National Fuel Reports Third Quarter Earnings

WILLIAMSVILLE, N.Y.--()--National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated results for the third quarter of its 2017 fiscal year and for the nine months ended June 30, 2017.

FISCAL 2017 THIRD QUARTER SUMMARY

  • Consolidated net income of $59.7 million, or $0.69 per share, compared to consolidated net income of $8.3 million, or $0.10 per share, and operating results of $58.1 million, or $0.68 per share, in the prior year (see reconciliation below)
  • Adjusted EBITDA of $179.0 million versus $189.8 million in the prior year (non-GAAP reconciliation on page 23)
  • Gross natural gas production in Appalachia of 567 MMcf per day, a 6% increase from the prior year
  • Net production of 42.7 Bcfe, a 3% decrease from prior year
  • Average natural gas prices, after the impact of hedging, of $2.94 per Mcf, up $0.08 per Mcf from the prior year
  • Average oil prices, after the impact of hedging, of $53.02 per Bbl, down $5.77 per Bbl from the prior year
  • Gathering revenues of $26.9 million on 48.8 Bcf of system throughput, both an increase of 5% from the prior year
 

OPERATING RESULTS

       
Three Months Ended Nine Months Ended
June 30, June 30,
(in thousands except per share amounts) 2017   2016 2017   2016
Reported GAAP earnings (loss) $ 59,714 $ 8,286 $ 237,906 $ (328,510 )
Items impacting comparability:
Impairment of oil and gas properties (E&P) 82,658 915,552
Tax impact of impairment of oil and gas properties (34,716 ) (384,531 )
Joint development agreement professional fees (E&P) 3,173 7,855
Tax impact of joint development agreement professional fees   (1,333 )   (3,299 )
Operating Results $ 59,714   $ 58,068   $ 237,906   $ 207,067  
 
Reported GAAP earnings (loss) per share $ 0.69 $ 0.10 $ 2.77 $ (3.87 )
Items impacting comparability:
Impairment of oil and gas properties (E&P) 0.97 10.80
Tax impact of impairment of oil and gas properties (0.41 ) (4.54 )
Joint development agreement professional fees (E&P) 0.04 0.09
Tax impact of joint development agreement professional fees (0.02 ) (0.04 )
Earnings per share impact of diluted shares       (0.01 )
Operating Results per diluted share $ 0.69   $ 0.68   $ 2.77   $ 2.43  
 

MANAGEMENT COMMENTS

Ronald J. Tanski, President and Chief Executive Officer of National Fuel Gas Company, stated: “Our fiscal third quarter was a strong one with each of our business segments posting solid financial results that were in-line with expectations. Across the system, our talented teams continue to execute on our operational plans. As is typical during the summer period, our utility and transmission pipeline construction crews are busy maintaining the safety and integrity of our thousands of miles of pipelines that will assure safe, reliable, and affordable natural gas services for our region and local communities.

“As we look ahead, we continue to manage around the delay in the Northern Access Project and see plenty of opportunity in the meantime to extract value from our world class natural gas assets in Appalachia. After a year of testing, we believe we have de-risked the Utica potential in our Western Development Area, adding years of economic drilling inventory on the very same acreage we have already developed for the Marcellus. Over the next 18 months, we will continue to optimize our well designs and transition into a Utica development program that will leverage existing upstream and midstream infrastructure to drive capital, operational, and marketing efficiencies. While the commodities futures markets indicate that Seneca Resources, our exploration and production company, will likely achieve lower prices for its production next year, our proven success in driving down finding and development costs and our ability to develop our upstream and midstream assets efficiently allows us to continue to grow our integrated business, maintain a strong financial position, and add shareholder value throughout the commodity price cycle.”

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each segment is summarized in a tabular form on pages 8 through 11 of this report. It may be helpful to refer to those tables while reviewing this discussion. Note that management defines Operating Results as reported GAAP earnings before items impacting comparability and Adjusted EBITDA as reported GAAP earnings before the following items: interest expense, depreciation and amortization, interest and other income, impairments, items impacting comparability, and income taxes.

Upstream Business

Exploration and Production Segment

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

       
Three Months Ended Nine Months Ended
June 30, June 30,
(in thousands except per share amounts) 2017   2016   Variance 2017   2016   Variance
Net Income / (Loss) $ 30,123   $ (19,165 )   $ 49,288 $ 98,972   $ (469,586 )   $ 568,558
Net Income / (Loss) Per Share (Diluted) $ 0.35 $ (0.22 ) $ 0.57 $ 1.15 $ (5.54 ) $ 6.69
Adjusted EBITDA $ 89,229 $ 97,924 $ (8,695 ) $ 285,675 $ 268,673 $ 17,002
 

Net income for the Exploration and Production segment in the third quarter was $30.1 million, or $0.35 per share, compared to a net loss of $19.2 million, or $0.22 per share, in the prior year third quarter. The $49.3 million increase in the segment’s earnings was primarily attributable to the non-recurrence of two items that reduced earnings in the prior year. In the prior year third quarter, Seneca recorded an $82.7 million ($47.9 million after-tax) ceiling test impairment charge to reduce the book value of Seneca’s oil and gas properties. Seneca also incurred $3.2 million ($1.8 million after-tax) in the prior year third quarter for professional and legal expenses related to the extension of the joint development agreement that Seneca executed in June 2016.

Excluding these items, operating results for the segment declined $0.5 million, or $0.01 per share, as the impact of higher realized natural gas prices, lower depreciation, depletion and amortization (“DD&A”) expense, and a lower effective income tax rate were more than offset by a decline in net natural gas and oil production, lower realized oil prices and an increase in lease operating and transportation (“LOE”) expense.

Over the past two years, Seneca significantly reduced its capital expenditures in response to low commodity prices by entering into a Joint Development Agreement (“JDA”), where a partner agreed to participate in 75 new Marcellus wells as an 80 percent working interest owner, and reducing the rig count in Appalachia and activity in California. As a result, Seneca's net natural gas and oil production declined 1.3 billion cubic feet equivalent ("Bcfe"), or 3 percent, to 42.7 Bcfe in the third quarter. Net natural gas production was down nearly 1.0 Bcf due mainly to a lower average revenue interest on production from the Western Development Area (“WDA”) resulting from new JDA wells as well as natural declines in Marcellus production from the Eastern Development Area (“EDA”). Seneca’s oil production decreased 58 thousand barrels ("Mbbl") due mainly to temporary changes in steam operations and a reduction in well workover activity at its North Midway Sunset field in California, offset partially by increased activity at South Midway Sunset.

Seneca continues to grow its base of gross natural gas production. Average daily gross natural gas production during the quarter increased 6 percent to 567 million cubic feet (“MMcf’) per day driven primarily by new Marcellus and Utica wells in Appalachia. In the WDA, average daily natural gas production increased approximately 38 MMcf per day, or 16 percent, to 284 MMcf per day during the quarter. Seneca is now producing from 63 of the 75 Marcellus wells that are being developed in the Clermont / Rich Valley area under the JDA entered into with a partner in fiscal 2016. The 12 remaining JDA wells are expected to be completed and brought on-line in the first half of fiscal 2018.

In the EDA, average daily gross natural gas production decreased 4 MMcf per day, or 1 percent, to 283 MMcf per day as natural declines in Marcellus production from Tioga and Lycoming counties were partially offset by new production from the Company’s Utica well on DCNR Tract 007 in Tioga County, Pa., which has produced nearly 2.5 Bcf since it was first turned on-line in November 2016. In May, Seneca added a second rig and resumed Marcellus development activities in Lycoming County, Pa., which is expected to arrest natural production declines and maintain a base of production that will utilize firm transportation capacity on the Atlantic Sunrise pipeline expansion project forecasted to be available in the summer of 2018.

Seneca's average realized natural gas price, after the impact of hedging, for the third quarter was $2.94 per thousand cubic feet ("Mcf"), an increase of $0.08 per Mcf versus the prior year. Seneca's average realized oil price, after the impact of hedging, was $53.02 per barrel ("Bbl"), a decrease of $5.77 per Bbl. Seneca's average realized natural gas and oil prices benefited from an uplift of $0.35 per Mcf and $7.38 per Bbl, respectively, from financial hedges settled during the quarter.

LOE increased $1.8 million, or $0.07 per Mcf equivalent ("Mcfe") on a cost per unit of production basis, due primarily to higher steam fuel and well repair costs in California offset partially by lower gathering and compression costs in Appalachia. DD&A expense decreased $3.8 million due to lower production and a decrease in Seneca’s full cost pool depletion rate. Seneca’s per unit DD&A decreased by $0.07 per Mcfe to $0.64 per Mcfe due mainly to a lower depletable fixed asset balance resulting from the ceiling test impairment charges recorded in the second half of fiscal 2016.

A decrease in Seneca’s effective tax rate increased the segment’s earnings by $2.4 million in the third quarter. The decrease in the effective tax rate was due primarily to an enhanced oil recovery tax credit related to Seneca’s California properties. This credit was applicable this year as a result of relatively low domestic crude oil prices.

Midstream Businesses

Pipeline and Storage Segment

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

       
Three Months Ended Nine Months Ended
June 30, June 30,
(in thousands except per share amounts) 2017   2016   Variance 2017   2016   Variance
Net Income / (Loss) $ 16,031   $ 17,323   $ (1,292 ) $ 54,656   $ 59,794   $ (5,138 )
Net Income / (Loss) Per Share (Diluted) $ 0.19 $ 0.20 $ (0.01 ) $ 0.64 $ 0.71 $ (0.07 )
Adjusted EBITDA $ 44,163 $ 48,515 $ (4,352 ) $ 141,279 $ 152,929 $ (11,650 )
 

The Pipeline and Storage segment's third quarter earnings decreased $1.3 million, or 7 percent, from the prior year due to a decline in operating revenues offset partially by a lower effective income tax rate. The $4.1 million decrease in operating revenues was expected due to a reduction in Supply Corporation and Empire’s rates related to their respective rate case settlements that went into effect in 2016, lower reservation revenues resulting from recent contract terminations and restructurings, and a decline in short-term interruptible transportation service in the current quarter.

Gathering Segment

The Gathering segment’s operations are carried out by National Fuel Gas Midstream Corporation’s subsidiary limited liability companies. The Gathering segment constructs, owns and operates natural gas gathering pipelines and compression facilities in the Appalachian region which currently delivers Seneca’s gross Appalachian production to the interstate pipeline system.

       
Three Months Ended Nine Months Ended
June 30, June 30,
(in thousands except per share amounts) 2017   2016   Variance 2017   2016   Variance
Net Income / (Loss) $ 10,107   $ 9,473   $ 634 $ 31,373   $ 21,962   $ 9,411
Net Income / (Loss) Per Share (Diluted) $ 0.12 $ 0.11 $ 0.01 $ 0.37 $ 0.26 $ 0.11
Adjusted EBITDA $ 23,901 $ 22,433 $ 1,468 $ 73,174 $ 57,722 $ 15,452
 

The Gathering segment’s third quarter earnings increased $0.6 million, or 7 percent, versus the prior year due primarily to higher operating revenues. Operating revenues increased $1.4 million as the increase in Seneca’s gross natural gas production in Appalachia, which includes production from joint development wells, helped drive higher throughput across the Company’s gathering systems. The Gathering segment transported 48.8 Bcf on its systems in the third quarter, up 2.5 Bcf or 5 percent from the prior year. Higher depreciation expense associated with new gathering and compression assets placed in service during the last twelve months partially offset the impact of higher operating revenues.

Downstream Businesses

Utility Segment

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

       
Three Months Ended Nine Months Ended
June 30, June 30,
(in thousands except per share amounts) 2017   2016   Variance 2017   2016   Variance
Net Income / (Loss) $ 4,348   $ 2,179   $ 2,169 $ 51,103   $ 52,745   $ (1,642 )
Net Income / (Loss) Per Share (Diluted) $ 0.05 $ 0.03 $ 0.02 $ 0.59 $ 0.62 $ (0.03 )
Adjusted EBITDA $ 25,322 $ 22,900 $ 2,422 $ 139,232 $ 138,284 $ 948
 

The Utility segment’s third quarter earnings increased $2.2 million due primarily to lower O&M expense offset partially by higher DD&A expenses. O&M expense decreased $2.5 million versus the prior year due mainly to lower pension and personnel costs. DD&A expense increased $0.9 million due to higher average plant balances for the quarter ended June 30, 2017, which was primarily driven by the replacement of Distribution’s customer information system that was placed in service in May 2016.

Energy Marketing Segment

The Energy Marketing segment's operations are carried out by National Fuel Resources, Inc. (“NFR”). NFR markets natural gas to industrial, wholesale, commercial, public authority and residential customers primarily in western and central New York and northwestern Pennsylvania, offering competitively priced natural gas to its customers.

       
Three Months Ended Nine Months Ended
June 30, June 30,
(in thousands except per share amounts) 2017   2016   Variance 2017   2016   Variance
Net Income / (Loss) $ (564 )   $ (590 )   $ 26 $ 2,122   $ 4,117   $ (1,995 )
Net Income / (Loss) Per Share (Diluted) $ (0.01 ) $ (0.01 ) $ $ 0.02 $ 0.05 $ (0.03 )
Adjusted EBITDA $ (1,017 ) $ (930 ) $ (87 ) $ 3,213 $ 6,569 $ (3,356 )
 

The Energy Marketing segment's third quarter earnings were largely unchanged when compared to the prior year.

Corporate and All Other

The Corporate and All Other category had a net loss of $0.3 million for the third quarter compared to a net loss of $0.9 million in the prior year. The $0.6 million improvement impacted consolidated earnings by less than $0.01 per share.

GUIDANCE

The Company is raising and tightening its earnings guidance for fiscal 2017 to a range of $3.25 to $3.35 per share to reflect the impact of actual results for the nine months ended June 30, 2017, and updates to key forecast assumptions, including revisions to the Exploration and Production segment’s forecasted production, oil pricing and operating expense assumptions, as outlined in the table below.

The Company is also initiating preliminary earnings, production, capital expenditures, and certain business segment operational guidance for fiscal 2018. National Fuel is projecting that its fiscal 2018 earnings will be within a range of $2.70 to $3.05 per share, or $2.875 per share at the midpoint of the range. The $0.425 per share decrease from the fiscal 2017 earnings guidance midpoint is being driven primarily by lower expected price realizations after hedging on Seneca’s natural gas and oil production and higher expected operating costs at the Company’s regulated businesses, offset partially by the impact of normal weather on the Utility segment's earnings and an increase in projected natural gas production in Appalachia, which will benefit earnings for the Company’s Exploration and Production and Gathering segments.

Seneca’s fiscal 2018 net production is expected to be in the range of 185 to 200 Bcfe. Natural gas production in the East Division is expected to be in a range of 165 to 180 Bcf, an 11 percent increase versus fiscal 2017. Seneca added a second rig and resumed Marcellus shale development activities in Lycoming County, Pa. this past May, which is the main driver of the 17.5 Bcf increase. Seneca’s oil operations in California are expected to produce approximately 20 Bcfe, relatively flat versus fiscal 2017. The midpoint of the production range does not assume any price related curtailments.

Due to the expiration of physical firm sales and financial hedge contracts with favorable pricing relative to current market prices and hedge book, Seneca is projecting a significant decrease in natural gas and oil price realizations in fiscal 2018. Seneca’s fiscal 2018 natural gas production is 52 percent hedged at an average hedge price of $2.90 per MMBtu. Assuming NYMEX natural gas pricing of $3.00 per MMBtu, average Appalachian basin spot prices of $2.40 per MMBtu, and adjustments for transportation costs, contracted firm sale differentials, and Btu uplift, Seneca expects its fiscal 2018 net realized gas price after hedging to be approximately $2.55 per Mcf, which is a decrease of $0.41 per Mcf from Seneca’s realized pricing after hedging of $2.96 per Mcf for the nine months ended June 30, 2017. Seneca is approximately 45 percent hedged on an expected 3 million bbls of oil production in fiscal 2018 at an average hedge price of $55.46 per Bbl.

Additional details on the Company's forecast assumptions and business segment guidance for fiscal 2018 are outlined in the table below.

       
Updated FY 2017 Guidance Preliminary FY 2018 Guidance
Consolidated Earnings per Share $3.25 to $3.35 $2.70 to $3.05
 
Capital Expenditures (Millions)
Exploration & Production (1) $230 - $250 $275 - $325
Pipeline & Storage $100 - $110 $110 - $140
Gathering $35 - $45 $60 - $80
Utility $90 - $100 $90 - $100
Consolidated Capital Expenditures $455 - $505 $535 - $645
 
       
Updated FY 2017 Guidance Preliminary FY 2018 Guidance
Exploration & Production Segment Guidance
 
Commodity Price Assumptions
NYMEX natural gas price $3.00 /MMBtu $3.00 /MMBtu
Appalachian basin spot price $2.00 /MMBtu $2.40 /MMBtu
NYMEX (WTI) crude oil price $50.00 /Bbl $50.00 /Bbl
California oil price (% of WTI) 92% 92%
 
Production (Bcfe)
East Division - Appalachia (2) 150 to 160 165 to 180
West Division - California

~ 20

~ 20

Total Production 170 to 180 185 to 200
 
E&P Operating Costs ($/Mcfe)
LOE (3) ~$0.95 $0.90 - $1.00
G&A ~$0.35 $0.30 - $0.35
DD&A ~$0.65 $0.65 - $0.70
 
Other Business Segment Guidance
Gathering Segment Revenues (Millions) ~$110 $115 - $125
Pipeline & Storage Segment Revenues (Millions) ~$295 ~$295
 
(1)   Net of conveyance proceeds received from joint development partner for working interest in joint development wells.
(2) Seneca East Division - Appalachia production guidance assumes approximately 35 Bcf of spot sales in FY18.
(3) FY17 reflects full year average LOE. Fourth quarter FY17 LOE expected to be $1.00-$1.05 due to an increase in well workover and steam activity in California.
 

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, August 4, 2017, at 11 a.m. Eastern Time to discuss this announcement. There are two ways to access this call. For those with Internet access, visit the NFG Investor Relations News & Events page at National Fuel’s website at investor.nationalfuelgas.com. For those without Internet access, audio access is also provided by dialing (toll-free) 844-862-1432, using conference ID number “51109130.” For those unable to listen to the live conference call, an audio replay will be available approximately two hours following the teleconference at the same website link and by phone at (toll-free) 855-859-2056 using conference ID number “51109130.” Both the webcast and a telephonic replay will be available until the close of business on Friday, August 11, 2017.

National Fuel is an integrated energy company reporting financial results for five operating segments: Exploration and Production, Pipeline and Storage, Gathering, Utility, and Energy Marketing. Additional information about National Fuel is available at www.nationalfuelgas.com.

Certain statements contained herein, including statements identified by the use of the words “anticipates,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “predicts,” “projects,” “believes,” “seeks,” “will,” “may” and similar expressions, and statements which are other than statements of historical facts, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The Company’s expectations, beliefs and projections contained herein are expressed in good faith and are believed to have a reasonable basis, but there can be no assurance that such expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors, the following are important factors that could cause actual results to differ materially from those discussed in the forward-looking statements: delays or changes in costs or plans with respect to Company projects or related projects of other companies, including difficulties or delays in obtaining necessary governmental approvals, permits or orders or in obtaining the cooperation of interconnecting facility operators; governmental/regulatory actions, initiatives and proceedings, including those involving rate cases (which address, among other things, target rates of return, rate design and retained natural gas), environmental/safety requirements, affiliate relationships, industry structure, and franchise renewal; changes in laws, regulations or judicial interpretations to which the Company is subject, including those involving derivatives, taxes, safety, employment, climate change, other environmental matters, real property, and exploration and production activities such as hydraulic fracturing; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; changes in the price of natural gas or oil; financial and economic conditions, including the availability of credit, and occurrences affecting the Company’s ability to obtain financing on acceptable terms for working capital, capital expenditures and other investments, including any downgrades in the Company’s credit ratings and changes in interest rates and other capital market conditions; factors affecting the Company’s ability to successfully identify, drill for and produce economically viable natural gas and oil reserves, including among others geology, lease availability, title disputes, weather conditions, shortages, delays or unavailability of equipment and services required in drilling operations, insufficient gathering, processing and transportation capacity, the need to obtain governmental approvals and permits, and compliance with environmental laws and regulations; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide other post-retirement benefits; changes in price differentials between similar quantities of natural gas or oil sold at different geographic locations, and the effect of such changes on commodity production, revenues and demand for pipeline transportation capacity to or from such locations; other changes in price differentials between similar quantities of natural gas or oil having different quality, heating value, hydrocarbon mix or delivery date; the cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company; uncertainty of oil and gas reserve estimates; significant differences between the Company’s projected and actual production levels for natural gas or oil; changes in demographic patterns and weather conditions; changes in the availability, price or accounting treatment of derivative financial instruments; changes in 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; 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; 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, 2017
(Unaudited)
 
 
Upstream Midstream Businesses Downstream Businesses
 
Exploration & Pipeline & Energy Corporate /
(Thousands of Dollars) Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Third quarter 2016 GAAP earnings $ (19,165 ) $ 17,323 $ 9,473 $ 2,179 $ (590 ) $ (934 ) $ 8,286
Items impacting comparability:
Impairment of oil and gas producing properties 82,658 82,658
Tax impact of impairment of oil and gas producing properties (34,716 ) (34,716 )
Joint development agreement professional fees 3,173 3,173
Tax impact of joint development agreement professional fees (1,333 )                       (1,333 )
Third quarter 2016 operating results 30,617 17,323 9,473 2,179 (590 ) (934 ) 58,068
 
Drivers of operating results
Higher (lower) crude oil prices (2,511 ) (2,511 )
Higher (lower) natural gas prices 2,228 2,228
Higher (lower) natural gas production (1,805 ) (1,805 )
Higher (lower) crude oil production (2,229 ) (2,229 )
Derivative mark to market adjustments 619 619
Lower (higher) lease operating and transportation expenses (1,150 ) (1,150 )
Lower (higher) depreciation / depletion 2,490 331 (340 ) (554 ) 1,927
 
Higher (lower) transportation revenues (2,380 ) (2,380 )
Higher (lower) gathering and processing revenues 913 913
Lower (higher) other operating expenses 1,769 (392 ) 1,377
Lower (higher) property, franchise and other taxes (428 ) (328 ) (756 )
 
Higher (lower) margins (630 ) (630 )
 
Lower (higher) interest expense (401 ) (401 )
 
Lower (higher) income tax expense / effective tax rate 2,383 1,214 291 987 1,580 6,455
 
All other / rounding (91 )   (129 )   171     (33 )   26     45     (11 )
Third quarter 2017 GAAP earnings and operating results $ 30,123     $ 16,031     $ 10,107     $ 4,348     $ (564 )   $ (331 )   $ 59,714  
 
* Amounts do not reflect intercompany eliminations
 
                 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
QUARTER ENDED JUNE 30, 2017
(Unaudited)
 
 
Upstream Midstream Businesses Downstream Businesses
 
Exploration & Pipeline & Energy Corporate /
Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Third quarter 2016 GAAP earnings $ (0.22 ) $ 0.20 $ 0.11 $ 0.03 $ (0.01 ) $ (0.01 ) $ 0.10
Items impacting comparability:
Impairment of oil and gas producing properties 0.97 0.97
Tax impact of impairment of oil and gas producing properties (0.41 ) (0.41 )
Joint development agreement professional fees 0.04 0.04
Tax impact of joint development agreement professional fees (0.02 )                       (0.02 )
Third quarter 2016 operating results 0.36 0.20 0.11 0.03 (0.01 ) (0.01 ) 0.68
 
Drivers of operating results
Higher (lower) crude oil prices (0.03 ) (0.03 )
Higher (lower) natural gas prices 0.03 0.03
Higher (lower) natural gas production (0.02 ) (0.02 )
Higher (lower) crude oil production (0.03 ) (0.03 )
Derivative mark to market adjustments 0.01 0.01
Lower (higher) lease operating and transportation expenses (0.01 ) (0.01 )
Lower (higher) depreciation / depletion 0.03 (0.01 ) 0.02
 
Higher (lower) transportation revenues (0.03 ) (0.03 )
Higher (lower) gathering and processing revenues 0.01 0.01
Lower (higher) other operating expenses 0.02 0.02
Lower (higher) property, franchise and other taxes
 
Higher (lower) margins (0.01 ) (0.01 )
 
Lower (higher) interest expense
 
Lower (higher) income tax expense / effective tax rate 0.03 0.01 0.01 0.02 0.07
 
All other / rounding (0.02 )   0.01                 (0.01 )   (0.02 )
Third quarter 2017 GAAP earnings and operating results $ 0.35     $ 0.19     $ 0.12     $ 0.05     $ (0.01 )   $ (0.01 )   $ 0.69  
 
* Amounts do not reflect intercompany eliminations
 
                 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
NINE MONTHS ENDED JUNE 30, 2017
(Unaudited)
 
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, 2016 GAAP earnings $ (469,586 ) $ 59,794 $ 21,962 $ 52,745 $ 4,117 $ 2,458 $ (328,510 )
Items impacting comparability:
Impairment of oil and gas producing properties 915,552 915,552
Tax impact of impairment of oil and gas producing properties (384,531 ) (384,531 )
Joint development agreement professional fees 7,855 7,855
Tax impact of joint development agreement professional fees (3,299 )                       (3,299 )
Nine months ended June 30, 2016 operating results 65,991 59,794 21,962 52,745 4,117 2,458 207,067
 
Drivers of operating results
Higher (lower) crude oil prices (4,889 ) (4,889 )
Higher (lower) natural gas prices (2,960 ) (2,960 )
Higher (lower) natural gas production 24,737 24,737
Higher (lower) crude oil production (4,999 ) (4,999 )
Derivative mark to market adjustments 510 510
Lower (higher) lease operating and transportation expenses (4,830 ) (4,830 )
Lower (higher) depreciation / depletion 17,701 970 (391 ) (2,594 ) 15,686
 
Higher (lower) transportation revenues (4,519 ) (4,519 )
Higher (lower) gathering and processing revenues 10,927 10,927
Lower (higher) other operating expenses 4,144 (2,191 ) (930 ) (3,876 ) (1,059 ) (3,912 )
Lower (higher) property, franchise and other taxes (655 ) (558 ) (1,213 )
 
Regulatory true-up adjustments 948 948
Higher (lower) usage 2,209 2,209
Impact of new rates 927 927
 
Higher (lower) margins (1,932 ) (951 ) (2,883 )
 
Higher (lower) AFUDC** (469 ) (914 ) (1,383 )
 
Lower (higher) interest expense 1,048 1,048
 
Lower (higher) income tax expense / effective tax rate 3,395 1,731 (563 ) 887 (491 ) 4,959
 
All other / rounding (221 )   (102 )   368     771     (63 )   (277 )   476  
Nine months ended June 30, 2017 GAAP earnings and operating results $ 98,972     $ 54,656     $ 31,373     $ 51,103     $ 2,122     $ (320 )   $ 237,906  
 
* 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, 2017
(Unaudited)
 
Upstream Midstream Businesses Downstream Businesses
 
Exploration & Pipeline & Energy Corporate /
Production   Storage   Gathering   Utility   Marketing   All Other   Consolidated*
 
Nine months ended June 30, 2016 GAAP earnings $ (5.54 ) $ 0.71 $ 0.26 $ 0.62 $ 0.05 $ 0.03 $ (3.87 )
Items impacting comparability:
Impairment of oil and gas producing properties 10.80 10.80
Tax impact of impairment of oil and gas producing properties (4.54 ) (4.54 )
Joint development agreement professional fees 0.09 0.09
Tax impact of joint development agreement professional fees (0.04 ) (0.04 )
Earnings per share impact of diluted shares     (0.01 )                   (0.01 )
Nine months ended June 30, 2016 operating results 0.77 0.70 0.26 0.62 0.05 0.03 2.43
 
Drivers of operating results
Higher (lower) crude oil prices (0.06 ) (0.06 )
Higher (lower) natural gas prices (0.03 ) (0.03 )
Higher (lower) natural gas production 0.29 0.29
Higher (lower) crude oil production (0.06 ) (0.06 )
Derivative mark to market adjustments 0.01 0.01
Lower (higher) lease operating and transportation expenses (0.06 ) (0.06 )
Lower (higher) depreciation / depletion 0.21 0.01 (0.03 ) 0.19
 
Higher (lower) transportation revenues (0.05 ) (0.05 )
Higher (lower) gathering and processing revenues 0.12 0.12
Lower (higher) other operating expenses 0.05 (0.03 ) (0.01 ) (0.05 ) (0.01 ) (0.05 )
Lower (higher) property, franchise and other taxes (0.01 ) (0.01 ) (0.02 )
 
Regulatory true-up adjustments 0.01 0.01
Higher (lower) usage 0.03 0.03
Impact of new rates 0.01 0.01
 
Higher (lower) margins (0.02 ) (0.01 ) (0.03 )
 
Higher (lower) AFUDC** (0.01 ) (0.01 ) (0.02 )
 
Lower (higher) interest expense 0.01 0.01
 
Lower (higher) income tax expense / effective tax rate 0.04 0.02 (0.01 ) 0.01 (0.01 ) 0.05
 
All other / rounding (0.01 )   0.01     0.01         (0.01 )        
Nine months ended June 30, 2017 GAAP earnings and operating results $ 1.15     $ 0.64     $ 0.37     $ 0.59     $ 0.02     $     $ 2.77  
 
* 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

2017   2016 2017   2016
Operating Revenues:
Utility and Energy Marketing Revenues $ 146,360 $ 123,976 $ 663,029 $ 540,981
Exploration and Production and Other Revenues 151,925 158,578 473,617 456,032
Pipeline and Storage and Gathering Revenues 50,083   53,063   156,298   162,930  
348,368 335,617 1,292,944 1,159,943
Operating Expenses:
Purchased Gas 46,135 23,477 264,349 147,168
Operation and Maintenance:
Utility and Energy Marketing 44,467 46,616 158,796 151,474
Exploration and Production and Other 34,098 35,427 102,153 123,965
Pipeline and Storage and Gathering 23,250 23,215 69,016 64,324
Property, Franchise and Other Taxes 21,447 20,261 64,368 61,923
Depreciation, Depletion and Amortization 55,617 58,802 168,812 193,300
Impairment of Oil and Gas Producing Properties   82,658     915,552  
225,014 290,456 827,494 1,657,706
 
Operating Income (Loss) 123,354 45,161 465,450 (497,763 )
 
Other Income (Expense):
Interest Income 853 564 2,844 2,640
Other Income 1,370 1,519 4,728 7,173
Interest Expense on Long-Term Debt (29,225 ) (28,897 ) (87,241 ) (88,263 )
Other Interest Expense (846 ) (1,321 ) (2,680 ) (3,938 )
 
Income (Loss) Before Income Taxes 95,506 17,026 383,101 (580,151 )
 
Income Tax Expense (Benefit) 35,792   8,740   145,195   (251,641 )
 
Net Income (Loss) Available for Common Stock $ 59,714   $ 8,286   $ 237,906   $ (328,510 )
 
Earnings (Loss) Per Common Share:
Basic $ 0.70   $ 0.10   $ 2.79   $ (3.87 )
Diluted $ 0.69   $ 0.10   $ 2.77   $ (3.87 )
 
Weighted Average Common Shares:
Used in Basic Calculation 85,422,313 84,917,664 85,315,154 84,791,447
Used in Diluted Calculation 86,064,464 85,470,216 85,950,742 84,791,447
 
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
     
June 30,   September 30,
(Thousands of Dollars)       2017   2016
 
ASSETS
Property, Plant and Equipment $9,816,295 $9,539,581
Less - Accumulated Depreciation, Depletion and Amortization       5,232,771     5,085,099  
Net Property, Plant and Equipment       4,583,524     4,454,482  
 
Current Assets:
Cash and Temporary Cash Investments 285,325 129,972
Hedging Collateral Deposits 2,142 1,484
Receivables - Net 127,876 133,201
Unbilled Revenue 19,729 18,382
Gas Stored Underground 17,793 34,332
Materials and Supplies - at average cost 34,706 33,866
Unrecovered Purchased Gas Costs 3,757 2,440
Other Current Assets       50,852     59,354  
Total Current Assets       542,180     413,031  
 
Other Assets:
Recoverable Future Taxes 182,469 177,261
Unamortized Debt Expense 1,292 1,688
Other Regulatory Assets 315,126 320,750
Deferred Charges 28,821 20,978
Other Investments 126,485 110,664
Goodwill 5,476 5,476
Prepaid Post-Retirement Benefit Costs 18,619 17,649
Fair Value of Derivative Financial Instruments 63,036 113,804
Other       479     604  
Total Other Assets       741,803     768,874  
Total Assets       $5,867,507     $5,636,387  
 
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders' Equity
Common Stock, $1 Par Value Authorized - 200,000,000
Shares; Issued and Outstanding - 85,467,963 Shares
and 85,118,886 Shares, Respectively $85,468 $85,119
Paid in Capital 790,291 771,164
Earnings Reinvested in the Business 841,593 676,361
Accumulated Other Comprehensive Loss       (33,304 )   (5,640 )
Total Comprehensive Shareholders' Equity 1,684,048 1,527,004
Long-Term Debt, Net of Unamortized Discount and Debt Issuance Costs       1,787,954     2,086,252  
Total Capitalization       3,472,002     3,613,256  
 
Current and Accrued Liabilities:
Notes Payable to Banks and Commercial Paper
Current Portion of Long-Term Debt 300,000
Accounts Payable 98,842 108,056
Amounts Payable to Customers 13,070 19,537
Dividends Payable 35,469 34,473
Interest Payable on Long-Term Debt 28,985 34,900
Customer Advances 224 14,762
Customer Security Deposits 17,522 16,019
Other Accruals and Current Liabilities 107,101 74,430
Fair Value of Derivative Financial Instruments       922     1,560  
Total Current and Accrued Liabilities       602,135     303,737  
 
Deferred Credits:
Deferred Income Taxes 881,547 823,795
Taxes Refundable to Customers 93,321 93,318
Cost of Removal Regulatory Liability 199,739 193,424
Other Regulatory Liabilities 88,647 99,789
Pension and Other Post-Retirement Liabilities 299,326 277,113
Asset Retirement Obligations 115,354 112,330
Other Deferred Credits       115,436     119,625  
Total Deferred Credits       1,793,370     1,719,394  
Commitments and Contingencies            
Total Capitalization and Liabilities       $5,867,507     $5,636,387  
 
       
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
(Thousands of Dollars)       2017   2016
 
Operating Activities:
Net Income (Loss) Available for Common Stock $ 237,906 $ (328,510 )
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Impairment of Oil and Gas Producing Properties 915,552
Depreciation, Depletion and Amortization 168,812 193,300
Deferred Income Taxes 105,073 (269,248 )
Excess Tax Benefits Associated with Stock-Based Compensation Awards (1,786 )
Stock-Based Compensation 8,857 3,138
Other 11,084 9,685
Change in:
Hedging Collateral Deposits (658 ) 8,116
Receivables and Unbilled Revenue (15,885 ) (7,756 )
Gas Stored Underground and Materials and Supplies 15,699 15,683
Unrecovered Purchased Gas Costs (1,317 ) (933 )
Other Current Assets 8,502 15,334
Accounts Payable 5,046 (53,687 )
Amounts Payable to Customers (6,467 ) (21,337 )
Customer Advances (14,538 ) (16,198 )
Customer Security Deposits 1,503 (396 )
Other Accruals and Current Liabilities 25,423 3,375
Other Assets (3,548 ) 3,775
Other Liabilities       5,638     (8,152 )
Net Cash Provided by Operating Activities       $ 551,130     $ 459,955  
 
Investing Activities:
Capital Expenditures $ (314,774 ) $ (481,781 )
Net Proceeds from Sale of Oil and Gas Producing Properties 26,554 115,235
Other       (10,186 )   (11,163 )
Net Cash Used in Investing Activities       $ (298,406 )   $ (377,709 )
 
Financing Activities:
Excess Tax Benefits Associated with Stock-Based Compensation Awards $ $ 1,786
Dividends Paid on Common Stock (103,594 ) (100,419 )
Net Proceeds From Issuance of Common Stock       6,223     8,358  
Net Cash Used in Financing Activities       $ (97,371 )   $ (90,275 )
 
Net Increase (Decrease) in Cash and Temporary Cash Investments 155,353 (8,029 )
Cash and Temporary Cash Investments at Beginning of Period       129,972     113,596  
Cash and Temporary Cash Investments at June 30       $ 285,325     $ 105,567  
 
           
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

2017   2016   Variance 2017 2016 Variance
Total Operating Revenues $ 151,161     $ 156,835     $ (5,674 ) $ 471,646   $ 452,583   $ 19,063  
 
Operating Expenses:
Operation and Maintenance:
General and Administrative Expense 14,170 16,573 (2,403 ) 43,674 55,671 (11,997 )
Lease Operating and Transportation Expense 40,630 38,861 1,769 122,881 115,451 7,430
All Other Operation and Maintenance Expense 2,835 3,011 (176 ) 8,168 10,402 (2,234 )
Property, Franchise and Other Taxes 4,297 3,639 658 11,248 10,241 1,007
Depreciation, Depletion and Amortization 27,448 31,279 (3,831 ) 85,353 112,586 (27,233 )
Impairment of Oil and Gas Producing Properties     82,658     (82,658 )   915,552   (915,552 )
89,380     176,021     (86,641 ) 271,324   1,219,903   (948,579 )
 
Operating Income (Loss) 61,781 (19,186) 80,967 200,322 (767,320) 967,642
 
Other Income (Expense):
Interest Income 217 88 129 451 781 (330 )
Interest Expense (13,444 )   (13,753 )   309   (40,270 ) (41,882 ) 1,612  
 
Income (Loss) Before Income Taxes 48,554 (32,851 ) 81,405 160,503 (808,421 ) 968,924
Income Tax Expense (Benefit) 18,431     (13,686 )   32,117   61,531   (338,835 ) 400,366  
Net Income (Loss) $ 30,123     $ (19,165 )   $ 49,288   $ 98,972   $ (469,586 ) $ 568,558  
 
Net Income (Loss) Per Share (Diluted) $ 0.35     $ (0.22 )   $ 0.57   $ 1.15   $ (5.54 ) $ 6.69  
 
           
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

2017   2016   Variance 2017 2016 Variance
Revenues from External Customers $ 50,049 $ 52,998 $ (2,949 ) $ 156,212 $ 162,627 $ (6,415 )
Intersegment Revenues 21,643     22,795     (1,152 ) 66,389   68,272   (1,883 )
Total Operating Revenues 71,692     75,793     (4,101 ) 222,601   230,899   (8,298 )
 
Operating Expenses:
Purchased Gas (13 ) 356 (369 ) 181 1,059 (878 )
Operation and Maintenance 20,607 20,492 115 60,517 57,145 3,372
Property, Franchise and Other Taxes 6,935 6,430 505 20,624 19,766 858
Depreciation, Depletion and Amortization 10,513     11,023     (510 ) 30,651   32,144   (1,493 )
38,042     38,301     (259 ) 111,973   110,114   1,859  
 
Operating Income 33,650 37,492 (3,842 ) 110,628 120,785 (10,157 )
 
Other Income (Expense):
Interest Income 393 237 156 984 527 457
Other Income 449 657 (208 ) 1,944 2,651 (707 )
Interest Expense (8,489 )   (8,528 )   39   (25,177 ) (25,017 ) (160 )
 
Income Before Income Taxes 26,003 29,858 (3,855 ) 88,379 98,946 (10,567 )
Income Tax Expense 9,972     12,535     (2,563 ) 33,723   39,152   (5,429 )
Net Income $ 16,031     $ 17,323     $ (1,292 ) $ 54,656   $ 59,794   $ (5,138 )
 
Net Income Per Share (Diluted) $ 0.19     $ 0.20     $ (0.01 ) $ 0.64   $ 0.71   $ (0.07 )
 
 
Three Months Ended Nine Months Ended
June 30, June 30,

GATHERING SEGMENT

2017   2016   Variance 2017 2016 Variance
Revenues from External Customers $ 34 $ 65 $ (31 ) $ 86 $ 303 $ (217 )
Intersegment Revenues 26,853     25,417     1,436   82,629   65,601   17,028  
Total Operating Revenues 26,887     25,482     1,405   82,715   65,904   16,811  
 
Operating Expenses:
Operation and Maintenance 2,973 3,018 (45 ) 9,496 8,066 1,430
Property, Franchise and Other Taxes 13 31 (18 ) 45 116 (71 )
Depreciation, Depletion and Amortization 4,131     3,608     523   12,008   11,407   601  
7,117     6,657     460   21,549   19,589   1,960  
 
Operating Income 19,770 18,825 945 61,166 46,315 14,851
 
Other Income (Expense):
Interest Income 288 88 200 641 188 453
Other Income 1 (1 ) 1 3 (2 )
Interest Expense (2,411 )   (1,794 )   (617 ) (6,739 ) (6,781 ) 42  
 
Income Before Income Taxes 17,647 17,120 527 55,069 39,725 15,344
Income Tax Expense 7,540     7,647     (107 ) 23,696   17,763   5,933  
Net Income $ 10,107     $ 9,473     $ 634   $ 31,373   $ 21,962   $ 9,411  
 
Net Income Per Share (Diluted) $ 0.12     $ 0.11     $ 0.01   $ 0.37   $ 0.26   $ 0.11  
 
           
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

2017   2016   Variance 2017 2016 Variance
Revenues from External Customers $ 121,900 $ 106,568 $ 15,332 $ 550,819 $ 463,154 $ 87,665
Intersegment Revenues 3,391     1,729     1,662   11,314   10,757   557  
Total Operating Revenues 125,291     108,297     16,994   562,133   473,911   88,222  
 
Operating Expenses:
Purchased Gas 46,536 29,514 17,022 235,481 155,764 79,717
Operation and Maintenance 43,506 45,990 (2,484 ) 155,783 148,883 6,900
Property, Franchise and Other Taxes 9,927 9,893 34 31,637 30,980 657
Depreciation, Depletion and Amortization 13,086     12,234     852   39,502   35,511   3,991  
113,055     97,631     15,424   462,403   371,138   91,265  
 
Operating Income 12,236 10,666 1,570 99,730 102,773 (3,043 )
 
Other Income (Expense):
Interest Income 141 115 26 418 321 97
Other Income 438 345 93 576 1,749 (1,173 )
Interest Expense (7,062 )   (7,192 )   130   (21,454 ) (21,684 ) 230  
 
Income Before Income Taxes 5,753 3,934 1,819 79,270 83,159 (3,889 )
Income Tax Expense 1,405     1,755     (350 ) 28,167   30,414   (2,247 )
Net Income $ 4,348     $ 2,179     $ 2,169   $ 51,103   $ 52,745   $ (1,642 )
 
Net Income Per Share (Diluted) $ 0.05     $ 0.03     $ 0.02   $ 0.59   $ 0.62   $ (0.03 )
 
 
Three Months Ended Nine Months Ended
June 30, June 30,

ENERGY MARKETING SEGMENT

2017   2016   Variance 2017 2016 Variance
Revenues from External Customers $ 24,460 $ 17,408 $ 7,052 $ 112,210 $ 77,827 $ 34,383
Intersegment Revenues 565     231     334   600   855   (255 )
Total Operating Revenues 25,025     17,639     7,386   112,810   78,682   34,128  
 
Operating Expenses:
Purchased Gas 24,336 17,191 7,145 104,335 67,235 37,100
Operation and Maintenance 1,706 1,376 330 5,262 4,872 390
Property, Franchise and Other Taxes 2 (2 ) 6 (6 )
Depreciation, Depletion and Amortization 69     70     (1 ) 210   208   2  
26,111     18,639     7,472   109,807   72,321   37,486  
 
Operating Income (Loss) (1,086 ) (1,000 ) (86 ) 3,003 6,361 (3,358 )
 
Other Income (Expense):
Interest Income 146 145 1 418 286 132
Other Income 22 20 2 57 44 13
Interest Expense (13 )   (11 )   (2 ) (38 ) (37 ) (1 )
 
Income (Loss) Before Income Taxes (931 ) (846 ) (85 ) 3,440 6,654 (3,214 )
Income Tax Expense (Benefit) (367 )   (256 )   (111 ) 1,318   2,537   (1,219 )
Net Income (Loss) $ (564 )   $ (590 )   $ 26   $ 2,122   $ 4,117   $ (1,995 )
 
Net Income (Loss) Per Share (Diluted) $ (0.01 )   $ (0.01 )   $   $ 0.02   $ 0.05   $ (0.03 )
 
 
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

2017   2016   Variance 2017 2016 Variance
Total Operating Revenues $ 538     $ 1,508     $ (970 ) $ 1,311   $ 2,775   $ (1,464 )
Operating Expenses:
Operation and Maintenance 435 256 179 1,344 495 849
Property, Franchise and Other Taxes 151 144 7 445 449 (4 )
Depreciation, Depletion and Amortization 182     399     (217 ) 525   888   (363 )
768     799     (31 ) 2,314   1,832   482  
 
Operating Income (Loss) (230 ) 709 (939 ) (1,003 ) 943 (1,946 )
Other Income (Expense):
Interest Income   59     32     27   147   83   64  
 
Income (Loss) Before Income Taxes (171 ) 741 (912 ) (856 ) 1,026 (1,882 )
Income Tax Expense (Benefit) (73 )   311     (384 ) (358 ) 431   (789 )
Net Income (Loss) $ (98 )   $ 430     $ (528 ) $ (498 ) $ 595   $ (1,093 )
 
Net Income (Loss) Per Share (Diluted) $     $ 0.01     $ (0.01 ) $   $ 0.01   $ (0.01 )
 
 
Three Months Ended Nine Months Ended
June 30, June 30,

CORPORATE

2017   2016   Variance 2017 2016 Variance
Revenues from External Customers $ 226 $ 235 $ (9 ) $ 660 $ 674 $ (14 )
Intersegment Revenues 977     967     10   2,930   2,900   30  
Total Operating Revenues 1,203     1,202     1   3,590   3,574   16  
Operating Expenses:
Operation and Maintenance 3,658 3,236 422 11,054 10,273 781
Property, Franchise and Other Taxes 124 122 2 369 365 4
Depreciation, Depletion and Amortization 188     189     (1 ) 563   556   7  
3,970     3,547     423   11,986   11,194   792  
 
Operating Loss (2,767 ) (2,345 ) (422 ) (8,396 ) (7,620 ) (776 )
 
Other Income (Expense):
Interest Income 31,185 30,684 501 93,684 92,767 917
Other Income 461 496 (35 ) 2,150 2,726 (576 )
Interest Expense on Long-Term Debt (29,225 ) (28,897 ) (328 ) (87,241 ) (88,263 ) 1,022
Other Interest Expense (1,003 )   (868 )   (135 ) (2,901 ) (850 ) (2,051 )
 
Loss Before Income Taxes (1,349 ) (930 ) (419 ) (2,704 ) (1,240 ) (1,464 )
Income Tax Expense (Benefit) (1,116 )   434     (1,550 ) (2,882 ) (3,103 ) 221  
Net Income (Loss) $ (233 )   $ (1,364 )   $ 1,131   $ 178   $ 1,863   $ (1,685 )
 
Net Income (Loss) Per Share (Diluted) $ (0.01 )   $ (0.02 )   $ 0.01   $   $ 0.02   $ (0.02 )
 
 
Three Months Ended Nine Months Ended
June 30, June 30,

INTERSEGMENT ELIMINATIONS

2017   2016   Variance 2017 2016 Variance
Intersegment Revenues $ (53,429 )   $ (51,139 )   $ (2,290 ) $ (163,862 ) $ (148,385 ) $ (15,477 )
Operating Expenses:
Purchased Gas (24,724 ) (23,584 ) (1,140 ) (75,648 ) (76,890 ) 1,242
Operation and Maintenance (28,705 )   (27,555 )   (1,150 ) (88,214 ) (71,495 ) (16,719 )
(53,429 )   (51,139 )   (2,290 ) (163,862 ) (148,385 ) (15,477 )
 
Operating Income
 
Other Income (Expense):
Interest Income (31,576 ) (30,825 ) (751 ) (93,899 ) (92,313 ) (1,586 )
Interest Expense 31,576     30,825     751   93,899   92,313   1,586  
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
2017 2016 (Decrease) 2017 2016 (Decrease)
 

Capital Expenditures:

Exploration and Production $ 70,719 (1)(2) $ 47,269 (3) $ 23,450 $ 168,545 (1)(2) $ 214,923 (3)(4) $ (46,378 )
Pipeline and Storage 16,750 (1)(2) 18,325 (3) (1,575 ) 53,528 (1)(2) 76,020 (3)(4) (22,492 )
Gathering 9,214 (1)(2) 9,192 (3) 22 23,705 (1)(2) 43,715 (3)(4) (20,010 )
Utility 20,116 (1)(2) 26,280 (3) (6,164 ) 56,411 (1)(2) 72,288 (3)(4) (15,877 )
Energy Marketing 3   19   (16 ) 14   28   (14 )
Total Reportable Segments 116,802 101,085 15,717 302,203 406,974 (104,771 )
All Other 40 37 3
Corporate 22 36 (14 ) 86 191 (105 )
Eliminations 295     295   (482 )   (482 )
Total Capital Expenditures $ 117,119   $ 101,121   $ 15,998   $ 301,847   $ 407,202   $ (105,355 )
 
(1)  

Capital expenditures for the quarter and nine months ended June 30, 2017, include accounts payable and accrued liabilities related to capital expenditures of $25.0 million, $10.3 million, $5.2 million, and $7.0 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, 2017, since they represent non-cash investing activities at that date.

 
(2)

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

 
(3)

Capital expenditures for the quarter and nine months ended June 30, 2016, include accounts payable and accrued liabilities related to capital expenditures of $26.7 million, $7.6 million, $2.8 million, and $7.3 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 June 30, 2016, since they represent non-cash investing activities at that date.

 
(4)

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

 
             

DEGREE DAYS

 
Percent Colder
(Warmer) Than:

Three Months Ended June 30

Normal 2017 2016 Normal (1) Last Year (1)
 
Buffalo, NY 912 767 927 (15.9) (17.3)
Erie, PA 871 705 936 (19.1) (24.7)
 

Nine Months Ended June 30

 
Buffalo, NY 6,455 5,599 5,567 (13.3) 0.6
Erie, PA 6,023 5,082 5,159 (15.6) (1.5)
 
(1)   Percents compare actual 2017 degree days to normal degree days and actual 2017 degree days to actual 2016 degree days.
 
                 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 

EXPLORATION AND PRODUCTION INFORMATION

 
 
Three Months Ended Nine Months Ended
June 30, June 30,
Increase Increase
2017 2016 (Decrease) 2017 2016 (Decrease)
 

Gas Production/Prices:

Production (MMcf)
Appalachia 37,904 38,846 (942 ) 118,517 105,747 12,770
West Coast 733   763   (30 ) 2,246   2,310   (64 )
Total Production 38,637   39,609   (972 ) 120,763   108,057   12,706  
 
Average Prices (Per Mcf)
Appalachia $ 2.58 $ 1.73 $ 0.85 $ 2.55 $ 1.84 $ 0.71
West Coast 3.39 2.84 0.55 4.07 3.13 0.94
Weighted Average 2.59 1.75 0.84 2.58 1.87 0.71
Weighted Average after Hedging 2.94 2.86 0.08 2.96 3.00 (0.04 )
 

Oil Production/Prices:

Production (Thousands of Barrels)
Appalachia 1 6 (5 ) 3 16 (13 )
West Coast 669   722   (53 ) 2,062   2,183   (121 )
Total Production 670   728   (58 ) 2,065   2,199   (134 )
 
Average Prices (Per Barrel)
Appalachia $ 48.34 $ 58.28 $ (9.94 ) $ 48.85 $ 44.05 $ 4.80
West Coast 45.63 38.89 6.74 45.71 34.02 11.69
Weighted Average 45.64 39.04 6.60 45.76 34.10 11.66
Weighted Average after Hedging 53.02 58.79 (5.77 ) 53.58 57.22 (3.64 )
 
Total Production (Mmcfe) 42,657   43,977   (1,320 ) 133,153   121,251   11,902  
 

Selected Operating Performance Statistics:

General & Administrative Expense per Mcfe (1) $ 0.33 $ 0.38 $ (0.05 ) $ 0.33 $ 0.46 $ (0.13 )
Lease Operating and Transportation Expense per Mcfe (1)(2) $ 0.95 $ 0.88 $ 0.07 $ 0.92 $ 0.95 $ (0.03 )
Depreciation, Depletion & Amortization per Mcfe (1) $ 0.64 $ 0.71 $ (0.07 ) $ 0.64 $ 0.93 $ (0.29 )
 
(1)   Refer to page 15 for the General and Administrative Expense, Lease Operating Expense and Depreciation, Depletion, and Amortization Expense for the Exploration and Production segment.
 
(2) Amounts include transportation expense of $0.54 and $0.53 per Mcfe for the three months ended June 30, 2017 and June 30, 2016, respectively. Amounts include transportation expense of $0.54 and $0.52 per Mcfe for the nine months ended June 30, 2017 and June 30, 2016, respectively.
 
 
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 

EXPLORATION AND PRODUCTION INFORMATION

           

Hedging Summary for the Remaining Three Months of Fiscal 2017

Volume

Average Hedge Price

Oil Swaps
Brent 24,000 BBL $ 91.00 / BBL
NYMEX 396,000 BBL $ 58.34 / BBL
Total 420,000 BBL $ 60.21 / BBL
 
Gas Swaps
NYMEX 9,990,000 MMBTU $ 4.35 / MMBTU
Dominion Transmission Appalachian (DOM) 450,000 MMBTU $ 3.82 / MMBTU
Dawn Ontario (DAWN) 3,330,000 MMBTU $ 3.71 / MMBTU
Fixed Price Physical Sales 17,381,568 MMBTU $ 2.45 / MMBTU
Total 31,151,568 MMBTU $ 3.21 / MMBTU
 

Hedging Summary for Fiscal 2018

Volume

Average Hedge Price

Oil Swaps
Brent 24,000 BBL $ 91.00 / BBL
NYMEX 1,275,000 BBL $ 54.79 / BBL
Total 1,299,000 BBL $ 55.46 / BBL
 
Gas Swaps
NYMEX 42,570,000 MMBTU $ 3.34 / MMBTU
DOM 180,000 MMBTU $ 3.82 / MMBTU
DAWN 8,400,000 MMBTU $ 3.08 / MMBTU
Fixed Price Physical Sales 42,902,876 MMBTU $ 2.42 / MMBTU
Total 94,052,876 MMBTU $ 2.90 / MMBTU
 

Hedging Summary for Fiscal 2019

Volume

Average Hedge Price

Oil Swaps
NYMEX 912,000 BBL $ 53.84 / BBL
 
Gas Swaps
NYMEX 27,060,000 MMBTU $ 3.17 / MMBTU
DAWN 7,200,000 MMBTU $ 3.00 / MMBTU
Fixed Price Physical Sales 32,328,272 MMBTU $ 2.51 / MMBTU
Total 66,588,272 MMBTU $ 2.83 / MMBTU
 

Hedging Summary for Fiscal 2020

Volume

Average Hedge Price

Oil Swaps
NYMEX 168,000 BBL $ 50.08 / BBL
 
Gas Swaps
NYMEX 16,880,000 MMBTU $ 3.07 / MMBTU
DAWN 7,200,000 MMBTU $ 3.00 / MMBTU
Fixed Price Physical Sales 38,232,955 MMBTU $ 2.30 / MMBTU
Total 62,312,955 MMBTU $ 2.59 / MMBTU
 

Hedging Summary for Fiscal 2021

Volume

Average Hedge Price

Gas Swaps
NYMEX 4,840,000 MMBTU $ 3.01 / MMBTU
DAWN 600,000 MMBTU $ 3.00 / MMBTU
Fixed Price Physical Sales 38,650,830 MMBTU $ 2.22 / MMBTU
Total 44,090,830 MMBTU $ 2.31 / MMBTU
 

Hedging Summary for Fiscal 2022

Volume

Average Hedge Price

 
Fixed Price Physical Sales 35,245,042 MMBTU $ 2.24 / MMBTU
 

Hedging Summary for Fiscal 2023

Volume

Average Hedge Price

 
Fixed Price Physical Sales 31,170,734 MMBTU $ 2.26 / MMBTU
 

Hedging Summary for Fiscal 2024

Volume

Average Hedge Price

 
Fixed Price Physical Sales 15,499,436 MMBTU $ 2.26 / MMBTU
 
               
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
2017 2016 (Decrease) 2017 2016 (Decrease)
Firm Transportation - Affiliated 17,734 19,836 (2,102 ) 92,583 87,169 5,414
Firm Transportation - Non-Affiliated 165,717 153,543 12,174 495,015 470,991 24,024
Interruptible Transportation 1,060   6,354   (5,294 ) 5,078   18,469   (13,391 )
184,511   179,733   4,778   592,676   576,629   16,047  
 
Gathering Volume - (MMcf)
Three Months Ended Nine Months Ended
June 30, June 30,
Increase Increase
2017 2016 (Decrease) 2017 2016 (Decrease)
Gathered Volume - Affiliated 48,838   46,360   2,478   150,005   119,355   30,650  
 
 
Utility Throughput - (MMcf)
Three Months Ended Nine Months Ended
June 30, June 30,
Increase Increase
2017 2016 (Decrease) 2017 2016 (Decrease)
Retail Sales:
Residential Sales 8,105 9,209 (1,104 ) 48,817 46,828 1,989
Commercial Sales 1,170 1,254 (84 ) 7,373 6,770 603
Industrial Sales 48     48   282   233   49  
9,323 10,463 (1,140 ) 56,472 53,831 2,641
Off-System Sales 1,295 1,243 52
Transportation 13,799   14,857   (1,058 ) 60,453   59,770   683  
23,122   25,320   (2,198 ) 118,220   114,844   3,376  
 
Energy Marketing Volume
Three Months Ended Nine Months Ended
June 30, June 30,
Increase Increase
2017 2016 (Decrease) 2017 2016 (Decrease)
Natural Gas (MMcf) 7,722   8,537   (815 ) 32,969   33,800   (831 )
 

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 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 1 of this report reconciles National Fuel's reported GAAP earnings to Operating Results for the three and nine months ended June 30, 2017 and 2016.

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, 2017 and 2016:

           
Three Months Ended Nine Months Ended
June 30, June 30,
2017 2016 2017 2016
(in thousands)
Reported GAAP Earnings $ 59,714 $ 8,286 $ 237,906 $ (328,510 )
Depreciation, Depletion and Amortization 55,617 58,802 168,812 193,300
Interest and Other Income (2,223 ) (2,083 ) (7,572 ) (9,813 )
Interest Expense 30,071 30,218 89,921 92,201
Income Taxes 35,792 8,740 145,195 (251,641 )
Impairment of Oil and Gas Producing

Properties

82,658 915,552
Joint Development Agreement Professional

Fees

  3,173     7,855  
Adjusted EBITDA $ 178,971   $ 189,794   $ 634,262   $ 618,944  
 
Adjusted EBITDA by Segment
Pipeline and Storage Adjusted EBITDA $ 44,163 $ 48,515 $ 141,279 $ 152,929
Gathering Adjusted EBITDA 23,901   22,433   73,174   57,722  
Total Midstream Businesses Adjusted EBITDA 68,064 70,948 214,453 210,651
Exploration and Production Adjusted EBITDA 89,229 97,924 285,675 268,673
Utility Adjusted EBITDA 25,322 22,900 139,232 138,284
Energy Marketing Adjusted EBITDA (1,017 ) (930 ) 3,213 6,569
Corporate and All Other Adjusted EBITDA (2,627 ) (1,048 ) (8,311 ) (5,233 )
Total Adjusted EBITDA $ 178,971   $ 189,794   $ 634,262   $ 618,944  
 
 

NATIONAL FUEL GAS COMPANY

AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES

SEGMENT ADJUSTED EBITDA

       
Three Months Ended Nine Months Ended
June 30, June 30,
(in thousands) 2017   2016 2017   2016

Exploration and Production Segment

Reported GAAP Earnings $ 30,123 $ (19,165 ) $ 98,972 $ (469,586 )
Depreciation, Depletion and Amortization 27,448 31,279 85,353 112,586
Interest and Other Income (217 ) (88 ) (451 ) (781 )
Interest Expense 13,444 13,753 40,270 41,882
Income Taxes 18,431 (13,686 ) 61,531 (338,835 )
Impairment of Oil and Gas Producing Properties 82,658 915,552
Joint Development Agreement Professional Fees   3,173     7,855  
Adjusted EBITDA $ 89,229   $ 97,924   $ 285,675   $ 268,673  
 

Pipeline and Storage Segment

Reported GAAP Earnings $ 16,031 $ 17,323 $ 54,656 $ 59,794
Depreciation, Depletion and Amortization 10,513 11,023 30,651 32,144
Interest and Other Income (842 ) (894 ) (2,928 ) (3,178 )
Interest Expense 8,489 8,528 25,177 25,017
Income Taxes 9,972   12,535   33,723   39,152  
Adjusted EBITDA $ 44,163   $ 48,515   $ 141,279   $ 152,929  
 

Gathering Segment

Reported GAAP Earnings $ 10,107 $ 9,473 $ 31,373 $ 21,962
Depreciation, Depletion and Amortization 4,131 3,608 12,008 11,407
Interest and Other Income (288 ) (89 ) (642 ) (191 )
Interest Expense 2,411 1,794 6,739 6,781
Income Taxes 7,540   7,647   23,696   17,763  
Adjusted EBITDA $ 23,901   $ 22,433   $ 73,174   $ 57,722  
 

Utility Segment

Reported GAAP Earnings $ 4,348 $ 2,179 $ 51,103 $ 52,745
Depreciation, Depletion and Amortization 13,086 12,234 39,502 35,511
Interest and Other Income (579 ) (460 ) (994 ) (2,070 )
Interest Expense 7,062 7,192 21,454 21,684
Income Taxes 1,405   1,755   28,167   30,414  
Adjusted EBITDA $ 25,322   $ 22,900   $ 139,232   $ 138,284  
 

Energy Marketing Segment

Reported GAAP Earnings $ (564 ) $ (590 ) $ 2,122 $ 4,117
Depreciation, Depletion and Amortization 69 70 210 208
Interest and Other Income (168 ) (165 ) (475 ) (330 )
Interest Expense 13 11 38 37
Income Taxes (367 ) (256 ) 1,318   2,537  
Adjusted EBITDA $ (1,017 ) $ (930 ) $ 3,213   $ 6,569  
 

Corporate and All Other

Reported GAAP Earnings $ (331 ) $ (934 ) $ (320 ) $ 2,458
Depreciation, Depletion and Amortization 370 588 1,088 1,444
Interest and Other Income (129 ) (387 ) (2,082 ) (3,263 )
Interest Expense (1,348 ) (1,060 ) (3,757 ) (3,200 )
Income Taxes (1,189 ) 745   (3,240 ) (2,672 )
Adjusted EBITDA $ (2,627 ) $ (1,048 ) $ (8,311 ) $ (5,233 )
 
       
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
 
 

Quarter Ended June 30 (unaudited)

2017 2016
 
Operating Revenues $ 348,368,000   $ 335,617,000  
 
Net Income Available for Common Stock $ 59,714,000   $ 8,286,000  
 
Earnings Per Common Share:
Basic $ 0.70   $ 0.10  
Diluted $ 0.69   $ 0.10  
 
Weighted Average Common Shares:
Used in Basic Calculation 85,422,313   84,917,664  
Used in Diluted Calculation 86,064,464   85,470,216  
 

Nine Months Ended June 30 (unaudited)

 
Operating Revenues $ 1,292,944,000   $ 1,159,943,000  
 
Net Income (Loss) Available for Common Stock $ 237,906,000   $ (328,510,000 )
 
Earnings (Loss) Per Common Share:
Basic $ 2.79   $ (3.87 )
Diluted $ 2.77   $ (3.87 )
 
Weighted Average Common Shares:
Used in Basic Calculation 85,315,154   84,791,447  
Used in Diluted Calculation 85,950,742   84,791,447  
 

Twelve Months Ended June 30 (unaudited)

 
Operating Revenues $ 1,585,416,000   $ 1,461,005,000  
 
Net Income (Loss) Available for Common Stock $ 275,459,000   $ (516,213,000 )
 
Earnings (Loss) Per Common Share:
Basic $ 3.23   $ (6.09 )
Diluted $ 3.21   $ (6.09 )
 
Weighted Average Common Shares:
Used in Basic Calculation 85,239,850   84,735,887  
Used in Diluted Calculation 85,881,424   84,735,887  

Contacts

National Fuel Gas Company
Analyst:
Brian M. Welsch, 716-857-7875
or
Media:
Karen L. Merkel, 716-857-7654

Contacts

National Fuel Gas Company
Analyst:
Brian M. Welsch, 716-857-7875
or
Media:
Karen L. Merkel, 716-857-7654