704 22,685 46,630 42,348
Depreciation, Depletion and Amortization 89,975   80,030   183,089   152,361  
576,167 434,835 965,659 756,479
 
Operating Income 180,075 162,991 340,655 294,201
 
Other Income (Expense):
Interest Income 249 140 951 1,526
Other Income 5,123 1,087 5,352 2,501
Interest Expense on Long-Term Debt (22,766 ) (22,786 ) (45,651 ) (44,234 )
Other Interest Expense (1,375 ) (526 ) (2,324 ) (1,595 )
 
Income Before Income Taxes 161,306 140,906 298,983 252,399
 
Income Tax Expense 66,095   55,186   121,520   98,735  
 
Net Income Available for Common Stock $ 95,211   $ 85,720   $ 177,463   $ 153,664  
 
Earnings Per Common Share:
Basic $ 1.14   $ 1.03   $ 2.12   $ 1.84  
Diluted $ 1.12   $ 1.02   $ 2.09   $ 1.83  
 
Weighted Average Common Shares:
Used in Basic Calculation 83,856,120   83,498,508   83,781,085   83,443,805  
Used in Diluted Calculation 84,837,123   84,159,734   84,787,610   84,127,705  
 
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,   September 30,
(Thousands of Dollars) 2014   2013
 
ASSETS
Property, Plant and Equipment

$    

7,689,518 $ 7,313,203

Less - Accumulated Depreciation, Depletion and Amortization                      

  2,325,636       2,161,477  
Net Property, Plant and Equipment   5,363,882       5,151,726  
 
Current Assets:
Cash and Temporary Cash Investments 150,864 64,858
Hedging Collateral Deposits 1,094
Receivables - Net 267,512 133,182
Unbilled Revenue 83,378 19,483
Gas Stored Underground 3,176 51,484
Materials and Supplies - at average cost 25,551 29,904

Unrecovered Purchased Gas Costs

1,825 12,408
Other Current Assets 54,903 56,905
Deferred Income Taxes   39,650       79,359  
Total Current Assets   626,859       448,677  
 
Other Assets:
Recoverable Future Taxes 161,258 163,355
Unamortized Debt Expense 15,478 16,645
Other Regulatory Assets 244,486 252,568
Deferred Charges 9,050 9,382
Other Investments 85,825 96,308
Goodwill 5,476 5,476
Prepaid Post-Retirement Benefit Costs 28,366 22,774
Fair Value of Derivative Financial Instruments 25,777 48,989
Other   738       2,447  
Total Other Assets   576,454       617,944  
Total Assets $ 6,567,195     $ 6,218,347  
 
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders' Equity
Common Stock, $1 Par Value Authorized - 200,000,000
Shares; Issued and Outstanding - 83,980,596 Shares
and 83,661,969 Shares, Respectively $ 83,981 $ 83,662
Paid in Capital 703,422 687,684
Earnings Reinvested in the Business 1,557,184 1,442,617
Accumulated Other Comprehensive Loss   (45,055 )     (19,234 )
Total Comprehensive Shareholders' Equity 2,299,532 2,194,729
Long-Term Debt, Net of Current Portion   1,649,000       1,649,000  
Total Capitalization   3,948,532       3,843,729  
 
Current and Accrued Liabilities:
Notes Payable to Banks and Commercial Paper
Current Portion of Long-Term Debt
Accounts Payable 153,147 105,283
Amounts Payable to Customers 24,665 12,828
Dividends Payable 31,493 31,373
Interest Payable on Long-Term Debt 29,960 29,960
Customer Advances 81 21,959
Customer Security Deposits 15,581 16,183
Other Accruals and Current Liabilities 235,900 83,946
Fair Value of Derivative Financial Instruments   22,236       639  
Total Current and Accrued Liabilities   513,063       302,171  
 
Deferred Credits:
Deferred Income Taxes 1,352,731 1,347,007
Taxes Refundable to Customers 90,779 85,655
Unamortized Investment Tax Credit 1,361 1,579
Cost of Removal Regulatory Liability 165,138 157,622
Other Regulatory Liabilities 94,000 61,549
Pension and Other Post-Retirement Liabilities 145,085 158,014
Asset Retirement Obligations 120,884 119,511
Other Deferred Credits   135,622       141,510  
Total Deferred Credits   2,105,600       2,072,447  
Commitments and Contingencies          
Total Capitalization and Liabilities $ 6,567,195     $ 6,218,347  
 
       
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
(Thousands of Dollars)       2014   2013
 
Operating Activities:
Net Income Available for Common Stock

$  

177,463

$  

153,664
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization 183,089 152,361
Deferred Income Taxes 71,939 102,557
Excess Tax Benefits Associated with Stock-Based Compensation Awards (3,149 )
Stock-Based Compensation 8,045 6,596
Other (118 ) 8,013
Change in:
Hedging Collateral Deposits 1,094 (386 )
Receivables and Unbilled Revenue (198,277 ) (109,403 )
Gas Stored Underground and Materials and Supplies 52,661 32,391
Unrecovered Purchased Gas Costs 10,583
Other Current Assets (443 ) 4,389
Accounts Payable 69,379 20,456
Amounts Payable to Customers 11,837 (1,725 )
Customer Advances (21,878 ) (23,910 )
Customer Security Deposits (602 ) (804 )
Other Accruals and Current Liabilities 102,222 39,273
Other Assets 23,445 (6,200 )
Other Liabilities       15,946     (10,417 )
Net Cash Provided by Operating Activities       $ 503,236     $ 366,855  
 
Investing Activities:
Capital Expenditures $ (367,393 ) $ (339,737 )
Other       4,927     (3,445 )
Net Cash Used in Investing Activities       $ (362,466 )   $ (343,182 )
 
Financing Activities:
Changes in Notes Payable to Banks and Commercial Paper $ $ (171,000 )
Excess Tax Benefits Associated with Stock-Based Compensation Awards 3,149
Reduction of Long-Term Debt (250,000 )
Net Proceeds From Issuance of Long-Term Debt 495,415
Dividends Paid on Common Stock (62,776 ) (60,879 )
Net Proceeds From Issuance of Common Stock       4,863     710  
Net Cash Provided By (Used in) Financing Activities       $ (54,764 )   $ 14,246  
 
Net Increase in Cash and Temporary Cash Investments 86,006 37,919
Cash and Temporary Cash Investments at Beginning of Period       64,858     74,494  
Cash and Temporary Cash Investments at March 31       $ 150,864     $ 112,413  
 
       
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

2014   2013   Variance 2014   2013   Variance
Total Operating Revenues

$  

199,561  

$  

168,080  

$  

31,481  

$  

392,607  

$  

323,529  

$  

69,078  
 
Operating Expenses:
Operation and Maintenance:
General and Administrative Expense 17,079 16,940 139 32,213 31,372 841
Lease Operating and Transportation Expense 39,957 27,863 12,094 75,127 53,558 21,569
All Other Operation and Maintenance Expense 9,033 1,920 7,113 11,816 7,420 4,396
Property, Franchise and Other Taxes 5,854 4,176 1,678 10,118 7,434 2,684
Depreciation, Depletion and Amortization 69,232   59,147   10,085   140,342   111,070   29,272  
141,155   110,046   31,109   269,616   210,854   58,762  
 
Operating Income 58,406 58,034 372 122,991 112,675 10,316
 
Other Income (Expense):
Interest Income 405 404 1 956 874 82
Other Interest Expense (10,775 ) (10,041 ) (734) (21,500 ) (18,736 ) (2,764 )
 
Income Before Income Taxes 48,036 48,397 (361 ) 102,447 94,813 7,634
Income Tax Expense 23,646   20,686   2,960   46,960   40,422   6,538  
Net Income $ 24,390   $ 27,711   $ (3,321 ) $ 55,487   $ 54,391   $ 1,096  
 
Net Income Per Share (Diluted) $ 0.29   $ 0.33   $ (0.04 ) $ 0.65   $ 0.65   $  
 
       
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

2014   2013   Variance 2014   2013   Variance
Revenues from External Customers

$  

53,571

$  

46,383

$  

7,188

$  

104,784

$  

89,842

$  

14,942
Intersegment Revenues 22,235   23,712   (1,477 ) 42,974   46,509   (3,535 )
Total Operating Revenues 75,806   70,095   5,711   147,758   136,351   11,407  
 
Operating Expenses:
Purchased Gas 38 309 (271 ) 1,301 1,095 206
Operation and Maintenance 18,885 20,433 (1,548 ) 35,770 39,873 (4,103 )
Property, Franchise and Other Taxes 6,107 5,684 423 11,795 11,117 678
Depreciation, Depletion and Amortization 9,069   8,823   246   18,190   17,349   841  
34,099   35,249   (1,150 ) 67,056   69,434   (2,378 )
 
Operating Income 41,707 34,846 6,861 80,702 66,917 13,785
 
Other Income (Expense):
Interest Income 57 56 1 131 120 11
Other Income (Loss) 192 106 86 (1 ) 1,449 (1,450 )
Other Interest Expense (6,646 ) (6,659 ) 13   (13,445 ) (12,835 ) (610 )
 
Income Before Income Taxes 35,310 28,349 6,961 67,387 55,651 11,736
Income Tax Expense 13,938   11,553   2,385   26,877   21,923   4,954  
Net Income $ 21,372   $ 16,796   $ 4,576   $ 40,510   $ 33,728   $ 6,782  
 
Net Income Per Share (Diluted) $ 0.25   $ 0.20   $ 0.05   $ 0.48   $ 0.40   $ 0.08  
 
 
Three Months Ended Six Months Ended
March 31, March 31,

GATHERING SEGMENT

2014   2013   Variance 2014   2013   Variance
Revenues from External Customers $ 195 $ 324 $ (129 ) $ 429 $ 526 $ (97 )
Intersegment Revenues 15,452   7,898   7,554   29,802   13,377   16,425  
Total Operating Revenues 15,647   8,222   7,425   30,231   13,903   16,328  
 
Operating Expenses:
Operation and Maintenance 1,530 1,027 503 2,697 1,970 727
Property, Franchise and Other Taxes 60 51 9 92 192 (100 )
Depreciation, Depletion and Amortization 614   1,062   (448 ) 2,523   1,742   781  
2,204   2,140   64   5,312   3,904   1,408  
 
Operating Income 13,443 6,082 7,361 24,919 9,999 14,920
 
Other Income (Expense):
Interest Income 26 10 16 65 11 54
Other Income 4 4 5 1 4
Other Interest Expense (460 ) (577 ) 117   (1,043 ) (1,046 ) 3  
 
Income Before Income Taxes 13,013 5,515 7,498 23,946 8,965 14,981
Income Tax Expense 5,689   2,422   3,267   10,475   3,930   6,545  
Net Income $ 7,324   $ 3,093   $ 4,231   $ 13,471   $ 5,035   $ 8,436  
 
Net Income Per Share (Diluted) $ 0.09   $ 0.04   $ 0.05   $ 0.16   $ 0.06   $ 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

2014   2013   Variance 2014   2013   Variance
Revenues from External Customers

$  

377,647

$  

303,389

$  

74,258

$  

608,100

$  

511,953

$  

96,147
Intersegment Revenues 8,204   6,396   1,808   12,911   10,707   2,204  
Total Operating Revenues 385,851   309,785   76,066   621,011   522,660   98,351  
 
Operating Expenses:
Purchased Gas 235,784 168,143 67,641 357,711 274,084 83,627
Operation and Maintenance 61,653 58,331 3,322 108,925 101,592 7,333
Property, Franchise and Other Taxes 13,370 12,054 1,316 24,037 22,409 1,628
Depreciation, Depletion and Amortization 10,798   10,737   61   21,509   21,244   265  
321,605   249,265   72,340   512,182   419,329   92,853  
 
Operating Income 64,246 60,520 3,726 108,829 103,331 5,498
 
Other Income (Expense):
Interest Income 73 67 6 151 953 (802 )
Other Income 318 222 96 688 441 247
Other Interest Expense (7,079 ) (6,885 ) (194 ) (13,893 ) (15,120 ) 1,227  
 
Income Before Income Taxes 57,558 53,924 3,634 95,775 89,605 6,170
Income Tax Expense 22,013   19,408   2,605   36,015   32,211   3,804  
Net Income $ 35,545   $ 34,516   $ 1,029   $ 59,760   $ 57,394   $ 2,366  
 
Net Income Per Share (Diluted) $ 0.42   $ 0.41   $ 0.01   $ 0.70   $ 0.68   $ 0.02  
 
 
Three Months Ended Six Months Ended
March 31, March 31,

ENERGY MARKETING SEGMENT

2014   2013   Variance 2014   2013   Variance
Revenues from External Customers $ 124,439 $ 78,989 $ 45,450 $ 197,598 $ 123,154 $ 74,444
Intersegment Revenues 5   208   (203 ) 260   634   (374 )
Total Operating Revenues 124,444   79,197   45,247   197,858   123,788   74,070  
 
Operating Expenses:
Purchased Gas 116,615 70,565 46,050 185,818 112,721 73,097
Operation and Maintenance 1,701 1,651 50 3,293 3,245 48
Property, Franchise and Other Taxes 13 9 4 13 67 (54 )
Depreciation, Depletion and Amortization 48   23   25   96   45   51  
118,377   72,248   46,129   189,220   116,078   73,142  
 
Operating Income 6,067 6,949 (882 ) 8,638 7,710 928
 
Other Income (Expense):
Interest Income 33 43 (10 ) 77 96 (19 )
Other Income 34 15 19 49 28 21
Other Interest Expense (8 ) (9 ) 1   (17 ) (20 ) 3  
 
Income Before Income Taxes 6,126 6,998 (872 ) 8,747 7,814 933
Income Tax Expense 2,361   2,715   (354 ) 3,378   3,036   342  
Net Income $ 3,765   $ 4,283   $ (518 ) $ 5,369   $ 4,778   $ 591  
 
Net Income Per Share (Diluted) $ 0.04   $ 0.05   $ (0.01 ) $ 0.06   $ 0.06   $  
 
 
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

2014   2013   Variance 2014   2013   Variance
Total Operating Revenues

$  

597  

$  

437  

$  

160  

$  

2,298  

$  

1,252  

$  

1,046  
Operating Expenses:
Operation and Maintenance 305 330 (25 ) 658 612 46
Property, Franchise and Other Taxes 177 166 11 335 322 13
Depreciation, Depletion and Amortization 57   38   19   114   511   (397 )
539   534   5   1,107   1,445   (338 )
 
Operating Income (Loss) 58 (97 ) 155 1,191 (193 ) 1,384
 
Other Income (Expense):
Interest Income 25 32 (7 ) 59 71 (12 )
Other Income (Loss) 378 (1 ) 379 399 (37 ) 436
Other Interest Expense   (1 ) 1   (1 ) (2 ) 1  
 
Income (Loss) Before Income Taxes 461 (67 ) 528 1,648 (161 ) 1,809
Income Tax Expense (Benefit) 183   (38 ) 221   694   (76 ) 770  
Net Income (Loss) $ 278   $ (29 ) $ 307   $ 954   $ (85 ) $ 1,039  
 
Net Income (Loss) Per Share (Diluted) $   $   $   $ 0.01   $   $ 0.01  
 
 
Three Months Ended Six Months Ended
March 31, March 31,

CORPORATE

2014   2013   Variance 2014   2013   Variance
Revenues from External Customers $ 232 $ 224 $ 8 $ 498 $ 424 $ 74
Intersegment Revenues 946   957   (11 ) 1,908   1,505   403  
Total Operating Revenues 1,178   1,181   (3 ) 2,406   1,929   477  
Operating Expenses:
Operation and Maintenance 4,750 3,779 971 8,466 6,960 1,506
Property, Franchise and Other Taxes 123 545 (422 ) 240 807 (567 )
Depreciation, Depletion and Amortization 157   200   (43 ) 315   400   (85 )
5,030   4,524   506   9,021   8,167   854  
 
Operating Loss (3,852 ) (3,343 ) (509 ) (6,615 ) (6,238 ) (377 )
 
Other Income (Expense):
Interest Income 24,028 23,892 136 48,635 47,196 1,439
Other Income 4,197 745 3,452 4,212 619 3,593
Interest Expense on Long-Term Debt (22,766 ) (22,786 ) 20 (45,651 ) (44,234 ) (1,417 )
Other Interest Expense (805 ) (718 ) (87 ) (1,548 ) (1,631 ) 83  
 
Income (Loss) Before Income Taxes 802 (2,210 ) 3,012 (967 ) (4,288 ) 3,321
Income Tax Benefit (1,735 ) (1,560 ) (175 ) (2,879 ) (2,711 ) (168 )
Net Income (Loss) $ 2,537   $ (650 ) $ 3,187   $ 1,912   $ (1,577 ) $ 3,489  
 
Net Income (Loss) Per Share (Diluted) $ 0.03   $ (0.01 ) $ 0.04   $ 0.03   $ (0.02 ) $ 0.05  
 
 
Three Months Ended Six Months Ended
March 31, March 31,

INTERSEGMENT ELIMINATIONS

2014   2013   Variance 2014   2013   Variance
Intersegment Revenues $ (46,842 ) $ (39,171 ) $ (7,671 ) $ (87,855 ) $ (72,732 ) $ (15,123 )
Operating Expenses:
Purchased Gas (29,665 ) (29,200 ) (465 ) (54,452 ) (56,165 ) 1,713
Operation and Maintenance (17,177 ) (9,971 ) (7,206 ) (33,403 ) (16,567 ) (16,836 )
(46,842 ) (39,171 ) (7,671 ) (87,855 ) (72,732 ) (15,123 )
 
Operating Income
 
Other Income (Expense):
Interest Income (24,398 ) (24,364 ) (34 ) (49,123 ) (47,795 ) (1,328 )
Other Interest Expense 24,398   24,364   34   49,123   47,795   1,328  
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
2014 2013 (Decrease) 2014 2013 (Decrease)
 

Capital Expenditures:

Exploration and Production

$  

164,987 (1)

$  

132,886 (3)

$  

32,101

$  

276,328 (1)(2)

$  

260,538 (3)(4)

15,790
Pipeline and Storage 19,155 (1) 11,614 (3) 7,541 29,093 (1)(2) 37,365 (3)(4) (8,272 )
Gathering 24,823 (1) 8,966 (3) 15,857 48,285 (1)(2) 22,524 (3)(4) 25,761
Utility 19,921 (1) 14,132 (3) 5,789 41,581 (1)(2) 28,496 (3)(4) 13,085
Energy Marketing 70   122   (52 ) 113   305   (192 )
Total Reportable Segments 228,956 167,720 61,236 395,400 349,228 46,172
All Other 80 (14 ) 94 140 91 49
Corporate 54     54   70   8   62  
Total Capital Expenditures $ 229,090   $ 167,706   $ 61,384   $ 395,610   $ 349,327   $ 46,283  
   

(1)

  Capital expenditures for the quarter and six months ended March 31, 2014, include accounts payable and accrued liabilities related to capital expenditures of $90.3 million, $5.1 million, $8.7 million, and $5.3 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, 2014, since they represent non-cash investing activities at that date.
 

(2)

Capital expenditures for the six months ended March 31, 2014, exclude capital expenditures of $58.5 million, $5.6 million, $6.7 million and $10.3 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, 2013 and paid during the six months ended March 31, 2014. These amounts were excluded from the Consolidated Statement of Cash Flows at September 30, 2013, 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, 2014.
 

(3)

Capital expenditures for the quarter and six months ended March 31, 2013, include accounts payable and accrued liabilities related to capital expenditures of $66.2 million, $7.8 million, $2.4 million, and $0.7 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, 2013, since they represent non-cash investing activities at that date.
 

(4)

Capital expenditures for the six months ended March 31, 2013, exclude capital expenditures of $38.9 million, $12.7 million, $12.7 million and $3.2 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, 2012 and paid during the six months ended March 31, 2013. These amounts were excluded from the Consolidated Statements of Cash Flows at September 30, 2012, 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, 2013.
 
                 

DEGREE DAYS

 
Percent Colder
(Warmer) Than:

Three Months Ended March 31

   Normal   

     2014     

     2013     

Normal (1) Last Year (1)
 
Buffalo, NY 3,290 3,826 3,145 16.3 21.7
Erie, PA 3,108 3,718 3,067 19.6 21.2
 

Six Months Ended March 31

 
Buffalo, NY 5,543 6,116 5,181 10.3 18.0
Erie, PA 5,152 5,828 4,965 13.1 17.4
   

(1)

  Percents compare actual 2014 degree days to normal degree days and actual 2014 degree days to actual 2013 degree days.
 
                       
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 

EXPLORATION AND PRODUCTION INFORMATION

 
 
Three Months Ended Six Months Ended
March 31, March 31,
Increase Increase
2014   2013   (Decrease) 2014   2013   (Decrease)
 

Gas Production/Prices:

Production (MMcf)
Appalachia 31,490 23,983 7,507 63,543 43,479 20,064
West Coast 841   716   125   1,626   1,461   165  
Total Production 32,331   24,699   7,632   65,169   44,940   20,229  
 
Average Prices (Per Mcf)
Appalachia

$  

4.44

$  

3.29

$  

1.15

$  

3.86

$  

3.32

$  

0.54
West Coast (3) 7.57 6.38 1.19 6.77 6.46 0.31
Weighted Average 4.52 3.38 1.14 3.93 3.42 0.51
Weighted Average after Hedging 3.89 4.06 (0.17 ) 3.79 4.12 (0.33 )
 

Oil Production/Prices:

Production (Thousands of Barrels)
Appalachia 7 6 1 17 12 5
West Coast 748   685   63   1,453   1,393   60  
Total Production 755   691   64   1,470   1,405   65  
 
Average Prices (Per Barrel)
Appalachia $ 94.15 $ 95.20 $ (1.05 ) $ 95.21 $ 91.72 $ 3.49
West Coast 99.98 106.29 (6.31 ) 98.75 103.14 (4.39 )
Weighted Average 99.93 106.19 (6.26 ) 98.71 103.05 (4.34 )
Weighted Average after Hedging 96.85 99.08 (2.23 ) 95.47 97.86 (2.39 )
 
Total Production (Mmcfe) 36,861   28,845   8,016   73,989   53,370   20,619  
 

Selected Operating Performance Statistics:

General & Administrative Expense per Mcfe (1) $ 0.46 $ 0.59 $ (0.13 ) $ 0.44 $ 0.59 $ (0.15 )
Lease Operating and Transportation Expense per Mcfe (1)(2) $ 1.08 $ 0.97 $ 0.11 $ 1.02 $ 1.00 $ 0.02
Depreciation, Depletion & Amortization per Mcfe (1) $ 1.88 $ 2.05 $ (0.17 ) $ 1.90 $ 2.08 $ (0.18 )
   

(1)

  Refer to page 18 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 $0.45 and $0.37 per Mcfe for the three months ended March 31, 2014 and March 31, 2013, respectively. Amounts include transportation expense of $0.43 and $0.34 per Mcfe for the six months ended March 31, 2014 and March 31, 2013, respectively.
 

(3)

Prices reflect revenues from gas produced on the West Coast, including natural gas liquids.
 
                     
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 

EXPLORATION AND PRODUCTION INFORMATION

 
Hedging Summary for the Remaining Six Months of Fiscal 2014
 

SWAPS

Volume

Average Hedge Price

Oil
Midway Sunset (MWSS) 312,000 BBL $ 95.68 / BBL
Brent 672,000 BBL $ 102.32 / BBL
Total 984,000 BBL $ 100.22 / BBL
 
Gas
NYMEX 44,100,000 MMBTU $ 4.07 / MMBTU
Dominion Transmission Appalachian (DOM) 14,400,000 MMBTU $ 4.06 / MMBTU
Southern California City Gate (SoCal) 600,000 MMBTU $ 4.35 / MMBTU
Total 59,100,000 MMBTU $ 4.07 / MMBTU
 
Hedging Summary for Fiscal 2015
 

SWAPS

Volume

Average Hedge Price

Oil
MWSS 258,000 BBL $ 92.10 / BBL
Brent 903,000 BBL $ 98.42 / BBL
NYMEX 396,000 BBL $ 90.14 / BBL
Total 1,557,000 BBL $ 95.27 / BBL
 
Gas
NYMEX 69,590,000 MMBTU $ 4.16 / MMBTU
DOM 18,720,000 MMBTU $ 3.88 / MMBTU
SoCal 1,200,000 MMBTU $ 4.35 / MMBTU
Total 89,510,000 MMBTU $ 4.10 / MMBTU
 
Hedging Summary for Fiscal 2016
 

SWAPS

Volume

Average Hedge Price

Oil
MWSS 36,000 BBL $ 92.10 / BBL
Brent 933,000 BBL $ 95.18 / BBL
NYMEX 300,000 BBL $ 86.09 / BBL
Total 1,269,000 BBL $ 92.95 / BBL
 
Gas
NYMEX 37,740,000 MMBTU $ 4.25 / MMBTU
DOM 18,840,000 MMBTU $ 3.88 / MMBTU
Total 56,580,000 MMBTU $ 4.12 / MMBTU
 
Hedging Summary for Fiscal 2017
 

SWAPS

Volume

Average Hedge Price

Oil
Brent 384,000 BBL $ 92.30 / BBL
 
Gas
NYMEX 24,960,000 MMBTU $ 4.49 / MMBTU
DOM 18,840,000 MMBTU $ 3.88 / MMBTU
Total 43,800,000 MMBTU $ 4.23 / MMBTU
 
Hedging Summary for Fiscal 2018
 

SWAPS

Volume

Average Hedge Price

Oil
Brent 75,000 BBL $ 91.00 / BBL
 
Gas
NYMEX 5,550,000 MMBTU $ 4.59 / MMBTU
 
                     
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 

EXPLORATION AND PRODUCTION INFORMATION

 

Gross Wells in Process of Drilling

Six Months Ended March 31, 2014

Total

East

West

Company

Wells in Process - Beginning of Period
Exploratory 1.000 (1) 0.000 1.000
Developmental 72.000 (1)(2) 0.000 72.000
Wells Commenced
Exploratory 4.000 2.000 6.000
Developmental 24.000 45.000 69.000
Wells Completed
Exploratory 1.000 2.000 3.000
Developmental 17.000 41.000 58.000
Wells Plugged & Abandoned
Exploratory 0.000 0.000 0.000
Developmental 2.000 1.000 3.000
Wells in Process - End of Period
Exploratory 4.000 0.000 4.000
Developmental 77.000 3.000 80.000

(1)

  Gross exploratory wells were increased by 1 and developmental wells were decreased by 1.

(2)

Beginning of year number has been adjusted to remove 3 developmental wells.
 
                     

Net Wells in Process of Drilling

Six Months Ended March 31, 2014

Total

East

West

Company

Wells in Process - Beginning of Period
Exploratory 1.000 (1) 0.000 1.000
Developmental 57.000 (1)(2) 0.000 57.000
Wells Commenced
Exploratory 3.771 1.533 5.304
Developmental 24.000 45.000 69.000
Wells Completed
Exploratory 1.000 1.533 2.533
Developmental 17.000 41.000 58.000
Wells Plugged & Abandoned
Exploratory 0.000 0.000 0.000
Developmental 2.000 1.000 3.000
Wells in Process - End of Period
Exploratory 3.771 0.000 3.771
Developmental 62.000 3.000 65.000

(1)

  Net exploratory wells were increased by 1 and developmental wells were decreased by 1.

(2)

Beginning of year number has been adjusted to remove 3 developmental wells.
 
               
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
2014 2013 (Decrease) 2014 2013 (Decrease)
Firm Transportation - Affiliated 48,163 43,228 4,935 77,849 71,462 6,387
Firm Transportation - Non-Affiliated 176,815 131,547 45,268 338,785 226,726 112,059
Interruptible Transportation 1,458   714   744   2,780   1,966   814  
226,436   175,489   50,947   419,414   300,154   119,260  
 
Gathering Volume - (MMcf)
Three Months Ended Six Months Ended
March 31, March 31,
Increase Increase
2014 2013 (Decrease) 2014 2013 (Decrease)
Gathered Volume - Affiliated 30,955   21,918   9,037   61,969   38,729   23,240  
 
 
Utility Throughput - (MMcf)
Three Months Ended Six Months Ended
March 31, March 31,
Increase Increase
2014 2013 (Decrease) 2014 2013 (Decrease)
Retail Sales:
Residential Sales 30,640 25,372 5,268 47,647 40,525 7,122
Commercial Sales 4,759 3,871 888 7,119 5,838 1,281
Industrial Sales 297   405   (108 ) 389   706   (317 )
35,696 29,648 6,048 55,155 47,069 8,086
Off-System Sales 1,832 4,288 (2,456 ) 3,810 6,716 (2,906 )
Transportation 34,157   27,616   6,541   55,347   46,254   9,093  
71,685   61,552   10,133   114,312   100,039   14,273  
 
Energy Marketing Volume
Three Months Ended Six Months Ended
March 31, March 31,
Increase Increase
2014 2013 (Decrease) 2014 2013 (Decrease)
Natural Gas (MMcf) 20,910   17,393   3,517   36,918   27,758   9,160  
 
                         
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
FISCAL 2014 EARNINGS GUIDANCE AND SENSITIVITIES
 
 
 
 
Earnings per share sensitivity to changes
Fiscal 2014 (Diluted earnings per share guidance*) from prices used in guidance* ^
 

$0.50 change per
MMBtu gas

$5 change per Bbl oil
Range Increase   Decrease Increase   Decrease
 
Consolidated Earnings $ 3.40 - $ 3.55 + $ 0.07 - $ 0.07 + $ 0.02 - $ 0.02

* Please refer to forward looking statement footnote beginning at page 9 of document.

^ This sensitivity table is current as of May 8, 2014 and only considers revenue from the Exploration and Production segment's crude oil and natural gas sales. This revenue is based upon pricing used in the Company's earnings forecast. For its fiscal 2014 earnings forecast, the Company is utilizing flat NYMEX equivalent commodity pricing, exclusive of basis differential, of $4.50 per MMBtu for natural gas and $95 per Bbl for crude oil. The sensitivities will become obsolete with the passage of time, changes in Seneca's production forecast, changes in basis differential, as additional hedging contracts are entered into, and with the settling of hedge contracts at their maturity.

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES

In addition to financial measures calculated in accordance with generally accepted accounting principles (GAAP), this press release contains information regarding Operating Results and Adjusted EBITDA, which are non-GAAP financial measures. The Company believes that these non-GAAP financial measures are useful to investors because they provide an alternative method for assessing the Company's ongoing operating results, for measuring the Company’s cash flow and liquidity, and for comparing the Company’s financial performance to other companies. The Company's management uses these non-GAAP financial measures for the same purpose, and for planning and forecasting purposes. The presentation of non-GAAP financial measures is not meant to be a substitute for financial measures in accordance with GAAP.

Management defines Operating Results as reported GAAP earnings before items impacting comparability. The table at page 3 of this report reconciles National Fuel's reported GAAP earnings to Operating Results for the three and six months ended March 31, 2014 and 2013.

Management defines Adjusted EBITDA as reported GAAP earnings before the following items: interest expense, depreciation, depletion and amortization, interest and other income, impairments, items impacting comparability and income taxes.

The following tables reconcile National Fuel's reported GAAP earnings to Adjusted EBITDA for the three and six months ended March 31, 2014:

           
Three Months Ended Six Months Ended
March 31, March 31,
2014 2013 2014 2013
(in thousands)
Reported GAAP Earnings

$  

95,211

$  

85,720

$  

177,463

$  

153,664
Depreciation, Depletion and Amortization 89,975 80,030 183,089 152,361
Interest and Other Income (5,372 ) (1,227 ) (6,303 ) (4,027 )
Interest Expense 24,141 23,312 47,975 45,829
Income Taxes 66,095 55,186 121,520 98,735
Plugging and Abandonment Accrual 3,761     5,002    
Adjusted EBITDA $ 273,811   $ 243,021   $ 528,746   $ 446,562  
 
           
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
 

Quarter Ended March 31 (unaudited)

2014 2013
 
Operating Revenues

$  

756,242,000  

$  

597,826,000
 
Net Income Available for Common Stock $ 95,211,000   $ 85,720,000
 
Earnings Per Common Share:
Basic $ 1.14   $ 1.03
Diluted $ 1.12   $ 1.02
 
Weighted Average Common Shares:
Used in Basic Calculation 83,856,120   83,498,508
Used in Diluted Calculation 84,837,123   84,159,734
 

Six Months Ended March 31 (unaudited)

 
Operating Revenues $ 1,306,314,000   $ 1,050,680,000
 
Net Income Available for Common Stock $ 177,463,000   $ 153,664,000
 
Earnings Per Common Share:
Basic $ 2.12   $ 1.84
Diluted $ 2.09   $ 1.83
 
Weighted Average Common Shares:
Used in Basic Calculation 83,781,085   83,443,805
Used in Diluted Calculation 84,787,610   84,127,705
 

Twelve Months Ended March 31 (unaudited)

 
Operating Revenues $ 2,085,185,000   $ 1,692,801,000
 
Net Income Available for Common Stock $ 283,800,000   $ 245,650,000
 
Earnings Per Common Share:
Basic $ 3.39   $ 2.95
Diluted $ 3.35   $ 2.93
 
Weighted Average Common Shares:
Used in Basic Calculation 83,687,056   83,355,109
Used in Diluted Calculation 84,601,418   83,928,901

Contacts

National Fuel Gas Company
Analyst:
Timothy J. Silverstein, 716-857-6987
or
Media:
Karen L. Merkel, 716-857-7654

Sharing

Contacts

National Fuel Gas Company
Analyst:
Timothy J. Silverstein, 716-857-6987
or
Media:
Karen L. Merkel, 716-857-7654