National Fuel Reports Fourth Quarter and Full Year Fiscal 2023 Earnings

WILLIAMSVILLE, N.Y., Nov. 01, 2023 (GLOBE NEWSWIRE) — National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated results for the three months and fiscal year ended September 30, 2023.

FISCAL 2023 FOURTH QUARTER SUMMARY

• GAAP net income of $73.7 million, or $0.80 per share, compared to GAAP net income of $158.1 million, or $1.71 per share, in the prior year.
• Adjusted operating results of $72.2 million, or $0.78 per share, compared to $109.3 million, or $1.19 per share, in the prior year (see non-GAAP reconciliation on page 2 for fourth quarter and fiscal 2023).
• Both E&P segment net production and Gathering segment revenue increased by 7% versus the prior year, driven by continued strong operational execution in Appalachia.
• Supply Corporation entered into a precedent agreement with Seneca for its Tioga Pathway Project, which is an estimated $90 million modernization and expansion project that will add 190,000 Dth per day of firm transportation takeaway capacity from northwest Tioga County, Pennsylvania.

FISCAL 2023 HIGHLIGHTS

• Generated consolidated net cash provided by operating activities of $1.24 billion for fiscal 2023, with free cash flow of $275 million (see non-GAAP reconciliation on page 27 for fiscal 2023).
• Increased the shareholder dividend for the 53^rd consecutive year to an annual rate of $1.98 per share, an increase of 4.2%, continuing the Company’s long history of consistently returning capital to shareholders.
• Distribution Corporation settled a rate proceeding in Pennsylvania, which will increase annual base rate delivery revenues by $23 million.
• Seneca Resources bolstered its deep inventory of highly economic development locations in its Eastern Development Area with the acquisition of approximately 39,000 net acres in Tioga and Lycoming counties.
• NFG Midstream achieved certification of 100% of its assets under Equitable Origin’s EO100^TM Standard for Responsible Energy Development, becoming the first gathering or midstream company to receive this ESG-focused certification.

MANAGEMENT COMMENTS

David P. Bauer, President and Chief Executive Officer of National Fuel Gas Company, stated: “Despite the headwinds of lower natural gas prices in fiscal 2023, National Fuel delivered strong results, both financially and operationally. As we move into fiscal 2024, the combination of a strong outlook for long-term growth in our regulated businesses, increasing capital efficiency in our non-regulated operations, and expectations of improving natural gas price realizations position us well to deliver long-term value to our shareholders.”

RECONCILIATION OF GAAP EARNINGS TO ADJUSTED OPERATING RESULTS

FISCAL 2024 GUIDANCE UPDATE

National Fuel is revising its fiscal 2024 earnings guidance to reflect updated forecast assumptions and projections since the Company’s preliminary guidance range was announced in August 2023. The Company is now projecting that earnings will be within the range of $5.40 to $5.90 per share, an increase of 9% from the Company’s 2023 adjusted operating results at the midpoint of the updated 2024 guidance range.

Consistent with preliminary guidance, the Company is assuming that NYMEX natural gas prices will average $3.25 per MMBtu for the fiscal year. For guidance purposes, the Company’s updated natural gas price projections approximate the current NYMEX forward curve and consider the impact of local sales point differentials and new physical firm sales, transportation, and financial hedge contracts.

Seneca currently has firm sales contracts in place for approximately 89% of its projected fiscal 2024 Appalachian production, limiting its exposure to in-basin markets. Approximately 69% of Seneca’s expected Appalachian production is either matched by a financial hedge, including a combination of swaps and no-cost collars, or was entered into at a fixed price. Seneca’s depreciation, depletion and amortization guidance range was also revised to reflect current expectations for the fiscal year.

The Company’s consolidated and individual segment capital expenditures guidance remain unchanged from the preliminary guidance. Other guidance assumptions remain largely unchanged from the previous guidance. The details are outlined in the table on page 7.

DISCUSSION OF FOURTH QUARTER RESULTS BY SEGMENT

The following earnings discussion of each operating segment for the quarter ended September 30, 2023 is summarized in a tabular form on pages 8 and 9 of this report (earnings drivers for the fiscal years ended September 30, 2023 are summarized on pages 10 and 11). It may be helpful to refer to those tables while reviewing this discussion.

Note that management defines Adjusted Operating Results as reported GAAP earnings adjusted for items impacting comparability, and Adjusted EBITDA as reported GAAP earnings before the following items: interest expense, income taxes, depreciation, depletion and amortization, other income and deductions, impairments, and other items reflected in operating income that impact comparability.

Upstream Business

Exploration and Production Segment

The Exploration and Production segment operations are carried out by Seneca Resources Company, LLC (“Seneca”). Seneca explores for, develops and produces primarily natural gas reserves in Pennsylvania.

Seneca’s fourth quarter GAAP earnings decreased $79.3 million versus the prior year. Excluding several items impacting comparability as described below, Seneca’s earnings decreased $39.8 million, with higher natural gas production more than offset by lower realized natural gas prices, higher operating expenses and higher income tax expense.

Last year’s fourth quarter earnings included two one-time items related to state deferred income taxes that impacted comparability as shown in the table above. These items consisted of a reversal of a $28.6 million valuation allowance on deferred tax assets related to certain state net operating loss and credit carryforwards, along with a $16.2 million benefit from the remeasurement of state deferred income taxes related to a series of reductions in the Pennsylvania state corporate income tax rate that was signed into law in July 2022. Earnings were also impacted by an unrealized gain of $2.8 million ($2.0 million after-tax) recognized during the current-year fourth quarter related to an increase in the fair value of the contingent consideration Seneca received in connection with the June 2022 divestiture of its California assets. In the prior-year’s fourth quarter, Seneca recorded an unrealized loss of $4.4 million ($3.2 million after-tax) on that contingent consideration.

During this year’s fourth quarter, Seneca produced 93.8 Bcfe, an increase of 5.9 Bcfe, or 7%, from the prior year, despite the impact of approximately 2 Bcfe of price-related curtailments due to low in-basin pricing.

Seneca’s average realized natural gas price, after the impact of hedging and transportation costs, was $2.33 per Mcf, a decrease of $0.51 per Mcf from the prior year. Lower natural gas prices, before the impact of hedging, were partially offset by an increase in the weighted average hedge price compared to the prior-year fourth quarter.

On a per unit basis, lease operating and transportation expense (“LOE”) was $0.69 per Mcfe, a decrease of $0.02 per Mcfe from the prior year. On an absolute basis, LOE increased $1.7 million primarily due to higher water management costs, partially offset by lower rental and workover expenses. An increase in transportation and gathering costs as a result of increased production also contributed to the increase in absolute LOE. LOE includes $51.2 million for gathering and compression services from NFG Midstream to connect Seneca’s production to sales points along interstate pipelines.

General and administrative (“G&A”) expense remained flat at $0.18 per Mcfe compared to the prior year. On an absolute basis, Seneca’s G&A expense increased $1.5 million primarily due to an increase in labor-related costs.

Depreciation, depletion and amortization (“DD&A”) expense was $0.71 per Mcfe, an increase of $0.11 per Mcfe from the prior year.  Absolute DD&A expense increased $13.4 million due to higher natural gas production and a higher per unit DD&A rate. The higher rate was driven by an increase in Seneca’s full cost pool due to a combination of higher capitalized costs and an increase in estimated future development costs related to proved undeveloped wells.

Other taxes decreased $1.7 million largely attributable to lower Impact Fees in Pennsylvania due to the decline in NYMEX natural gas prices.

Excluding the impact of last year’s fourth quarter one-time items impacting comparability shown in the table above, the increase in Seneca’s effective tax rate was primarily driven by higher state income tax expense.

Proved Reserves Year-End Update

Seneca’s total proved reserves at September 30, 2023 were 4,536 Bcfe, an increase of 364 Bcfe, or 9%, from September 30, 2022. Seneca’s proved developed reserves at the end of fiscal 2023 were 3,551 Bcfe, representing 78% of total proved reserves, compared to 79% a year ago. In fiscal 2023, Seneca added 670 Bcfe of proved reserve extensions and discoveries, 34 Bcfe of proved developed reserves as a result of two separate upstream asset purchases during fiscal 2023, and 32 Bcfe of net positive revisions due primarily to improvements in well performance and changes in development plans. Seneca replaced 198% of its fiscal 2023 production.

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 fourth quarter GAAP earnings decreased $2.0 million versus the prior year primarily due to lower operating revenues, partially offset by an increase in other income. The decrease in operating revenues of $3.7 million was primarily attributable to contract expirations that occurred earlier in the fiscal year, partially offset by an increase in new short-term contracts. The increase in other income of $1.1 million was primarily attributable to a higher weighted average interest rate on intercompany short-term notes receivable.

Gathering Segment

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

The Gathering segment’s fourth quarter GAAP earnings decreased $4.7 million versus the prior year. Similar to our Exploration and Production segment, last year’s fourth quarter earnings included two one-time items impacting comparability shown in the table above related to state deferred income taxes that did not recur this year. Excluding these items, the Gathering segment’s earnings increased $3.4 million primarily due to higher operating revenues. Operating revenues increased $3.9 million, or 7%, which was the result of a 12.6 Bcf increase in gathered volumes due to an increase in natural gas throughput from both non-affiliated parties and Seneca.

Downstream Business

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 fourth quarter GAAP net loss was $3.7 million lower than the net loss in the prior year’s fourth quarter due to higher customer margins (operating revenues less purchased gas sold), a decrease in non-service pension and OPEB costs, higher other income and lower income tax expense, partially offset by increases in operation and maintenance (“O&M”) expense and interest expense.

The increase in customer margin of $1.6 million was due primarily to the implementation of the recent Pennsylvania rate case settlement, which increased base rates by $23 million annually, effective August 1, 2023. Also contributing to the increase were adjustments related to certain regulatory rate and cost recovery mechanisms subject to annual reconciliation and higher revenues from the Company’s system modernization tracking mechanisms in its New York service territory. These increases were partially offset by a $1.1 million reduction in base rates in New York, which, consistent with prior quarters, was the result of a rate proceeding that temporarily reduced the Utility’s recovery of pension and other post-employment benefit (“OPEB”) expenses to zero effective October 1, 2022. In addition to lowering rates, the proceeding mandated a corresponding decrease in pension and OPEB expenses, most of which had been previously recorded in “below the line” non-service pension and OPEB costs.

The increase in other income of $1.0 million was primarily attributable to interest earned on deferred gas costs. O&M expense increased by $1.7 million, primarily driven by higher labor-related costs. Interest expense increased $1.0 million due to the Company’s long-term debt issuance in May 2023.

Corporate and All Other

The Company’s operations that are included in Corporate and All Other generated a combined net loss of $5.8 million in the current year fourth quarter, which was $2.2 million higher than the combined net loss of $3.6 million in the prior-year fourth quarter. The increase in net loss was primarily driven by higher O&M expense as a result of an increase in professional services, which was partially offset by a lower amount of unrealized losses on investment securities recognized in the current quarter as compared to the prior-year fourth quarter.

EARNINGS TELECONFERENCE

The Company will host a conference call on Thursday, November 2, 2023, at 10 a.m. Eastern Time to discuss this announcement. To pre-register for the call (recommended), please visit https://www.netroadshow.com/events/login?show=2be14adf&confId=56623. After registering, you will receive your access details via email. To join by telephone on the day of the call, dial U.S. toll free 1-833–470–1428 and provide Participant Access Code 568657. The teleconference will also be simultaneously webcast online and can be accessed on the NFG Investor Relations website at investor.nationalfuelgas.com. A telephone replay of the teleconference call will be available through the end of the day on Thursday, November 9, 2023. To access the replay, dial U.S. toll free 1-866-813-9403 and provide Replay Access Code 693074.

National Fuel is an integrated energy company reporting financial results for four operating segments: Exploration and Production, Pipeline and Storage, Gathering, and Utility. 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: 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, target rates of return, rate design, retained natural gas and system modernization), environmental/safety requirements, affiliate relationships, industry structure, and franchise renewal; the Company’s ability to estimate accurately the time and resources necessary to meet emissions targets; governmental/regulatory actions and/or market pressures to reduce or eliminate reliance on natural gas; changes in economic conditions, including inflationary pressures, supply chain issues, liquidity challenges, and global, national or regional recessions, and their effect on the demand for, and customers’ ability to pay for, the Company’s products and services; changes in the price of natural gas; the creditworthiness or performance of the Company’s key suppliers, customers and counterparties; 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; impairments under the SEC’s full cost ceiling test for natural gas reserves; increased costs or delays or changes in plans with respect to Company projects or related projects of other companies, as well as difficulties or delays in obtaining necessary governmental approvals, permits or orders or in obtaining the cooperation of interconnecting facility operators; the Company’s ability to complete planned strategic transactions; changes in price differentials between similar quantities of natural gas 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; the impact of information technology disruptions, cybersecurity or data security breaches; factors affecting the Company’s ability to successfully identify, drill for and produce economically viable natural gas reserves, including among others geology, lease availability and costs, 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; other changes in price differentials between similar quantities of natural gas 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; negotiations with the collective bargaining units representing the Company’s workforce, including potential work stoppages during negotiations; uncertainty of natural gas reserve estimates; significant differences between the Company’s projected and actual production levels for natural gas; changes in demographic patterns and weather conditions (including those related to climate change); 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; economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities or acts of war, as well as economic and operational disruptions due to third-party outages; 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.

As discussed on page 2, the Company is revising its earnings guidance for fiscal 2024. Additional details on the Company’s forecast assumptions and business segment guidance are outlined in the table below.

While the Company expects to record certain adjustments to unrealized gain or loss on a derivative asset and unrealized gain or loss on investments during the fiscal year ending September 30, 2024, the amounts of these and other potential adjustments are not reasonably determinable at this time. As such, the Company is unable to provide earnings guidance other than on a non-GAAP basis.