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National Fuel Reports First Quarter Earnings

Dépèche transmise le 2 février 2012 par Business Wire

National Fuel Reports First Quarter Earnings

National Fuel Reports First Quarter Earnings

WILLIAMSVILLE, N.Y.--(BUSINESS WIRE)--National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated earnings for the first quarter of its 2012 fiscal year (the quarter ended December 31, 2011).

HIGHLIGHTS

  • Earnings for the first quarter of fiscal 2012 of $60.7 million, or $0.73 per share, increased $2.2 million, or $0.03 per share, compared to $58.5 million, or $0.70 per share, for the prior year’s first quarter. The increase is mainly due to higher earnings in the Exploration and Production and Pipeline and Storage segments and the All Other category.
  • Seneca Resources Corporation’s (“Seneca”) first quarter production of crude oil and natural gas increased 2.6 billion cubic feet equivalent (“Bcfe”), or approximately 17%, to 18.2 Bcfe. Appalachian production increased approximately 62% to 13.2 Bcfe, including production from the Marcellus Shale of 11.3 Bcfe. This 17% year over year increase occurred despite the fiscal 2011 sale of its offshore Gulf of Mexico assets, which produced 2.6 Bcfe in the first quarter of the previous year.
  • In the Pipeline and Storage segment, the Tioga County Extension and Line N Expansion projects were completed and placed in service.
  • The Company is revising its GAAP earnings guidance range for fiscal 2012 to a range of $2.40 to $2.65 per share. The previous earnings guidance had been a range of $2.85 to $3.15 per share. This revised guidance assumes flat NYMEX equivalent pricing of $3.00 per Million British Thermal Units (“MMBtu”) for natural gas and $100 per barrel (“Bbl”) for crude oil for unhedged production for the remainder of the fiscal year. Production for the entire 2012 fiscal year is projected to be between 85 and 95 Bcfe. The previous guidance for projected production was between 87 and 101 Bcfe. The Company is also reducing capital spending in Appalachia to a range between $675 million and $745 million. The previous range was between $740 million and $820 million. A summary of the factors impacting the revised earnings guidance is presented on page 19 of this report.
  • A conference call is scheduled for Friday, February 3, 2012, at 11 a.m. Eastern Standard Time.

MANAGEMENT COMMENTS

David F. Smith, Chairman and Chief Executive Officer of National Fuel Gas Company, stated: “While declining natural gas prices throughout the quarter have created challenges for natural gas producers, the quality of our assets and the strength of our integrated structure were evident in this quarter’s results, which were in line with our expectations. Reliable earnings from our Utility segment; predictability and growth from our Pipeline and Storage segment; and significant earnings and free cash flow generation from our California oil production all contributed to National Fuel’s performance for the quarter.

“We believe that our integrated business model and appropriate capital spending discipline will continue to generate maximum value for our shareholders. In the current low gas price environment, we will carefully balance our growth plans with our funding capabilities. Our fee ownership position across most of our Pennsylvania acreage allows us to manage our drilling program for maximum long-term value without the concern of lease expirations.

“The combination of a recent debt issuance, favorably priced natural gas hedges, significant cash generation from our California operations and a commitment to fiscal discipline will allow us to meet our funding requirements and maintain a strong balance sheet. As we look out longer, we believe the quality of our integrated asset mix and our outstanding E&P growth opportunities will continue to deliver value in the coming years.”

SUMMARY OF RESULTS

National Fuel had consolidated earnings for the quarter ended December 31, 2011, of $60.7 million, or $0.73 per share, compared to the prior year’s first quarter of $58.5 million, or $0.70 per share, an increase of $2.2 million or $0.03 per share. (Note: All references to earnings per share are to diluted earnings per share, all amounts are stated in U.S. dollars, and all amounts used in the discussion of earnings are after tax unless otherwise noted.)

DISCUSSION OF RESULTS BY SEGMENT

The following discussion of the earnings of each segment is summarized in a tabular form at pages 7 and 8 of this report. It may be helpful to refer to those tables while reviewing this discussion.

Exploration and Production Segment

The Exploration and Production segment operations are carried out by Seneca Resources Corporation (“Seneca”). Seneca explores for, develops and produces natural gas and oil reserves in California and Appalachia. Seneca completed the sale of its offshore Gulf of Mexico assets in April, 2011.

The Exploration and Production segment’s earnings in the first quarter of fiscal 2012 of $30.3 million, or $0.36 per share, increased $2.9 million, or $0.03 per share, when compared with the prior year’s first quarter.

Overall production of natural gas and crude oil for the current quarter of 18.2 Bcfe increased approximately 2.6 Bcfe, or 16.6 percent, compared to the prior year’s first quarter. Production from Seneca’s Appalachia properties increased approximately 61.8 percent, mainly due to a 5.4 Bcfe or 91.5 percent increase in production from Marcellus wells. Production in California increased 4.4 percent. Gulf of Mexico production decreased 2.6 Bcfe due to the April 2011 sale of Seneca’s offshore assets.

Changes in commodity prices realized after hedging also impacted earnings. The weighted average natural gas price received by Seneca (after hedging) for the quarter ended December 31, 2011, was $4.78 per thousand cubic feet (“Mcf”), a decrease of $0.48 per Mcf compared to the prior year’s first quarter. Higher crude oil prices realized after hedging contributed to the increase in earnings. The weighted average oil price received by Seneca (after hedging) for the quarter ended December 31, 2011, was $91.38 per Bbl, an increase of $15.14 per Bbl.

Depletion, lease operating expenses (“LOE”) and general and administrative (“G&A”) expenses for the current year’s first quarter increased over last year’s first quarter due to the higher production activity discussed above. On a per unit basis, LOE decreased $0.09 per thousand cubic feet equivalent (“Mcfe”). Excluding the Gulf, on a per unit basis, LOE increased $0.02 per Mcfe largely due to higher non-operated LOE costs per unit and increased transportation, disposal and vacuum services. Depletion increased $0.12 per Mcfe due to higher capital spending in the East. G&A increased $0.04 per Mcfe due to higher labor expenses including additional staffing and relocation costs related to the opening of the Pittsburgh office in the East division.

Pipeline and Storage Segment

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

The Pipeline and Storage segment’s earnings of $10.0 million, or $0.12 per share, for the quarter ended December 31, 2011, increased $1.4 million, or $0.02 per share, when compared with the same period in the prior fiscal year. The increase in earnings is mainly due to higher transportation revenues from the Tioga County Extension and Line N Expansion projects, which were completed and placed in service in the current year’s first quarter. Lower efficiency gas revenues due to lower natural gas prices and higher depreciation and operating expenses reduced earnings.

Utility Segment

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

The Utility segment’s earnings of $19.4 million, or $0.23 per share, for the quarter ended December 31, 2011, decreased $3.6 million or $0.05 per share. Warmer weather in Pennsylvania and the impact of certain regulatory adjustments were the main reasons for the decrease in earnings in the current year’s first quarter. In New York, the warmer weather did not have a significant impact on earnings for the quarter. The impact of weather variations on earnings in New York is mitigated by that jurisdiction’s weather normalization clause.

Energy Marketing

National Fuel Resources, Inc. (“NFR”) comprises the Company’s Energy Marketing segment. NFR markets natural gas to industrial, wholesale, commercial, public authority and residential customers primarily in western and central New York and northwestern Pennsylvania, offering competitively priced natural gas to its customers.

The Energy Marketing segment’s earnings for the quarter ended December 31, 2011, of $0.4 million decreased $0.5 million from the prior year’s first quarter earnings of $0.9 million. The decrease was mainly due to lower average margins and lower retail sales volumes as a result of warmer weather during the current year’s first quarter.

Corporate and All Other

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

The Corporate and All Other category earnings of $0.6 million, or $0.01 per share, for the quarter ended December 31, 2011, compared to a loss of $1.3 million, or $0.02 per share, in the prior year’s first quarter. The increase in earnings is mainly due to higher earnings from Midstream’s pipeline gathering and natural gas processing operation.

EARNINGS GUIDANCE

The Company is updating its earnings guidance for fiscal 2012 to reflect actual first quarter results, changes in commodity prices and a reduced capital expenditure budget in its Exploration and Production segment. The revised GAAP earnings range is $2.40 to $2.65 per share. This includes forecast oil and gas production for fiscal 2012 for the Exploration and Production segment in the range between 85 and 95 Bcfe (previous production range was between 87 and 101 Bcfe), hedges currently in place, and NYMEX equivalent flat commodity pricing on non-hedged volumes exclusive of basis differential of $3.00 per MMBtu for natural gas and $100 per Bbl for crude oil. The revised capital spending in Appalachia is expected to be in a range between $675 million and $745 million. The previous range was between $740 million and $820 million. A summary of the factors impacting the revised earnings guidance is presented on page 19 of this report.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, February 3, 2012, 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) 1-866-510-0707, and using the passcode “83237053.” For those unable to listen to the live conference call, a replay will be available at approximately 2 p.m. (Eastern Time) at the same website link and by phone at (toll-free) 1-888-286-8010 using passcode “56217287.” Both the webcast and telephonic replay will be available until the close of business on Friday, February 10, 2012.

National Fuel is an integrated energy company with $5.7 billion in assets comprised of the following four operating segments: Exploration and Production, Pipeline and Storage, Utility, and Energy Marketing. Additional information about National Fuel is available at: www.nationalfuelgas.com or through its investor information service at 1-800-334-2188.

Analyst Contact: Timothy J. Silverstein (716) 857-6987

Media Contact: Donna L. DeCarolis (716) 857-7872

Certain statements contained herein, including those regarding estimated future earnings, and statements that are identified by the use of the words “anticipates,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “predicts,” “projects,” “believes,” “seeks,” “will,” “may” and similar expressions, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The Company’s expectations, beliefs and projections contained herein are expressed in good faith and are believed to have a reasonable basis, but there can be no assurance that such expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors, the following are important factors that could cause actual results to differ materially from those discussed in the forward-looking statements: 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; changes in the price of natural gas or oil; uncertainty of oil and gas reserve estimates; significant differences between the Company’s projected and actual production levels for natural gas or oil; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; changes in the availability, price or accounting treatment of derivative financial instruments; 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; delays or changes in costs or plans with respect to Company projects or related projects of other companies, including difficulties or delays in obtaining necessary governmental approvals, permits or orders or in obtaining the cooperation of interconnecting facility operators; financial and economic conditions, including the availability of credit, and occurrences affecting the Company’s ability to obtain financing on acceptable terms for working capital, capital expenditures and other investments, including any downgrades in the Company’s credit ratings and changes in interest rates and other capital market conditions; changes in economic conditions, including global, national or regional recessions, and their effect on the demand for, and customers’ ability to pay for, the Company’s products and services; the creditworthiness or performance of the Company’s key suppliers, customers and counterparties; economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities, acts of war, cyber attacks or pest infestation; changes in price differential between similar quantities of natural gas at different geographic locations, and the effect of such changes on the demand for pipeline transportation capacity to or from such locations; other changes in price differentials between similar quantities of oil or natural gas having different quality, heating value, geographic location or delivery date; significant differences between the Company’s projected and actual capital expenditures and operating expenses; changes in actuarial assumptions, the interest rate environment and the return on plan/trust assets related to the Company’s pension and other post-retirement benefits, which can affect future funding obligations and costs and plan liabilities; changes in demographic patterns and weather conditions; 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 DECEMBER 31, 2011
           
Exploration & Pipeline & Energy Corporate /
(Thousands of Dollars) Production   Storage   Utility   Marketing   All Other   Consolidated**
 
First quarter 2011 GAAP earnings $ 27,373 $ 8,578 $ 22,990 $ 932 $ (1,330 ) $ 58,543
 
Drivers of operating results
Higher (lower) Appalachian and West Coast crude oil prices 7,645 7,645
Higher (lower) Appalachian and West Coast natural gas prices (5,205 ) (5,205 )
Higher (lower) Appalachian and West Coast natural gas production 17,080 17,080
Higher (lower) Appalachian and West Coast crude oil production 2,642 2,642
Lower Gulf Coast natural gas and crude oil revenues (12,099 ) (12,099 )
Lower (higher) lease operating expenses (816 ) (816 )
Lower (higher) depreciation / depletion (5,081 ) (718 ) (5,799 )
 
Higher (lower) transportation revenues 2,776 2,776
Higher (lower) efficiency gas revenues (778 ) (778 )
Higher (lower) gathering and processing revenues 1,018 1,018
Lower (higher) operating expenses (1,404 ) (645 ) (323 ) (122 ) (2,494 )
 
Warmer weather (2,280 ) (2,280 )
Regulatory true-up adjustments (878 ) (878 )
 
Higher (lower) income from unconsolidated subsidiaries 662 662
 
Higher (lower) margins (439 ) 394 (45 )
 
Higher AFUDC * 759 759
Higher (lower) interest income (507 ) (507 )
(Higher) lower interest expense 563 374 686 1,623
 
Lower (higher) income tax expense / effective tax rate (927 ) (927 )
 
All other / rounding   544       (13 )     (530 )     58       (280 )     (221 )
 
First quarter 2012 GAAP earnings $ 30,315     $ 9,959     $ 19,353     $ 429     $ 643     $ 60,699  
 
 
* AFUDC = Allowance for Funds Used During Construction
** Amounts do not reflect intercompany eliminations
 
NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
QUARTER ENDED DECEMBER 31, 2011
           
Exploration & Pipeline & Energy Corporate /
Production   Storage   Utility   Marketing   All Other   Consolidated**
 
First quarter 2011 GAAP earnings $ 0.33 $ 0.10 $ 0.28 $ 0.01 $ (0.02 ) $ 0.70
 
Drivers of operating results
Higher (lower) Appalachian and West Coast crude oil prices 0.09 0.09
Higher (lower) Appalachian and West Coast natural gas prices (0.06 ) (0.06 )
Higher (lower) Appalachian and West Coast natural gas production 0.20 0.20
Higher (lower) Appalachian and West Coast crude oil production 0.03 0.03
Lower Gulf Coast natural gas and crude oil revenues (0.14 ) (0.14 )
Lower (higher) lease operating expenses (0.02 ) (0.02 )
Lower (higher) depreciation / depletion (0.06 ) (0.01 ) (0.07 )
 
Higher (lower) transportation revenues 0.03 0.03
Higher (lower) efficiency gas revenues (0.01 ) (0.01 )
Higher (lower) gathering and processing revenues 0.01 0.01
Lower (higher) operating expenses (0.02 ) (0.01 ) - - (0.03 )
 
Warmer weather (0.03 ) (0.03 )
Regulatory true-up adjustments (0.01 ) (0.01 )
 
Higher (lower) income from unconsolidated subsidiaries 0.01 0.01
 
Higher (lower) margins - - -
 
Higher AFUDC * 0.01 0.01
Higher (lower) interest income (0.01 ) (0.01 )
(Higher) lower interest expense 0.01 - 0.01 0.02
 
Lower (higher) income tax expense / effective tax rate (0.01 ) (0.01 )
 
All other / rounding   0.01       0.01       (0.01 )         0.01       0.02  
 
First quarter 2012 GAAP earnings $ 0.36     $ 0.12     $ 0.23     $ 0.01   $ 0.01     $ 0.73  

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