National Fuel Reports Third Quarter Earnings

WILLIAMSVILLE, N.Y.--()--National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated earnings for the third quarter of fiscal 2014 and for the nine months ended June 30, 2014.

HIGHLIGHTS

  • Earnings for the third quarter of fiscal 2014 of $64.5 million, or $0.76 per share, increased $6.0 million, or $0.07 per share, compared to $58.5 million, or $0.69 per share, for the prior year’s third quarter. The increase is due to higher earnings in the Midstream businesses.
  • Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) for the nine months ended June 30, 2014, were $748.4 million compared to $661.7 million for the prior year’s nine-month period, an increase of 13%.
  • In the Midstream businesses (which consist of the Company's Pipeline and Storage and Gathering segments), Adjusted EBITDA for the current year’s third quarter were $61.7 million, a 28% increase over the prior year’s third quarter.
  • Seneca Resources Corporation’s (“Seneca”) third quarter production of natural gas and crude oil was 40.6 billion cubic feet equivalent (“Bcfe”), an increase of 6.5 Bcfe or approximately 19% over the prior year’s third quarter. Average daily production during the quarter was 446 million cubic feet equivalent (“MMcfe”) per day.
  • The Company is updating and narrowing its GAAP earnings guidance range for fiscal 2014 to a range of $3.40 to $3.50 per share. The previous earnings guidance had been a range of $3.40 to $3.55 per share. This guidance assumes a flat NYMEX price of $4.00 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. Production for the entire 2014 fiscal year is projected to be between 160 to 168 Bcfe.
  • The Company’s preliminary GAAP earnings guidance for fiscal 2015 is in the range of $3.30 to $3.60 per share. The 2015 preliminary guidance includes oil and gas production for the Exploration and Production segment in the range of 180 to 220 Bcfe and is based on an assumed flat NYMEX price of $4.25 per MMBtu for natural gas and $95 per Bbl for crude oil.
  • A conference call is scheduled for Friday, August 8, 2014, at 11 a.m. Eastern Time.

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: “We had another very solid quarter of performance by each of our operating subsidiaries. The operational success in our drilling operations in both Pennsylvania and California, as evidenced by our 19% increase in production, was muted by lower Appalachian natural gas prices. As we have noted in previous quarters, the performance of our utility business during the past heating season, which was one of the coldest in the last 50 years, was exceptional. The level earnings in the Utility segment for the respective nine-month periods reflect the proper workings of rate adjustment mechanisms and our employee’s commitment to cost control.

“Our investments in our pipeline businesses continue to generate impressive earnings, and we look to invest in additional gathering and transmission projects that will be designed to move regionally constrained production, including Seneca’s, to higher value markets.

“The Company continues to produce strong results across our integrated natural gas value chain. As we look forward, we believe the Company is in a great position to continue capitalizing on our considerable growth opportunities in Appalachia. We are committed to increasing and highlighting the value of the Company through disciplined investments, as well as a keen focus on operational execution and safe, reliable service across our subsidiaries.”

SUMMARY OF RESULTS

National Fuel Gas had consolidated earnings for the quarter ended June 30, 2014, of $64.5 million, or $0.76 per share, compared to the prior year’s third quarter of $58.5 million, or $0.69 per share, an increase of $6.0 million, or $0.07 per share. The increase is due to higher earnings in the Midstream and Upstream businesses. (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 nine months ended June 30, 2014, of $242.0 million, or $2.85 per share, increased $29.8 million, or $0.33 per share, from the same period in the prior year where earnings were $212.2 million or $2.52 per share.

OPERATING RESULTS

   
Three Months Ended Nine Months Ended
June 30, June 30,
2014     2013   2014     2013
(in thousands except per share amounts)
Reported GAAP earnings $ 64,520 $ 58,495 $ 241,983 $ 212,159
Items impacting comparability1:
Plugging and abandonment accrual (2,691 ) 560
Deferred state income tax adjustment 5,000 3,000 5,000
Gain on life insurance policies (3,635 )
             
Operating Results $ 61,829   $ 63,495   $ 241,908   $ 217,159
 
Reported GAAP earnings per share $ 0.76 $ 0.69 $ 2.85 $ 2.52
Items impacting comparability1:
Plugging and abandonment accrual (0.03 ) 0.01
Deferred state income tax adjustment 0.06 0.04 0.06
Gain on life insurance policies (0.04 )
             
Operating Results $ 0.73   $ 0.75   $ 2.86   $ 2.58

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 nine months ended June 30, 2014, to the comparable periods in fiscal 2013. Excluding these items, Operating Results for the current quarter of $61.8 million, or $0.73 per share, decreased $1.7 million, or $0.02 per share, from the prior year’s third quarter when Operating Results were $63.5 million or $0.75 per share. Excluding these items, Operating Results for the nine months ended June 30, 2014, of $241.9 million, or $2.86 per share, increased $24.7 million, or $0.28 per share, from the same period in the prior year when Operating Results were $217.2 million or $2.58 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 10 through 13 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, primarily in Pennsylvania and California.

The Exploration and Production segment’s earnings in the third quarter of fiscal 2014 of $32.4 million, or $0.38 per share, increased $0.7 million, or less than $0.01 per share, when compared with the prior year’s third quarter. Earnings for the current year’s third quarter were increased by a $2.7 million reduction of an accrual for well plugging and abandonment costs. In the first half of fiscal 2014, Seneca recorded an initial accrual of $3.3 million associated with two wells on an offshore Gulf of Mexico mineral lease (High Island 74) that Seneca had farmed out to an operator who subsequently filed for bankruptcy. During the current quarter, it was determined that Seneca was not responsible for the costs to plug and abandon one of those wells. Seneca also increased its state deferred income tax liability by $5.0 million in the third quarter of fiscal 2013 to reflect the net impact of its growing presence in Pennsylvania. Excluding the impact of these third quarter items, Operating Results in the Exploration and Production segment of $29.7 million, or $0.35 per share, decreased $7.0 million, or $0.09 per share, when compared to the prior year’s third quarter.

Overall production of natural gas and crude oil for the current quarter of 40.6 Bcfe increased approximately 6.5 Bcfe, or 19.1 percent, compared to the prior year’s third quarter. Production from Seneca’s Appalachia properties increased approximately 6.0 Bcfe or 20.8 percent. California production of 5.4 Bcfe increased 9.2 percent compared with the prior year’s third quarter due to increased development activities, primarily in the East Coalinga and South Midway Sunset fields.

Lower commodity prices realized after hedging reduced Operating Results. The weighted average natural gas price received by Seneca (after hedging) for the quarter ended June 30, 2014, was $3.55 per thousand cubic feet (“Mcf”), a decrease of $0.62 per Mcf compared to the prior year’s third quarter. The weighted average crude oil price realized after hedging for the quarter ended June 30, 2014, was $97.54 per Bbl, a decrease of $0.36 per Bbl compared to the prior year’s third quarter.

On a per unit basis, depletion expense of $1.84 per thousand cubic feet equivalent (“Mcfe”), decreased $0.13 per Mcfe due to higher natural gas reserve balances at June 30, 2014, compared to the prior year’s third quarter. On a per unit basis, lease operating and transportation expenses (“LOE”) at $1.08 per Mcfe increased $0.09 per Mcfe compared to the prior year’s third quarter due to higher gathering and compression costs associated with production from Tract 100 in Lycoming County, Pa., and higher steam fuel, electricity and water disposal costs in California. General and administrative expenses (“G&A”) decreased $0.07 per Mcfe compared to the prior year’s third quarter, also due to higher production. Operating Results were also reduced by a $2.6 million derivative mark to market adjustment associated with certain crude oil hedges.

The Exploration and Production segment’s earnings were $87.9 million, or $1.04 per share, for the nine months ended June 30, 2014, compared to earnings of $86.1 million, or $1.02 per share, for the nine months ended June 30, 2013. In addition to the accrual for well plugging and abandonment costs recorded in the current nine-month period, Seneca had deferred income tax adjustments in both fiscal 2013 and 2014 that decreased earnings by $5 million and $3 million, respectively. Excluding these items, Operating Results in the Exploration and Production segment of $91.5 million, or $1.09 per share, increased $0.3 million, or less than $0.01 per share, when compared to the prior year’s nine-month period.

Overall production of natural gas and crude oil for the nine months ended June 30, 2014, of 114.6 Bcfe increased approximately 27.1 Bcfe, or 31.0 percent, compared to the prior year’s nine-month period. Production from Seneca’s Appalachia properties increased approximately 26.1 Bcfe or 36.0 percent. California production of 15.8 Bcfe increased 6.7 percent compared with the prior year’s nine-month period.

Lower commodity prices realized after hedging in the current nine-month period reduced earnings. The weighted average natural gas price received by Seneca (after hedging) for the nine months ended June 30, 2014, was $3.71 per Mcf, a decrease of $0.43 per Mcf compared to the prior year’s nine-month period. The weighted average crude oil price realized after hedging for the nine months ended June 30, 2014, was $96.19 per Bbl, a decrease of $1.69 per Bbl.

On a per unit basis for the nine months ended June 30, 2014, depletion expense of $1.88 per Mcfe decreased $0.16 per Mcfe due to higher natural gas reserve balances at June 30, 2014, LOE of $1.04 per Mcfe increased $0.04 per Mcfe due to higher transportation costs in Appalachia and higher steam fuel costs in California, and G&A of $0.42 per Mcfe decreased $0.12 per Mcfe compared to the prior year’s nine-month period, due to higher production. Operating Results for the nine months ended June 30, 2014, were reduced by higher property taxes in California, a higher Pennsylvania impact fee, higher interest expense due to a higher outstanding debt balance and a $2.3 million derivative mark to market adjustment associated with certain crude oil hedges.

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 $17.9 million, or $0.21 per share, for the quarter ended June 30, 2014, increased $3.9 million, or $0.04 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 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 $58.4 million, or $0.69 per share, for the nine months ended June 30, 2014, increased $10.6 million, or $0.12 per share, when compared with the same period in the prior fiscal year. The increase was mostly due to higher non-affiliated transportation revenues and lower pension and other post retirement benefit costs. The increase in transportation revenues was due to the Company's recent expansion projects as well as an overall increase in demand for short-term transportation services as a result of the cold winter of 2013 - 2014. Earnings for the current nine-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 $8.7 million, or $0.10 per share, for the quarter ended June 30, 2014, increased $4.3 million, or $0.05 per share, when compared with the same period in the prior fiscal year.

The Gathering segment’s earnings of $22.2 million, or $0.26 per share, for the nine months ended June 30, 2014, increased $12.7 million, or $0.15 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. That increase in revenue was directly related to the increase in Seneca’s production volumes as described above.

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 $4.8 million, or $0.06 per share, for the quarter ended June 30, 2014, decreased $2.8 million, or $0.03 per share, when compared with the same period in the prior fiscal year. 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, and higher bad debt expense reduced earnings in the current year’s third quarter.

The Utility segment’s earnings of $64.6 million, or $0.76 per share, for the nine months ended June 30, 2014, decreased $0.4 million, or $0.01 per share, when compared with the same period in the prior fiscal year. Colder weather in Pennsylvania increased earnings in the current year’s nine-month period. Temperatures in Pennsylvania were 15.1 percent colder during the nine months ended June 30, 2014, than in the prior year’s nine-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 nine-month period. Higher income taxes which were the result of a non-recurring tax benefit recorded in the prior year nine-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 nine months ended June 30, 2014, of $0.6 million and $6.0 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 improved from a $0.3 million loss in the prior year’s third quarter to earnings of less than $0.1 million in the current year’s third quarter. The higher earnings were due to lower operating expenses.

The Corporate and All Other category earnings of $2.9 million, for the nine months ended June 30, 2014, compares to a loss of $2.0 million for the prior year’s nine-month period. The comparability of the nine 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 nine-month period, a loss of $0.7 million, compares to a loss of $2.0 million in the prior year’s nine-month period. The improved Operating Results were due to higher margins from the Company’s timber operations, and lower franchise tax expense, offset by higher operating expenses.

EARNINGS GUIDANCE

The Company is updating and narrowing its GAAP earnings guidance range for fiscal 2014 to a range of $3.40 to $3.50 per share. The previous earnings guidance had been a range of $3.40 to $3.55 per share. This guidance includes forecast oil and gas production for fiscal 2014 in the range between 160 to 168 Bcfe (previous guidance 155 to 165 Bcfe), hedges currently in place and a flat NYMEX price of $4.00 per MMBtu for natural gas and $95 per Bbl for crude oil for unhedged production for the remainder of the fiscal year.

The Company’s preliminary GAAP earnings guidance for fiscal 2015 is in the range of $3.30 to $3.60 per share. This includes oil and gas production for the Exploration and Production segment in the range of 180 to 220 Bcfe and is based on an assumed flat NYMEX price of $4.25 per MMBtu for natural gas and $95 per Bbl for crude oil.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, August 8, 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) 1-877-280-4956, using passcode “34799349.” 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 “86485833.” Both the webcast and telephonic replay will be available until the close of business on Friday, August 15, 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; 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; changes in demographic patterns and weather conditions; changes in the availability, price or accounting treatment of derivative financial instruments; 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 JUNE 30, 2014
 
 
Upstream Midstream Businesses Downstream Businesses
 
Exploration & Pipeline & Energy Corporate /
(Thousands of Dollars) Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Third quarter 2013 GAAP earnings $ 31,734 $ 14,075 $ 4,407 $ 7,630 $ 963 $ (314 ) $ 58,495
Items impacting comparability:
Deferred state income tax adjustment 5,000                                   5,000  
Third quarter 2013 operating results 36,734 14,075 4,407 7,630 963 (314 ) 63,495
 
Drivers of operating results
Higher (lower) crude oil prices (185 ) (185 )
Higher (lower) natural gas prices (14,326 ) (14,326 )
Higher (lower) natural gas production 16,408 16,408
Higher (lower) crude oil production 4,739 4,739
Derivative mark to market adjustments (2,632 ) (2,632 )
Lower (higher) lease operating and transportation expenses (6,504 ) (6,504 )
Lower (higher) depreciation / depletion (4,957 ) (341 ) (5,298 )
 
Higher (lower) transportation revenues 2,930 2,930
Higher (lower) gathering and processing revenues 5,522 5,522
Lower (higher) operating expenses (911 ) 1,384 (384 ) (1,680 ) 481 (1,110 )
Lower (higher) property, franchise and other taxes (619 ) (254 ) 281 (592 )
 
Higher (lower) margins (278 ) (256 ) (534 )
 
Lower (higher) interest expense 306 306
 
Lower (higher) income tax expense / effective tax rate 1,671 (799 ) (771 ) 101
 
All other / rounding 312     (201 )   6     (353 )   (83 )   (172 )   (491 )
Third quarter 2014 operating results 29,730 17,934 8,717 4,826 602 20 61,829
Items impacting comparability:
Reversal of plugging and abandonment accrual 2,691                                   2,691  
Third quarter 2014 GAAP earnings $ 32,421     $ 17,934     $ 8,717     $ 4,826     $ 602     $ 20     $ 64,520  
 
* Amounts do not reflect intercompany eliminations
             
 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
QUARTER ENDED JUNE 30, 2014
 
 
Upstream Midstream Businesses Downstream Businesses
 
Exploration & Pipeline & Energy Corporate /
Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Third quarter 2013 GAAP earnings $ 0.38 $ 0.17 $ 0.05 $ 0.09 $ 0.01 $ (0.01 ) $ 0.69
Items impacting comparability:
Deferred state income tax adjustment 0.06                                   0.06  
Third quarter 2013 operating results 0.44 0.17 0.05 0.09 0.01 (0.01 ) 0.75
 
Drivers of operating results
Higher (lower) crude oil prices
Higher (lower) natural gas prices (0.17 ) (0.17 )
Higher (lower) natural gas production 0.19 0.19
Higher (lower) crude oil production 0.06 0.06
Derivative mark to market adjustments (0.03 ) (0.03 )
Lower (higher) lease operating and transportation expenses (0.08 ) (0.08 )
Lower (higher) depreciation / depletion (0.06 ) (0.06 )
 
Higher (lower) transportation revenues 0.03 0.03
Higher (lower) gathering and processing revenues 0.06 0.06
Lower (higher) operating expenses (0.01 ) 0.02 (0.02 ) 0.01
Lower (higher) property, franchise and other taxes (0.01 ) (0.01 )
 
Higher (lower) margins
 
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 )
Third quarter 2014 operating results 0.35 0.21 0.10 0.06 0.01 0.73
Items impacting comparability:
Reversal of plugging and abandonment accrual 0.03                                   0.03  
Third quarter 2014 GAAP earnings $ 0.38     $ 0.21     $ 0.10     $ 0.06     $ 0.01     $     $ 0.76  
 
* Amounts do not reflect intercompany eliminations
             
 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
NINE MONTHS ENDED JUNE 30, 2014
 
 
Upstream   Midstream Businesses Downstream Businesses
 
Exploration & Pipeline & Energy Corporate /
(Thousands of Dollars) Production     Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Nine months ended June 30, 2013 GAAP earnings $ 86,125 $ 47,803 $ 9,442 $ 65,024 $ 5,741 $ (1,976 ) $ 212,159
Items impacting comparability:
Deferred state income tax adjustment 5,000                                   5,000  
Nine months ended June 30, 2013 operating results 91,125 47,803 9,442 65,024 5,741 (1,976 ) 217,159
 
Drivers of operating results
Higher (lower) crude oil prices (2,474 ) (2,474 )
Higher (lower) natural gas prices (28,144 ) (28,144 )
Higher (lower) natural gas production 70,686 70,686
Higher (lower) crude oil production 8,875 8,875
Derivative mark to market adjustments (2,326 ) (2,326 )
Insurance settlement proceeds 1,261 342 1,603
Lower (higher) lease operating and transportation expenses (20,524 ) (20,524 )
Lower (higher) depreciation / depletion (23,984 ) (659 ) (848 ) (25,491 )
 
Higher (lower) transportation revenues 10,429 10,429
Higher (lower) gathering and processing revenues 16,135 16,135
Lower (higher) operating expenses (1,064 ) 4,051 (857 ) (5,395 ) (527 ) (3,792 )
Lower (higher) property, franchise and other taxes (2,365 ) (696 ) 642 (2,419 )
 
Colder weather 6,750 6,750
 
Higher (lower) margins 355 682 1,037
 
Income (loss) from unconsolidated subsidiaries 278 278
 
Higher (lower) AFUDC** (1,073 ) (1,073 )
 
Lower (higher) interest expense (1,605 ) (307 ) 308 852 (752 )
 
Lower (higher) income tax expense / effective tax rate 805 (727 ) (2,101 ) (2,418 ) (4,441 )
 
All other / rounding 1,202     (377 )   109     (227 )   (125 )   (190 )   392  
Nine months ended June 30, 2014 operating results 91,468 58,444 22,188 64,586 5,971 (749 ) 241,908
Items impacting comparability:
Deferred state income tax adjustment (3,000 ) (3,000 )
Plugging and abandonment accrual (560 ) (560 )
Gain on life insurance policies                               3,635     3,635  
Nine months ended June 30, 2014 GAAP earnings $ 87,908     $ 58,444     $ 22,188     $ 64,586     $ 5,971     $ 2,886     $ 241,983  
 
* 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
NINE MONTHS ENDED JUNE 30, 2014
 
 
Upstream   Midstream Businesses Downstream Businesses
 
Exploration & Pipeline & Energy Corporate /
Production     Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Nine months ended June 30, 2013 GAAP earnings $ 1.02 $ 0.57 $ 0.11 $ 0.77 $ 0.07 $ (0.02 ) $ 2.52
Items impacting comparability:
Deferred state income tax adjustment 0.06                                   0.06  
Nine months ended June 30, 2013 operating results 1.08 0.57 0.11 0.77 0.07 (0.02 ) 2.58
 
Drivers of operating results
Higher (lower) crude oil prices (0.03 ) (0.03 )
Higher (lower) natural gas prices (0.33 ) (0.33 )
Higher (lower) natural gas production 0.83 0.83
Higher (lower) crude oil production 0.10 0.10
Derivative mark to market adjustments (0.03 ) (0.03 )
Insurance settlement proceeds 0.01 0.01
Lower (higher) lease operating and transportation expenses (0.24 ) (0.24 )
Lower (higher) depreciation / depletion (0.28 ) (0.01 ) (0.01 ) (0.30 )
 
Higher (lower) transportation revenues 0.12 0.12
Higher (lower) gathering and processing revenues 0.19 0.19
Lower (higher) operating expenses (0.01 ) 0.05 (0.01 ) (0.06 ) (0.01 ) (0.04 )
Lower (higher) property, franchise and other taxes (0.03 ) (0.01 ) 0.01 (0.03 )
 
Colder weather 0.08 0.08
 
Higher (lower) margins 0.01 0.01
 
Income (loss) from unconsolidated subsidiaries
 
Higher (lower) AFUDC** (0.01 ) (0.01 )
 
Lower (higher) interest expense (0.02 ) 0.01 (0.01 )
 
Lower (higher) income tax expense / effective tax rate 0.01 (0.01 ) (0.02 ) (0.03 ) (0.05 )
 
All other / rounding 0.03     (0.01 )       (0.01 )           0.01  
Nine months ended June 30, 2014 operating results 1.09 0.69 0.26 0.76 0.07 (0.01 ) 2.86
Items impacting comparability:
Deferred state income tax adjustment (0.04 ) (0.04 )
Plugging and abandonment accrual (0.01 ) (0.01 )
Gain on life insurance policies                               0.04     0.04  
Nine months ended June 30, 2014 GAAP earnings $ 1.04     $ 0.69     $ 0.26     0.76     $ 0.07     $ 0.03     $ 2.85  
 
* 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 Nine Months Ended
June 30, June 30,
(Unaudited) (Unaudited)

SUMMARY OF OPERATIONS

2014     2013   2014     2013  
Operating Revenues $ 440,144   $ 440,008   $ 1,746,458   $ 1,490,688  
 
Operating Expenses:
Purchased Gas 86,628 95,164 577,005 426,900
Operation and Maintenance 107,232 108,497 352,794 338,533
Property, Franchise and Other Taxes 22,483 21,201 69,114 63,550
Depreciation, Depletion and Amortization 96,788   88,142   279,876   240,503  
313,131 313,004 1,278,789 1,069,486
 
Operating Income 127,013 127,004 467,669 421,202
 
Other Income (Expense):
Interest Income 370 317 1,321 1,844
Other Income 1,496 1,163 6,847 3,666
Interest Expense on Long-Term Debt (22,116 ) (22,998 ) (67,767 ) (67,232 )
Other Interest Expense (1,136 ) (1,303 ) (3,460 ) (2,898 )
 
Income Before Income Taxes 105,627 104,183 404,610 356,582
 
Income Tax Expense 41,107   45,688   162,627   144,423  
 
Net Income Available for Common Stock $ 64,520   $ 58,495   $ 241,983   $ 212,159  
 
Earnings Per Common Share:
Basic $ 0.77   $ 0.70   $ 2.89   $ 2.54  
Diluted $ 0.76   $ 0.69   $ 2.85   $ 2.52  
 
Weighted Average Common Shares:
Used in Basic Calculation 84,029,124   83,557,968   83,863,764   83,481,849  
Used in Diluted Calculation 84,973,100   84,325,465   84,892,473   84,242,128  
 
 

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 
June 30,   September 30,
(Thousands of Dollars)   2014     2013  
 
ASSETS
Property, Plant and Equipment $7,951,544 $7,313,203
Less - Accumulated Depreciation, Depletion and Amortization   2,413,958     2,161,477  
Net Property, Plant and Equipment   5,537,586     5,151,726  
 
Current Assets:
Cash and Temporary Cash Investments 102,653 64,858
Hedging Collateral Deposits 1,094
Receivables - Net 202,437 133,182
Unbilled Revenue 22,225 19,483
Gas Stored Underground 20,183 51,484
Materials and Supplies - at average cost 25,620 29,904
Unrecovered Purchased Gas Costs 12,408
Other Current Assets 49,412 56,905
Deferred Income Taxes   47,153     79,359  
Total Current Assets   469,683     448,677  
 
Other Assets:
Recoverable Future Taxes 162,138 163,355
Unamortized Debt Expense 14,891 16,645
Other Regulatory Assets 241,640 252,568
Deferred Charges 10,245 9,382
Other Investments 87,855 96,308
Goodwill 5,476 5,476
Prepaid Post-Retirement Benefit Costs 29,532 22,774
Fair Value of Derivative Financial Instruments 28,779 48,989
Other   633     2,447  
Total Other Assets   581,189     617,944  
Total Assets   $6,588,458     $6,218,347  
 
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders' Equity
Common Stock, $1 Par Value Authorized - 200,000,000
Shares; Issued and Outstanding - 84,086,437 Shares
and 83,661,969 Shares, Respectively $84,086 $83,662
Paid in Capital 710,924 687,684
Earnings Reinvested in the Business 1,589,331 1,442,617
Accumulated Other Comprehensive Loss   (43,638 )   (19,234 )
Total Comprehensive Shareholders' Equity   2,340,703     2,194,729  
Long-Term Debt, Net of Current Portion   1,649,000     1,649,000  
Total Capitalization   3,989,703     3,843,729  
 
Current and Accrued Liabilities:
Notes Payable to Banks and Commercial Paper
Current Portion of Long-Term Debt
Accounts Payable 145,357 105,283
Amounts Payable to Customers 32,805 12,828
Dividends Payable 32,373 31,373
Interest Payable on Long-Term Debt 18,195 29,960
Customer Advances 81 21,959
Customer Security Deposits 16,166 16,183
Other Accruals and Current Liabilities 154,145 83,946
Fair Value of Derivative Financial Instruments   28,683     639  
Total Current and Accrued Liabilities   427,805     302,171  
 
Deferred Credits:
Deferred Income Taxes 1,409,997 1,347,007
Taxes Refundable to Customers 90,463 85,655
Unamortized Investment Tax Credit 1,253 1,579
Cost of Removal Regulatory Liability 166,996 157,622
Other Regulatory Liabilities 90,643 61,549
Pension and Other Post-Retirement Liabilities 152,174 158,014
Asset Retirement Obligations 121,760 119,511
Other Deferred Credits   137,664     141,510  
Total Deferred Credits   2,170,950     2,072,447  
Commitments and Contingencies        
Total Capitalization and Liabilities   $6,588,458     $6,218,347  
   
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
(Thousands of Dollars)   2014     2013  
 
Operating Activities:
Net Income Available for Common Stock $ 241,983 $ 212,159
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization 279,876 240,503
Deferred Income Taxes 119,395 141,007
Excess Tax Benefits Associated with Stock-Based Compensation Awards (4,641 ) (4,314 )
Stock-Based Compensation 12,438 9,706
Other 10,969 10,038
Change in:
Hedging Collateral Deposits 1,094 (330 )
Receivables and Unbilled Revenue (72,082 ) (43,138 )
Gas Stored Underground and Materials and Supplies 35,503 24,551
Unrecovered Purchased Gas Costs 12,408
Other Current Assets 5,376 14,228
Accounts Payable 26,386 11,241
Amounts Payable to Customers 19,977 (7,578 )
Customer Advances (21,878 ) (23,809 )
Customer Security Deposits (17 ) (1,112 )
Other Accruals and Current Liabilities 17,590 3,534
Other Assets 25,449 (5,010 )
Other Liabilities   15,743     5,557  
Net Cash Provided by Operating Activities   $ 725,569     $ 587,233  
 
Investing Activities:
Capital Expenditures $ (609,427 ) $ (513,399 )
Other   4,696     (3,885 )
Net Cash Used in Investing Activities   $ (604,731 )   $ (517,284 )
 
Financing Activities:
Changes in Notes Payable to Banks and Commercial Paper $ $ (171,000 )
Excess Tax Benefits Associated with Stock-Based Compensation Awards 4,641 4,314
Reduction of Long-Term Debt (250,000 )
Net Proceeds From Issuance of Long-Term Debt 495,415
Dividends Paid on Common Stock (94,269 ) (91,364 )
Net Proceeds From Issuance of Common Stock   6,585     2,774  
Net Cash Used in Financing Activities   $ (83,043 )   $ (9,861 )
 
Net Increase in Cash and Temporary Cash Investments 37,795 60,088
Cash and Temporary Cash Investments at Beginning of Period   64,858     74,494  
Cash and Temporary Cash Investments at June 30   $ 102,653     $ 134,582  
   
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
 
UPSTREAM BUSINESS
 
 
Three Months Ended Nine Months Ended
(Thousands of Dollars, except per share amounts) June 30, June 30,

EXPLORATION AND PRODUCTION SEGMENT

2014   2013   Variance 2014   2013   Variance
Total Operating Revenues $ 201,522   $ 195,213   $ 6,309   $ 594,129   $ 518,742   $ 75,387  
 
Operating Expenses:
Operation and Maintenance:
General and Administrative Expense 15,807 15,716 91 48,021 47,089 932
Lease Operating and Transportation Expense 43,722 33,717 10,005 118,850 87,275 31,575
All Other Operation and Maintenance Expense (752 ) 2,077 (2,829 ) 11,062 9,497 1,565
Property, Franchise and Other Taxes 5,424 4,471 953 15,542 11,904 3,638
Depreciation, Depletion and Amortization 74,838   67,213   7,625   215,179   178,282   36,897  
139,039   123,194   15,845   408,654   334,047   74,607  
 
Operating Income 62,483 72,019 (9,536 ) 185,475 184,695 780
 
Other Income (Expense):
Interest Income 350 315 35 1,306 1,191 115
Other Interest Expense (10,148 ) (10,443 ) 295   (31,648 ) (29,180 ) (2,468 )
 
Income Before Income Taxes 52,685 61,891 (9,206 ) 155,133 156,706 (1,573 )
Income Tax Expense 20,264   30,157   (9,893 ) 67,225   70,581   (3,356 )
Net Income $ 32,421   $ 31,734   $ 687   $ 87,908   $ 86,125   $ 1,783  
 
Net Income Per Share (Diluted) $ 0.38   $ 0.38   $   $ 1.04   $ 1.02   $ 0.02  
   
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
 
MIDSTREAM BUSINESSES
 
 
Three Months Ended Nine Months Ended
(Thousands of Dollars, except per share amounts) June 30, June 30,

PIPELINE AND STORAGE SEGMENT

2014   2013   Variance 2014   2013   Variance
Revenues from External Customers $ 48,046 $ 43,055 $ 4,991 $ 152,829 $ 132,897 $ 19,932
Intersegment Revenues 20,489   21,708   (1,219 ) 63,463   68,216   (4,753 )
Total Operating Revenues 68,535   64,763   3,772   216,292   201,113   15,179  
 
Operating Expenses:
Purchased Gas (19 ) (47 ) 28 1,282 1,048 234
Operation and Maintenance 18,141 20,269 (2,128 ) 53,910 60,142 (6,232 )
Property, Franchise and Other Taxes 5,857 5,464 393 17,652 16,582 1,070
Depreciation, Depletion and Amortization 8,983   8,810   173   27,173   26,158   1,015  
32,962   34,496   (1,534 ) 100,017   103,930   (3,913 )
 
Operating Income 35,573 30,267 5,306 116,275 97,183 19,092
 
Other Income (Expense):
Interest Income 56 34 22 188 154 34
Other Income 437 151 286 436 1,601 (1,165 )
Other Interest Expense (6,569 ) (6,707 ) 138   (20,014 ) (19,542 ) (472 )
 
Income Before Income Taxes 29,497 23,745 5,752 96,885 79,396 17,489
Income Tax Expense 11,563   9,670   1,893   38,441   31,593   6,848  
Net Income $ 17,934   $ 14,075   $ 3,859   $ 58,444   $ 47,803   $ 10,641  
 
Net Income Per Share (Diluted) $ 0.21   $ 0.17   $ 0.04   $ 0.69   $ 0.57   $ 0.12  
 
 
Three Months Ended Nine Months Ended
June 30, June 30,

GATHERING SEGMENT

2014   2013   Variance 2014   2013   Variance
Revenues from External Customers $ 343 $ 342 $ 1 $ 772 $ 868 $ (96 )
Intersegment Revenues 18,740   10,244   8,496   48,541   23,622   24,919  
Total Operating Revenues 19,083   10,586   8,497   49,313   24,490   24,823  
 
Operating Expenses:
Operation and Maintenance 1,902 1,310 592 4,599 3,280 1,319
Property, Franchise and Other Taxes 32 41 (9 ) 123 233 (110 )
Depreciation, Depletion and Amortization 1,589   1,064   525   4,112   2,807   1,305  
3,523   2,415   1,108   8,834   6,320   2,514  
 
Operating Income 15,560 8,171 7,389 40,479 18,170 22,309
 
Other Income (Expense):
Interest Income 21 21 0 85 32 53
Other Income 1 1 6 1 5
Other Interest Expense (177 ) (647 ) 470   (1,219 ) (1,694 ) 475  
 
Income Before Income Taxes 15,405 7,545 7,860 39,351 16,509 22,842
Income Tax Expense 6,688   3,138   3,550   17,163   7,067   10,096  
Net Income $ 8,717   $ 4,407   $ 4,310   $ 22,188   $ 9,442   $ 12,746  
 
Net Income Per Share (Diluted) $ 0.10   $ 0.05   $ 0.05   $ 0.26   $ 0.11   $ 0.15  
   
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
 
DOWNSTREAM BUSINESSES
 
 
Three Months Ended Nine Months Ended
(Thousands of Dollars, except per share amounts) June 30, June 30,

UTILITY SEGMENT

2014   2013   Variance 2014   2013   Variance
Revenues from External Customers $ 143,760 $ 141,257 $ 2,503 $ 751,861 $ 653,211 $ 98,650
Intersegment Revenues 3,654   3,305   349   16,565   14,012   2,553  
Total Operating Revenues 147,414   144,562   2,852   768,426   667,223   101,203  
 
Operating Expenses:
Purchased Gas 66,281 63,369 2,912 423,990 337,453 86,537
Operation and Maintenance 43,801 41,065 2,736 152,726 142,657 10,069
Property, Franchise and Other Taxes 10,905 10,515 390 34,943 32,924 2,019
Depreciation, Depletion and Amortization 10,986   10,791   195   32,495   32,036   459  
131,973   125,740   6,233   644,154   545,070   99,084  
 
Operating Income 15,441 18,822 (3,381 ) 124,272 122,153 2,119
 
Other Income (Expense):
Interest Income 56 42 14 205 994 (789 )
Other Income 414 260 154 1,101 701 400
Other Interest Expense (7,090 ) (7,175 ) 85   (20,983 ) (22,294 ) 1,311  
 
Income Before Income Taxes 8,821 11,949 (3,128 ) 104,595 101,554 3,041
Income Tax Expense 3,995   4,319   (324 ) 40,009   36,530   3,479  
Net Income $ 4,826   $ 7,630   $ (2,804 ) $ 64,586   $ 65,024   $ (438 )
 
Net Income Per Share (Diluted) $ 0.06   $ 0.09   $ (0.03 ) $ 0.76   $ 0.77   $ (0.01 )
 
 
Three Months Ended Nine Months Ended
June 30, June 30,

ENERGY MARKETING SEGMENT

2014   2013   Variance 2014   2013   Variance
Revenues from External Customers $ 45,737 $ 59,128 $ (13,391 ) $ 243,335 $ 182,282 $ 61,053
Intersegment Revenues 678   446   232   938   1,080   (142 )
Total Operating Revenues 46,415   59,574   (13,159 ) 244,273   183,362   60,911  
 
Operating Expenses:
Purchased Gas 44,090 56,821 (12,731 ) 229,908 169,543 60,365
Operation and Maintenance 1,356 1,246 110 4,649 4,490 159
Property, Franchise and Other Taxes (2 ) 10 (12 ) 11 77 (66 )
Depreciation, Depletion and Amortization 50   31   19   146   76   70  
45,494   58,108   (12,614 ) 234,714   174,186   60,528  
 
Operating Income 921 1,466 (545 ) 9,559 9,176 383
 
Other Income (Expense):
Interest Income 37 40 (3 ) 114 137 (23 )
Other Income 36 24 12 85 52 33
Other Interest Expense (5 ) (8 ) 3   (22 ) (29 ) 7  
 
Income Before Income Taxes 989 1,522 (533 ) 9,736 9,336 400
Income Tax Expense 387   559   (172 ) 3,765   3,595   170  
Net Income $ 602   $ 963   $ (361 ) $ 5,971   $ 5,741   $ 230  
 
Net Income Per Share (Diluted) $ 0.01   $ 0.01   $   $ 0.07   $ 0.07   $  
 
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
   
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
 
Three Months Ended Nine Months Ended
(Thousands of Dollars, except per share amounts) June 30, June 30,

ALL OTHER

2014   2013   Variance 2014   2013   Variance
Total Operating Revenues $ 497   $ 779   $ (282 ) $ 2,795   $ 2,030   $ 765  
Operating Expenses:
Operation and Maintenance 216 296 (80 ) 876 909 (33 )
Property, Franchise and Other Taxes 148 158 (10 ) 482 480 2
Depreciation, Depletion and Amortization 145   33   112   259   544   (285 )
509   487   22   1,617   1,933   (316 )
 
Operating Income (Loss) (12 ) 292 (304 ) 1,178 97 1,081
 
Other Income (Expense):
Interest Income 21 23 (2 ) 80 94 (14 )
Other Income (Loss) 7 (10 ) 17 406 (48 ) 454
Other Interest Expense (1 ) (1 ) 0   (2 ) (1 ) (1 )
 
Income Before Income Taxes 15 304 (289 ) 1,662 142 1,520
Income Tax Expense (Benefit) (9 ) 212   (221 ) 684   135   549  
Net Income $ 24   $ 92   $ (68 ) $ 978   $ 7   $ 971  
 
Net Income Per Share (Diluted) $   $   $   $ 0.01   $   $ 0.01  
 
 
Three Months Ended Nine Months Ended
June 30, June 30,

CORPORATE

2014   2013   Variance 2014   2013   Variance
Revenues from External Customers $ 239 $ 234 $ 5 $ 737 $ 658 $ 79
Intersegment Revenues 946   957   (11 ) 2,854   2,462   392  
Total Operating Revenues 1,185   1,191   (6 ) 3,591   3,120   471  
Operating Expenses:
Operation and Maintenance 3,822 4,482 (660 ) 12,287 11,442 845
Property, Franchise and Other Taxes 119 542 (423 ) 361 1,350 (989 )
Depreciation, Depletion and Amortization 197   200   (3 ) 512   600   (88 )
4,138   5,224   (1,086 ) 13,160   13,392   (232 )
 
Operating Loss (2,953 ) (4,033 ) 1,080 (9,569 ) (10,272 ) 703
 
Other Income (Expense):
Interest Income 24,127 24,054 73 72,763 71,249 1,514
Other Income 601 738 (137 ) 4,813 1,359 3,454
Interest Expense on Long-Term Debt (22,116 ) (22,998 ) 882 (67,767 ) (67,232 ) (535 )
Other Interest Expense (1,444 ) (534 ) (910 ) (2,992 ) (2,165 ) (827 )
 
Income (Loss) Before Income Taxes (1,785 ) (2,773 ) 988 (2,752 ) (7,061 ) 4,309
Income Tax Benefit (1,781 ) (2,367 ) 586   (4,660 ) (5,078 ) 418  
Net Income (Loss) $ (4 ) $ (406 ) $ 402   $ 1,908   $ (1,983 ) $ 3,891  
 
Net Income (Loss) Per Share (Diluted) $   $ (0.01 ) $ 0.01   $ 0.02   $ (0.02 ) $ 0.04  
 
 
Three Months Ended Nine Months Ended
June 30, June 30,

INTERSEGMENT ELIMINATIONS

2014   2013   Variance 2014   2013   Variance
Intersegment Revenues $ (44,507 ) $ (36,660 ) $ (7,847 ) $ (132,361 ) $ (109,392 ) $ (22,969 )
Operating Expenses:
Purchased Gas (23,724 ) (24,979 ) 1,255 (78,175 ) (81,144 ) 2,969
Operation and Maintenance (20,783 ) (11,681 ) (9,102 ) (54,186 ) (28,248 ) (25,938 )
(44,507 ) (36,660 ) (7,847 ) (132,361 ) (109,392 ) (22,969 )
 
Operating Income
 
Other Income (Expense):
Interest Income (24,298 ) (24,212 ) (86 ) (73,420 ) (72,007 ) (1,413 )
Other Interest Expense 24,298   24,212   86   73,420   72,007   1,413  
Net Income $   $   $   $   $   $  
 
Net Income Per Share (Diluted) $   $   $   $   $   $  
           
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
SEGMENT INFORMATION (Continued)
(Thousands of Dollars)
 
 
Three Months Ended Nine Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
Increase Increase
2014   2013   (Decrease) 2014   2013   (Decrease)
 

Capital Expenditures:

Exploration and Production $ 168,038 (1) $ 124,471 (3) $ 43,567 $ 444,366 (1)(2) $ 385,009 (3)(4) $ 59,357
Pipeline and Storage 35,844 (1) 3,635 (3) 32,209 64,937 (1)(2) 41,000 (3)(4) 23,937
Gathering 44,953 (1) 12,323 (3) 32,630 93,238 (1)(2) 34,848 (3)(4) 58,390
Utility 19,334 (1) 14,472 (3) 4,862 60,915 (1)(2) 42,968 (3)(4) 17,947
Energy Marketing 80   224   (144 ) 194   528   (334 )
Total Reportable Segments 268,249 155,125 113,124 663,650 504,353 159,297
All Other 33 33 172 91 81
Corporate 145   76   69   214   84   130  
Total Capital Expenditures $ 268,427   $ 155,201   $ 113,226   $ 664,036   $ 504,528   $ 159,508  
 

(1)

 

Capital expenditures for the quarter and nine months ended June 30, 2014, include accounts payable and accrued liabilities related to capital expenditures of $101.3 million, $13.4 million, $16.3 million, and $4.7 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 June 30, 2014, since they represent non-cash investing activities at that date.

 

(2)

Capital expenditures for the nine months ended June 30, 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 nine months ended June 30, 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 June 30, 2014.

 

(3)

Capital expenditures for the quarter and nine months ended June 30, 2013, include accounts payable and accrued liabilities related to capital expenditures of $49.1 million, $6.9 million, $2.4 million, and $0.2 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 June 30, 2013, since they represent non-cash investing activities at that date.

 

(4)

Capital expenditures for the nine months ended June 30, 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 nine months ended June 30, 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 June 30, 2013.

         

DEGREE DAYS

 
Percent Colder
(Warmer) Than:

Three Months Ended June 30

Normal 2014 2013 Normal (1) Last Year (1)
 
Buffalo, NY 912 841 790 (7.8) 6.5
Erie, PA 871 797 791 (8.5) 0.8
 

Nine Months Ended June 30

 
Buffalo, NY 6,455 6,957 5,971 7.8 16.5
Erie, PA 6,023 6,625 5,756 10.0 15.1
 

(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 Nine Months Ended
June 30, June 30,
Increase Increase
2014   2013   (Decrease) 2014   2013   (Decrease)
 

Gas Production/Prices:

Production (MMcf)
Appalachia 35,098 29,038 6,060 98,640 72,518 26,122
West Coast 776   780   (4) 2,403   2,240   163  
Total Production 35,874   29,818   6,056   101,043   74,758   26,285  
 
Average Prices (Per Mcf)
Appalachia $ 3.81 $ 3.97 $ (0.16 ) $ 3.84 $ 3.58 $ 0.26
West Coast (3) 7.02 6.89 0.13 6.85 6.61 0.24
Weighted Average 3.88 4.04 (0.16 ) 3.91 3.67 0.24
Weighted Average after Hedging 3.55 4.17 (0.62 ) 3.71 4.14 (0.43 )
 

Oil Production/Prices:

Production (Thousands of Barrels)
Appalachia 6 9 (3) 23 21 2
West Coast 777   700   77   2,230   2,093   137  
Total Production 783   709   74   2,253   2,114   139  
 
Average Prices (Per Barrel)
Appalachia $ 100.91 $ 95.06 $ 5.85 $ 96.76 $ 93.18 $ 3.58
West Coast 101.83 101.05 0.78 99.82 102.44 (2.62 )
Weighted Average 101.82 100.98 0.84 99.79 102.35 (2.56 )
Weighted Average after Hedging 97.54 97.90 (0.36 ) 96.19 97.88 (1.69 )
 
Total Production (Mmcfe) 40,572   34,072   6,500   114,561   87,442   27,119  
 

Selected Operating Performance Statistics:

General & Administrative Expense per Mcfe (1) $ 0.39 $ 0.46 $ (0.07 ) $ 0.42 $ 0.54 $ (0.12 )
Lease Operating and Transportation Expense per Mcfe (1)(2) $ 1.08 $ 0.99 $ 0.09 $ 1.04 $ 1.00 $ 0.04
Depreciation, Depletion & Amortization per Mcfe (1) $ 1.84 $ 1.97 $ (0.13 ) $ 1.88 $ 2.04 $ (0.16 )

(1)

 

Refer to page 17 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 $0.50 and $0.36 per Mcfe for the three months ended June 30, 2014 and June 30, 2013, respectively. Amounts include transportation expense of $0.45 and $0.35 per Mcfe for the nine months ended June 30, 2014 and June 30, 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 Three Months of Fiscal 2014
 

SWAPS

Volume Average Hedge Price
Oil
Midway Sunset (MWSS) 156,000 BBL $ 95.68 / BBL
Brent 336,000 BBL $ 102.32 / BBL
Total 492,000 BBL $ 100.22 / BBL
 
Gas
NYMEX 22,260,000 MMBTU $ 4.07 / MMBTU
Dominion Transmission Appalachian (DOM) 7,200,000 MMBTU $ 4.06 / MMBTU
Southern California City Gate (SoCal) 300,000 MMBTU $ 4.35 / MMBTU
Total 29,760,000 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 70,690,000 MMBTU $ 4.16 / MMBTU
DOM 18,720,000 MMBTU $ 3.88 / MMBTU
SoCal 1,200,000 MMBTU $ 4.35 / MMBTU
Total 90,610,000 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 37,840,000 MMBTU $ 4.25 / MMBTU
DOM 18,840,000 MMBTU $ 3.88 / MMBTU
Michigan Consolidated City Gate (Mich Con) 9,000,000 MMBTU $ 4.10 / MMBTU
Total 65,680,000 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
Mich Con 3,000,000 MMBTU $ 4.10 / MMBTU
Total 46,800,000 MMBTU $ 4.22 / 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

Nine Months Ended June 30, 2014

Total
East West Company
Wells in Process - Beginning of Period
Exploratory 1.000 (1) 0.000 1.000
Developmental 71.000 (1)(2) 0.000 71.000
Wells Commenced
Exploratory 5.000 2.000 7.000
Developmental 42.000 71.000 113.000
Wells Completed
Exploratory 2.000 2.000 4.000
Developmental 37.000 66.000 103.000
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 74.000 4.000 78.000
 

(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 4 developmental wells.

   
 

Net Wells in Process of Drilling

Nine Months Ended June 30, 2014

Total
East West Company
Wells in Process - Beginning of Period
Exploratory 1.000 (1) 0.000 1.000
Developmental 56.500 (1)(2) 0.000 56.500
Wells Commenced
Exploratory 4.832 1.533 6.365
Developmental 42.000 71.000 113.000
Wells Completed
Exploratory 2.000 1.533 3.533
Developmental 37.000 66.000 103.000
Wells Plugged & Abandoned
Exploratory 0.000 0.000 0.000
Developmental 2.000 1.000 3.000
Wells in Process - End of Period
Exploratory 3.832 0.000 3.832
Developmental 59.500 4.000 63.500
 

(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 4 developmental wells (3.5 net wells).

 
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 

EXPLORATION AND PRODUCTION INFORMATION

 
Updated Fiscal 2015 Financial & Operating Guidance
 
Guidance
 
Total Production (Bcfe) 180 - 220
 
Production by Division (Bcfe)
East 159 - 197
West 21 - 23
 
Cost and Expenses $ per Mcfe
Lease Operating and Transportation Expenses $0.95 - $1.05
Depreciation, Depletion and Amortization $1.70 - $1.85
Other Taxes $0.05 - $0.15
General and Administrative $0.35 - $0.40
Other Operating Expenses $0.05 - $0.10
 
Capital Investment by Division (in millions)
 
East Division $585 - $655
West Division $65 - $95
Exploration & Production Segment Total $650 - $750
 
Updated Pricing Guidance for Fiscal 2015
 
Guidance Based on Average Crude Oil NYMEX Price ($/Bbl) (without hedges) of $95.00
 
Forecast price differentials

West (% of NYMEX)

99%

 
Guidance Based on Average Natural Gas NYMEX Price ($/MMBtu) (without hedges) of $4.25
 
Forecast price differentials
East (excludes firm sales or firm transportation) -$1.25 to -$1.50

West

+$1.25 to +$1.75

 
     
 
Earnings per share sensitivity to changes from prices used in guidance* ^
 
$0.50 change per MMBtu gas $5 change per Bbl oil
Increase   Decrease Increase   Decrease
 
+$ 0.28 -$ 0.28 +$ 0.05 -$ 0.05
 
* Please refer to forward looking statement footnote beginning at page 8 of document.
^ This sensitivity table is current as of August 7, 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 $4.25 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
 
 
 
Pipeline & Storage Throughput - (millions of cubic feet - MMcf)
 
Three Months Ended Nine Months Ended
June 30, June 30,
Increase Increase
2014   2013   (Decrease) 2014   2013   (Decrease)
Firm Transportation - Affiliated 18,116 15,177 2,939 95,966 86,638 9,328
Firm Transportation - Non-Affiliated 140,503 113,844 26,659 479,287 340,571 138,716
Interruptible Transportation 998   540   458   3,778   2,506   1,272  
159,617   129,561   30,056   579,031   429,715   149,316  
 
Gathering Volume - (MMcf)
Three Months Ended Nine Months Ended
June 30, June 30,
Increase Increase
2014   2013   (Decrease) 2014   2013   (Decrease)
Gathered Volume - Affiliated 35,272   28,041   7,231   97,240   66,770   30,470  
 
 
Utility Throughput - (MMcf)
Three Months Ended Nine Months Ended
June 30, June 30,
Increase Increase
2014   2013   (Decrease) 2014   2013   (Decrease)
Retail Sales:
Residential Sales 8,826 8,600 226 56,473 49,124 7,349
Commercial Sales 1,238 1,187 51 8,357 7,025 1,332
Industrial Sales (12 ) 113   (125 ) 377   820   (443 )
10,052 9,900 152 65,207 56,969 8,238
Off-System Sales 525 525 4,335 6,716 (2,381 )
Transportation 14,841   13,282   1,559   70,188   59,536   10,652  
25,418   23,182   2,236   139,730   123,221   16,509  
 
Energy Marketing Volume
Three Months Ended Nine Months Ended
June 30, June 30,
Increase Increase
2014   2013   (Decrease) 2014   2013   (Decrease)
Natural Gas (MMcf) 8,930   12,508   (3,578 ) 45,848   40,266   5,582  

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 nine months ended June 30, 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 nine months ended June 30, 2014:

       
 
Three Months Ended Nine Months Ended
June 30, June 30,
2014   2013   2014   2013  
(in thousands)
Reported GAAP Earnings $ 64,520 $ 58,495 $ 241,983 $ 212,159
Depreciation, Depletion and Amortization 96,788 88,142 279,876 240,503
Interest and Other Income (1,866 ) (1,480 ) (8,168 ) (5,510 )
Interest Expense 23,252 24,301 71,227 70,130
Income Taxes 41,107 45,688 162,627 144,423
Plugging and Abandonment Accrual (Reversal) (4,140 )   862    
Adjusted EBITDA $ 219,661   $ 215,146   $ 748,407   $ 661,705  
 
Adjusted EBITDA by Segment
Pipeline and Storage Adjusted EBITDA $ 44,556 $ 39,077
Gathering Adjusted EBITDA 17,149   9,235  
Total Midstream Businesses Adjusted EBITDA 61,705 48,312
Exploration and Production Adjusted EBITDA 133,181 139,232
Utility Adjusted EBITDA 26,427 29,613
Energy Marketing Adjusted EBITDA 971 1,497
Corporate and All Other Adjusted EBITDA (2,623 ) (3,508 )
Total Adjusted EBITDA $ 219,661   $ 215,146  
     
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
 
Quarter Ended June 30 (unaudited) 2014   2013
 
Operating Revenues $ 440,144,000   $ 440,008,000
 
Net Income Available for Common Stock $ 64,520,000   $ 58,495,000
 
Earnings Per Common Share:
Basic $ 0.77   $ 0.70
Diluted $ 0.76   $ 0.69
 
Weighted Average Common Shares:
Used in Basic Calculation 84,029,124   83,557,968
Used in Diluted Calculation 84,973,100   84,325,465
 
Nine Months Ended June 30 (unaudited)
 
Operating Revenues $ 1,746,458,000   $ 1,490,688,000
 
Net Income Available for Common Stock $ 241,983,000   $ 212,159,000
 
Earnings Per Common Share:
Basic $ 2.89   $ 2.54
Diluted $ 2.85   $ 2.52
 
Weighted Average Common Shares:
Used in Basic Calculation 83,863,764   83,481,849
Used in Diluted Calculation 84,892,473   84,242,128
 
Twelve Months Ended June 30 (unaudited)
 
Operating Revenues $ 2,085,321,000   $ 1,803,948,000
 
Net Income Available for Common Stock $ 289,825,000   $ 260,961,000
 
Earnings Per Common Share:
Basic $ 3.46   $ 3.13
Diluted $ 3.42   $ 3.10
 
Weighted Average Common Shares:
Used in Basic Calculation 83,804,516   83,437,479
Used in Diluted Calculation 84,796,613   84,147,383

Contacts

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

Contacts

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