National Fuel Reports Second Quarter Earnings

4/30, 10:45 PM (Source: GlobeNewswire)

WILLIAMSVILLE, N.Y., April 30, 2020 (GLOBE NEWSWIRE) -- National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated results for the second quarter of its 2020 fiscal year and for the six months ended March 31, 2020.

FISCAL 2020 SECOND QUARTER SUMMARY

  • GAAP net loss of $106.1 million, or $1.23 per share, compared to GAAP net income of $90.6 million, or $1.04 per share, in the prior year, which includes a $129.3 million after-tax impairment of oil and gas properties and a $56.8 million deferred tax valuation allowance described in further detail in this release
  • Adjusted operating results of $84.2 million, or $0.97 per share, compared to $92.9 million, or $1.07 per share, in the prior year (see non-GAAP reconciliation on page 2)
  • Adjusted EBITDA of $231.1 million, an increase of $5.3 million from $225.8 million in the prior year (non-GAAP reconciliation on page 24)
  • E&P segment net production of 59.8 Bcfe, an increase of 11 Bcfe, or 23% from the prior year, including the impact of approximately 2.7 Bcf of curtailments due to sustained low natural gas prices in Appalachia
  • Average natural gas prices, after the impact of hedging, of $2.12 per Mcf, down $0.46 per Mcf from the prior year
  • Average oil prices, after the impact of hedging, of $58.23 per Bbl, down $2.78 per Bbl from the prior year
  • Gathering revenues of $35.3 million, an increase of $5.9 million, or 20%, on higher throughput from the E&P segment
  • Pipeline & Storage revenues of $79.2 million, an increase of $6.9 million, or 10%, from the prior year, largely driven by the successful resolution of a National Fuel Gas Supply Corporation rate proceeding
  • Reducing fiscal 2020 consolidated capital expenditure guidance to a range of $680 to $740 million, a decrease of $30 million  from the midpoint of the Company's previous guidance range

MANAGEMENT COMMENTS ON COMPANY’S COVID-19 RESPONSE

David P. Bauer, President and Chief Executive Officer of National Fuel Gas Company, stated: “As we confront the challenges of the COVID-19 pandemic, I am proud to say that National Fuel has continued to safely and reliably provide natural gas service to our over 743,000 utility customers in western New York and northwestern Pennsylvania, operate our extensive network of transportation, compression and gathering infrastructure, and produce essential natural gas supplies.

The continuity of our operations is a direct result of the dedication and hard work of our over 2,000 employees.  During this unprecedented situation, National Fuel has remained committed to our workforce - the bedrock of our Company - and has not instituted any furloughs or workforce reductions.  With a large portion of our employees now working remotely, we have implemented a number of initiatives to provide the flexibility needed to address this new normal, including additional paid time off to address child care needs, and encouraging the use of alternative work schedules.

With respect to our in-field workforce and customer service representatives, all of whom provide essential services to our communities each and every day, we have adopted appropriate social distancing measures and have provided necessary personal protective equipment in line with directives from federal, state, and local agencies.  As this public health crisis evolves, the health and well-being of our employees and our communities will remain our number one priority, and National Fuel will continue to monitor developments affecting our stakeholders in order to take appropriate steps to mitigate the impacts of the COVID-19 virus.”

RECONCILIATION OF GAAP EARNINGS TO ADJUSTED OPERATING RESULTS

         
  Three Months Ended Six Months Ended
   March 31,  March 31,
(in thousands except per share amounts) 2020 2019 2020 2019
Reported GAAP Earnings $(106,068) $90,595  $(19,477) $193,256 
Items impacting comparability:        
Impairment of oil and gas properties (E&P) 177,761    177,761   
Tax impact of impairment of oil and gas properties (48,503)   (48,503)  
Deferred tax valuation allowance 56,770    56,770   
Remeasurement of deferred income taxes under 2017 Tax Reform       (5,000)
Mark-to-market adjustments due to hedge ineffectiveness (E&P)   6,742    237 
Tax impact of mark-to-market adjustments due to hedge ineffectiveness   (1,416)   (50)
Unrealized (gain) loss on other investments (Corporate / All Other) 5,414  (3,831) 6,433  2,516 
Tax impact of unrealized (gain) loss on other investments (1,137) 805  (1,351) (528)
Adjusted Operating Results $84,237  $92,895  $171,633  $190,431 
         
Reported GAAP Earnings Per Share $(1.23) $1.04  $(0.23) $2.23 
Items impacting comparability:        
Impairment of oil and gas properties, net of tax (E&P) 1.49    1.49   
Deferred tax valuation allowance 0.66    0.66   
Remeasurement of deferred income taxes under 2017 Tax Reform       (0.06)
Mark-to-market adjustments due to hedge ineffectiveness, net of tax (E&P)   0.06     
Unrealized (gain) loss on other investments, net of tax (Corporate / All Other) 0.05  (0.03) 0.06  0.02 
Rounding       0.01 
Adjusted Operating Results Per Share $0.97  $1.07  $1.98  $2.20 

MANAGEMENT COMMENTS ON SECOND QUARTER RESULTS

Mr. Bauer added: “Low commodity prices continued to serve as a headwind during the quarter, weighing on our results and requiring the Company to write down the value of its oil and gas reserves in our Exploration and Production segment.  Operationally, however, our results were in line with our expectations, driven by the strong performance of our Pipeline and Storage and Gathering businesses, both of which saw significant earnings growth. In these uncertain times, our diversified business model continues to function as designed, providing National Fuel with stability through a consistent, predictable base of cash flows and a strong balance sheet.”

FISCAL 2020 GUIDANCE AND BUSINESS UPDATE

National Fuel is revising its fiscal 2020 earnings guidance to reflect revised commodity price assumptions for the balance of the fiscal year, and the results of the fiscal second quarter. The Company is now projecting that earnings, excluding items impacting comparability, will be within the range of $2.75 to $2.95 per share, or $2.85 per share at the midpoint of the range.

The Company is assuming that NYMEX natural gas prices will average $2.05 per MMBtu for the remainder of fiscal 2020, unchanged from the previous guidance, while also lowering its Appalachian spot price forecast to $1.65 per MMBtu.  Additionally, the Company is now assuming that WTI oil prices will average $22.50 per barrel (Bbl) for the remainder of fiscal 2020, a decrease of $32.50 per Bbl from the $55.00 assumed in the previous guidance. These price assumptions are intended to reflect the current NYMEX forward markets for natural gas and oil and consider the impact of local sales point differentials.

The Exploration and Production segment is lowering its fiscal 2020 net production guidance to a range of 230 to 240 Bcfe, which reflects the impacts of curtailments during the second quarter and estimated curtailments for the month of April.  During the second quarter, Seneca executed approximately 12.6 Bcf of new NYMEX swap contracts and fixed price physical firm sales for fiscal 2020. The Company currently has financial hedges and fixed price physical firm sales contracts in place on approximately 72% of Seneca’s remaining expected fiscal 2020 natural gas production that, on average, lock-in a price realization after the cost of transportation of $2.16 per Mcf.

In addition, the Company is lowering its consolidated capital expenditure guidance to a range of $680 to $740 million, a $30 million decrease from the midpoint of the Company’s prior guidance range.  The Company’s other guidance assumptions remain largely unchanged from the previous guidance.

Additional details on the Company's updated forecast assumptions and business segment guidance for fiscal 2020 are outlined in the table on page 8.

DISCUSSION OF SECOND QUARTER RESULTS BY SEGMENT

The following earnings discussion of each operating segment for the quarter ended March 31, 2020 is summarized in a tabular form on pages 9 and 10 of this report (earnings drivers for the six months ended March 31, 2020 are summarized on pages 11 and 12).  It may be helpful to refer to those tables while reviewing this discussion.  As of the quarter ended September 30, 2019, the Company is no longer reporting the Energy Marketing operations as a reportable segment.  The Energy Marketing operations have been included in the All Other category in the disclosures and tables that follow below.  Prior year segment information has been restated to reflect this change in presentation.

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 natural gas and oil reserves, primarily in Pennsylvania and California.

 Three Months Ended
 March 31,
(in thousands)2020 2019 Variance
GAAP Earnings$(175,275) $21,873  $(197,148)
Impairment of oil and gas properties, net of tax129,258    129,258 
Deferred tax valuation allowance60,463    60,463 
Mark-to-market adjustments due to hedge ineffectiveness, net of tax  5,326  (5,326)
Adjusted Operating Results$14,446  $27,199  $(12,753)
      
Adjusted EBITDA$79,846  $83,580  $(3,734)

Seneca’s second quarter GAAP earnings decreased $197.1 million versus the prior year, which includes the impact of a non-cash, pre-tax impairment of Seneca’s oil and natural gas reserves, and the recognition of a valuation allowance that reduced the deferred tax asset related to certain state-level net operating loss and credit carryforwards that may not be realized.

During the second quarter, Seneca recorded a non-cash, pre-tax impairment charge of $177.8 million ($129.3 million after-tax) to write-down the value of Seneca’s oil and natural gas reserves under the full cost method of accounting. The full cost method of accounting requires that Seneca perform a quarterly “ceiling test” to compare the present value of future revenues from its oil and natural gas reserves based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the 12-month period prior to the end of the reporting period (“the ceiling”) with the book value of those reserves at the balance sheet date.  If the book value of the reserves exceeds the ceiling, a non-cash impairment charge must be recorded in order to reduce the book value of the reserves to the calculated ceiling.  It is anticipated that the current low commodity price environment will lead to impairments during the remainder of fiscal 2020 and likely in the first quarter of fiscal 2021 as well.

During the quarter ended March 31, 2020, the Company recorded a full valuation allowance in the amount of $60.5 million against certain state deferred tax assets based on its conclusion, considering all available evidence (both positive and negative), that it was more likely than not that these deferred tax assets would not be realized.  A significant item of objective negative evidence considered was a projected three-year cumulative pre-tax loss primarily due to the non-cash impairments of Seneca’s oil and gas reserves noted above.  Changes in judgment regarding future realization of these deferred tax assets may result in a reversal of all or a portion of the valuation allowance.

Excluding these items noted above, as well as the net impact of non-cash mark-to-market adjustments recorded in the prior year relating to hedge ineffectiveness (see table above), Seneca’s second quarter earnings decreased $12.8 million as the positive impact of higher production was more than offset by the negative impacts of lower realized natural gas and crude oil prices, higher operating expenses, higher interest expense, and a higher effective tax rate.

Seneca produced 59.8 Bcfe during the second quarter, an increase of 11.0 Bcfe, or 23%, from the prior year. Natural gas production increased 10.7 Bcf, or 24%, due primarily to production from new Marcellus and Utica wells completed and connected to sales in Appalachia. Net production increased 5.4 Bcf to 26.6 Bcf in Seneca’s Western Development Area and 5.4 Bcf to 29.0 Bcf in the Eastern Development Area.  Seneca curtailed an estimated 2.7 Bcf of net natural gas production during the second quarter due to lower spot pricing at local sales points in Pennsylvania.  Oil production for the second quarter increased 42,000 Bbls from the prior year as new production continues to come on-line from Seneca’s development of the Pioneer and 17N assets in the Midway Sunset area of California, as well as the Coalinga assets.

Seneca's average realized natural gas price, after the impact of hedging and transportation costs, was $2.12 per Mcf, a decrease of $0.46 per Mcf from the prior year. This decline was largely due to lower NYMEX prices and lower spot pricing at local sales points in Pennsylvania. Seneca's average realized oil price, after the impact of hedging, was $58.23 per Bbl, a decrease of $2.78 per Bbl compared to the prior year.  The decline in oil price realizations was due primarily to lower market prices for crude oil during the quarter and reduced price differentials at local sales points in California.

The increase in Seneca’s operating expenses was largely due to higher production during the quarter.  Lease operating and transportation (“LOE”) expense, which increased $5.8 million, includes the fees paid to the Company’s Gathering segment for gathering and compression services used to connect Seneca’s Marcellus and Utica production to sales points along interstate pipelines. In addition to higher production, the $9.2 million increase in depreciation, depletion and amortization (“DD&A”) expense was also due to a higher DD&A rate. Seneca’s general and administrative (“G&A”) costs were relatively flat despite the increased production. On a unit of production basis, G&A expenses during the quarter decreased $0.06 per Mcfe to $0.29 per Mcfe.

The increase in Seneca’s effective tax rate, excluding the impact of the valuation allowance recorded at March 31, 2020 discussed above, was largely driven by the prior year impact of the Enhanced Oil Recovery tax credit, which was not available in the current year.

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
 March 31,
(in thousands)2020 2019 Variance
GAAP Earnings$22,087  $17,749  $4,338 
      
Adjusted EBITDA$49,102  $41,281  $7,821 

The Pipeline and Storage segment’s second quarter GAAP earnings increased $4.3 million versus the prior year primarily driven by higher operating revenues and lower operation and maintenance (“O&M”) expenses, partially offset by higher DD&A expense.  The increase in operating revenues of $6.9 million, or 10%, was largely due to an increase in Supply Corporation's transportation and storage rates effective February 1, 2020, in accordance with Supply Corporation's rate case settlement in principle coupled with new demand charges for transportation service from Supply Corporation's Line N to Monaca expansion project, which was placed in service on November 1, 2019.  O&M expense decreased $0.9 million primarily due to lower compressor and facility maintenance costs, partially offset by an increase in pipeline integrity costs.  The increase in DD&A expense of $2.1 million was primarily attributable to an increase in Supply Corporation's depreciation rates associated with its rate case settlement in principle.

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 currently deliver Seneca’s gross Appalachian production to the interstate pipeline system.

 Three Months Ended
 March 31,
(in thousands)2020 2019 Variance
GAAP Earnings$19,898  $12,690  $7,208 
Deferred tax valuation allowance(3,769)   (3,769)
Adjusted Operating Results$16,129  $12,690  $3,439 
      
Adjusted EBITDA$29,541  $24,598  $4,943 

The Gathering segment’s second quarter GAAP earnings increased $7.2 million versus the prior year.  Earnings were positively impacted by $3.8 million as a result of the Gathering segment's recognition of an income tax benefit that was recorded as an offset to the valuation allowance described above in the Exploration and Production segment.  This offset is a result of the Gathering and Exploration and Production segments’ subsidiaries filing a combined state tax return.  Taxable income generated in the Gathering segment is used to offset taxable losses in the Exploration and Production segment, which provided the opportunity to reduce the valuation allowance recorded in the Exploration and Production segment.  Excluding this item, the Gathering segment’s earnings increased $3.4 million. The increase was primarily driven by higher operating revenues, which were partially offset by higher O&M expense and a modest increase in DD&A expense.  Operating revenues increased $5.9 million, or 20%, primarily due to an 11.0 Bcf increase in gathered volumes from Seneca’s Appalachian natural gas production. The $1.0 million increase in O&M expense was due to an increase in compressor station operating and preventative maintenance activity during the current quarter. The $0.6 million increase in DD&A expense was due primarily to a higher average total value of plant assets in service versus the prior year.

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
 March 31,
(in thousands)2020 2019 Variance
GAAP Earnings$31,499  $35,589  $(4,090)
      
Adjusted EBITDA$73,192  $78,688  $(5,496)

The Utility segment’s second quarter GAAP earnings decreased $4.1 million over the prior year primarily driven by a decline in customer margin (operating revenues less purchased gas sold) and higher O&M expense.  The $1.5 million decrease in customer margin was due primarily to warmer weather in Distribution's Pennsylvania service territory, partially offset by higher revenues earned through the Company’s system modernization tracking mechanism and the positive impact of adjustments related to regulatory rate and cost recovery mechanisms subject to annual reconciliation.  Weather in Distribution's Pennsylvania service territory was 17.5% warmer on average than last year, resulting in a decrease in residential and transportation customer throughput and revenues. The impact of weather variations on earnings in Distribution's New York service territory is largely mitigated by that jurisdiction's weather normalization clause.  The $3.3 million increase in O&M expense was primarily attributable to higher personnel costs as well as a higher accrual for bad debt expense given the economic backdrop in the Company's service territory.

Corporate and All Other

The Company’s operations that are included in Corporate and All Other, which now include the Company’s energy marketing business, generated a combined loss of $4.3 million in the current year second quarter, which was a $7.0 million decrease from the combined earnings of $2.7 million generated in the prior-year second quarter.  The decrease in earnings was driven primarily by higher unrealized losses on investment securities in the current quarter compared to unrealized gains on investment securities in the prior year second quarter.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, May 1, 2020, at 8:30 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) 833-287-0795, using conference ID number “9349819”.  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) 800-585-8367 using conference ID number “9349819”.  Both the webcast and a telephonic replay will be available until the close of business on Friday, May 8, 2020.

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: 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; the length and severity of the recent COVID-19 pandemic, including its impacts across our businesses on demand, operations, global supply chains and liquidity; 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; 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; delays or changes in costs or plans with respect to Company projects or related projects of other companies, including disruptions due to COVID-19, as well as 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 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; 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 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; 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; economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities or acts of war; 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
AND SUBSIDIARIES

GUIDANCE SUMMARY

As discussed on page 2, the Company is revising its earnings guidance for fiscal 2020.  Additional details on the Company's forecast assumptions and business segment guidance are outlined in the table below.

While the Company expects to incur additional ceiling test impairment charges in the remaining quarters of fiscal 2020 and likely in the first quarter of fiscal 2021 as well, the amount of these charges is not reasonably determinable at this time. The amount of any ceiling test charge is determined at the end of the applicable quarter and will depend on many factors, including additions to or subtractions from proved reserves, fluctuations in oil and gas prices, and income tax effects related to the differences between the book and tax basis of the Company’s oil and gas properties. Some or all of these factors are likely to be significant. Because the expected ceiling test impairment charges and other potential items impacting comparability are not reasonably determinable at this time, the Company is unable to provide earnings guidance other than on a non-GAAP basis that excludes these items.

 Updated FY 2020 Guidance Previous FY 2020 Guidance
Consolidated Earnings per Share, excluding items impacting comparability$2.75 to $2.95 $2.95 to $3.15
Consolidated Effective Tax Rate~ 26%  ~ 25%
    
Capital Expenditures (Millions)   
  Exploration and Production$375 - $395 $375 - $410
  Pipeline and Storage$175 - $195 $180 - $215
  Gathering$50 - $60 $50 - $60
  Utility$80 - $90 $90 - $100
  Consolidated Capital Expenditures$680 - $740 $695 - $785
    
Exploration & Production Segment Guidance   
    
  Commodity Price Assumptions   
  NYMEX natural gas price$2.05 /MMBtu $2.05 /MMBtu
  Appalachian basin spot price$1.65 /MMBtu $1.70 /MMBtu
  NYMEX (WTI) crude oil price$22.50 /Bbl $55.00 /Bbl
  California oil price premium (% of WTI)90% 104%
    
  Production (Bcfe)   
  East Division - Appalachia214 to 224 219 to 229
  West Division - California~ 16 ~ 16
  Total Production230 to 240 235 to 245
    
  E&P Operating Costs ($/Mcfe)   
  LOE$0.85 - $0.89 $0.85 - $0.89
  G&A$0.27 - $0.30 $0.27 - $0.30
  DD&A$0.70 - $0.74 $0.73 - $0.77
    
Other Business Segment Guidance (Millions)   
  Gathering Segment Revenues$135 - $140 $135 - $145
  Pipeline and Storage Segment Revenues~ $305 $290 - $295


NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
QUARTER ENDED MARCH 31, 2020
(Unaudited)
            
 Upstream Midstream Downstream    
            
 Exploration & Pipeline &     Corporate /  
(Thousands of Dollars)Production Storage Gathering Utility All Other Consolidated*
            
Second quarter 2019 GAAP earnings$21,873  $17,749  $12,690  $35,589  $2,694  $90,595 
            
Items impacting comparability:           
Mark-to-market adjustments due to hedge ineffectiveness6,742          6,742 
Tax impact of mark-to-market adjustments due to hedge ineffectiveness(1,416)         (1,416)
Unrealized (gain) loss on other investments        (3,831) (3,831)
Tax impact of unrealized (gain) loss on other investments        805  805 
Second quarter 2019 adjusted operating results27,199  17,749  12,690  35,589  (332) 92,895 
            
Drivers of adjusted operating results**           
            
Upstream Revenues           
Higher (lower) natural gas production21,887          21,887 
Higher (lower) crude oil production2,030          2,030 
Higher (lower) realized natural gas prices, after hedging(20,168)         (20,168)
Higher (lower) realized crude oil prices, after hedging(1,332)         (1,332)
            
Midstream Revenues           
Higher (lower) operating revenues  5,456  4,660      10,116 
            
Downstream Margins***           
Impact of usage and weather      (3,814)   (3,814)
System modernization tracker revenues      1,689    1,689 
Regulatory revenue adjustments      615    615 
Higher (lower) energy marketing margins        604  604 
            
Operating Expenses           
Lower (higher) lease operating and transportation expenses(4,573)         (4,573)
Lower (higher) operating expenses(395) 705  (751) (2,880) 415  (2,906)
Lower (higher) depreciation / depletion(7,306) (1,630) (479)     (9,415)
            
Other Income (Expense)           
(Higher) lower other deductions(365) (483)       (848)
(Higher) lower interest expense(486)       (608) (1,094)
            
Income Taxes           
Lower (higher) income tax expense / effective tax rate(1,646) (2) 2  343  24  (1,279)
            
All other / rounding(399) 292  7  (43) (27) (170)
Second quarter 2020 adjusted operating results14,446  22,087  16,129  31,499  76  84,237 
            
Items impacting comparability:           
Impairment of oil and gas properties(177,761)         (177,761)
Tax impact of impairment of oil and gas properties48,503          48,503 
Deferred tax valuation allowance(60,463)   3,769    (76) (56,770)
Unrealized gain (loss) on other investments        (5,414) (5,414)
Tax impact of unrealized gain (loss) on other investments        1,137  1,137 
Second quarter 2020 GAAP earnings$(175,275) $22,087  $19,898  $31,499  $(4,277) $(106,068)
            
* Amounts do not reflect intercompany eliminations           
** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.
*** Downstream margin defined as operating revenues less purchased gas expense.


NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
QUARTER ENDED MARCH 31, 2020
(Unaudited)
            
 Upstream Midstream Downstream    
            
 Exploration & Pipeline &     Corporate /  
 Production Storage Gathering Utility All Other Consolidated*
            
Second quarter 2019 GAAP earnings per share$0.25  $0.20  $0.15  $0.41  $0.03  $1.04 
Items impacting comparability:           
Mark-to-market adjustments due to hedge ineffectiveness, net of tax0.06          0.06 
Unrealized (gain) loss on other investments, net of tax        (0.03) (0.03)
Second quarter 2019 adjusted operating results per share0.31  0.20  0.15  0.41    1.07 
            
Drivers of adjusted operating results**           
            
Upstream Revenues           
Higher (lower) natural gas production0.25          0.25 
Higher (lower) crude oil production0.02          0.02 
Higher (lower) realized natural gas prices, after hedging(0.23)         (0.23)
Higher (lower) realized crude oil prices, after hedging(0.02)         (0.02)
            
Midstream Revenues           
Higher (lower) operating revenues  0.06  0.05      0.11 
            
Downstream Margins***           
Impact of usage and weather      (0.04)   (0.04)
System modernization tracker revenues      0.02    0.02 
Regulatory revenue adjustments      0.01    0.01 
Higher (lower) energy marketing margins        0.01  0.01 
            
Operating Expenses           
Lower (higher) lease operating and transportation expenses(0.05)         (0.05)
Lower (higher) operating expenses  0.01  (0.01) (0.03)   (0.03)
Lower (higher) depreciation / depletion(0.08) (0.02) (0.01)     (0.11)
            
Other Income (Expense)           
(Higher) lower other deductions  (0.01)       (0.01)
(Higher) lower interest expense(0.01)       (0.01) (0.02)
            
Income Taxes           
Lower (higher) income tax expense / effective tax rate(0.02)         (0.02)
            
All other / rounding  0.01  0.01  (0.01)   0.01 
Second quarter 2020 adjusted operating results per share0.17  0.25  0.19  0.36    0.97 
            
Items impacting comparability:           
Impairment of oil and gas properties, net of tax(1.49)         (1.49)
Deferred tax valuation allowance(0.70)   0.04      (0.66)
Unrealized gain (loss) on other investments, net of tax        (0.05) (0.05)
Earnings per share impact of diluted shares(0.01) 0.01         
Second quarter 2020 GAAP earnings per share$(2.03) $0.26  $0.23  $0.36  $(0.05) $(1.23)
            
* Amounts do not reflect intercompany eliminations           
** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.
*** Downstream margin defined as operating revenues less purchased gas expense.


NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
SIX MONTHS ENDED MARCH 31, 2020
(Unaudited)
            
 Upstream Midstream Downstream    
            
 Exploration & Pipeline &     Corporate /  
(Thousands of Dollars)Production Storage Gathering Utility All Other Consolidated*
            
Six months ended March 31, 2019 GAAP earnings$60,087  $42,851  $26,872  $61,237  $2,209  $193,256 
            
Items impacting comparability:           
Remeasurement of deferred taxes under 2017 Tax Reform(990)   (500)   (3,510) (5,000)
Mark-to-market adjustments due to hedge ineffectiveness237          237 
Tax impact of mark-to-market adjustments due to hedge ineffectiveness(50)         (50)
Unrealized (gain) loss on other investments        2,516  2,516 
Tax impact of unrealized (gain) loss on other investments        (528) (528)
Six months ended March 31, 2019 adjusted operating results59,284  42,851  26,372  61,237  687  190,431 
            
Drivers of adjusted operating results**           
            
Upstream Revenues           
Higher (lower) natural gas production40,427          40,427 
Higher (lower) crude oil production3,487          3,487 
Higher (lower) realized natural gas prices, after hedging(32,792)         (32,792)
Higher (lower) realized crude oil prices, after hedging(754)         (754)
            
Midstream Revenues           
Higher (lower) operating revenues  1,625  8,688      10,313 
            
Downstream Margins***           
Impact of usage and weather      (3,678)   (3,678)
System modernization tracker revenues      2,033    2,033 
Regulatory revenue adjustments      1,550    1,550 
Higher (lower) energy marketing margins        891  891 
            
Operating Expenses           
Lower (higher) lease operating and transportation expenses(11,082)         (11,082)
Lower (higher) operating expenses(1,016) 1,260  (2,038) (2,707) 674  (3,827)
Lower (higher) property, franchise and other taxes1,187  (1,215)       (28)
Lower (higher) depreciation / depletion(14,770) (2,017) (843)     (17,630)
            
Other Income (Expense)           
(Higher) lower other deductions(713) (916)     1,004  (625)
(Higher) lower interest expense(1,192) 412  272    (717) (1,225)
            
Income Taxes           
Lower (higher) income tax expense / effective tax rate(2,980) (2,458) (213) (443) (266) (6,360)
            
All other / rounding(664) 650  (165) 90  591  502 
Six months ended March 31, 2020 adjusted operating results38,422  40,192  32,073  58,082  2,864  171,633 
            
Items impacting comparability:           
Impairment of oil and gas properties(177,761)         (177,761)
Tax impact of impairment of oil and gas properties48,503          48,503 
Deferred tax valuation allowance(60,463)   3,769    (76) (56,770)
Unrealized gain (loss) on other investments        (6,433) (6,433)
Tax impact of unrealized gain (loss) on other investments        1,351  1,351 
Six months ended March 31, 2020 GAAP earnings$(151,299) $40,192  $35,842  $58,082  $(2,294) $(19,477)
            
* Amounts do not reflect intercompany eliminations           
** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.
*** Downstream margin defined as operating revenues less purchased gas expense.


NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
SIX MONTHS ENDED MARCH 31, 2020
(Unaudited)
            
 Upstream Midstream Downstream    
            
 Exploration & Pipeline &     Corporate /  
 Production Storage Gathering Utility All Other Consolidated*
Six months ended March 31, 2019 GAAP earnings per share$0.69  $0.49  $0.31  $0.71  $0.03  $2.23 
Items impacting comparability:           
Remeasurement of deferred taxes under 2017 Tax Reform(0.01)   (0.01)   (0.04) (0.06)
Mark-to-market adjustments due to hedge ineffectiveness, net of tax           
Unrealized (gain) loss on other investments, net of tax        0.02  0.02 
Rounding        0.01  0.01 
Six months ended March 31, 2019 adjusted operating results per share0.68  0.49  0.30  0.71  0.02  2.20 
            
Drivers of adjusted operating results**           
            
Upstream Revenues           
Higher (lower) natural gas production0.47          0.47 
Higher (lower) crude oil production0.04          0.04 
Higher (lower) realized natural gas prices, after hedging(0.38)         (0.38)
Higher (lower) realized crude oil prices, after hedging(0.01)         (0.01)
            
Midstream Revenues           
Higher (lower) operating revenues  0.02  0.10      0.12 
            
Downstream Margins***           
Impact of usage and weather      (0.04)   (0.04)
System modernization tracker revenues      0.02    0.02 
Regulatory revenue adjustments      0.02    0.02 
Higher (lower) energy marketing margins        0.01  0.01 
            
Operating Expenses           
Lower (higher) lease operating and transportation expenses(0.13)         (0.13)
Lower (higher) operating expenses(0.01) 0.01  (0.02) (0.03) 0.01  (0.04)
Lower (higher) property, franchise and other taxes0.01  (0.01)        
Lower (higher) depreciation / depletion(0.17) (0.02) (0.01)     (0.20)
            
Other Income (Expense)           
(Higher) lower other deductions(0.01) (0.01)     0.01  (0.01)
(Higher) lower interest expense(0.01)       (0.01) (0.02)
            
Income Taxes           
Lower (higher) income tax expense / effective tax rate(0.03) (0.03)   (0.01)   (0.07)
            
All other / rounding(0.01) 0.01         
Six months ended March 31, 2020 adjusted operating results per share0.44  0.46  0.37  0.67  0.04  1.98 
            
Items impacting comparability:           
Impairment of oil and gas properties, net of tax(1.49)         (1.49)
Deferred tax valuation allowance(0.70)   0.04      (0.66)
Unrealized gain (loss) on other investments, net of tax        (0.06) (0.06)
Earnings per share impact of diluted shares    0.01    (0.01)  
Six months ended March 31, 2020 GAAP earnings per share$(1.75) $0.46  $0.42  $0.67  $(0.03) $(0.23)
            
* Amounts do not reflect intercompany eliminations           
** Operating results have been calculated using the 21% federal statutory rate effective for the 2019 fiscal year.
*** Downstream margin defined as operating revenues less purchased gas expense.


        
        
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
        
(Thousands of Dollars, except per share amounts)       
 Three Months Ended Six Months Ended
 March 31, March 31,
 (Unaudited) (Unaudited)
SUMMARY OF OPERATIONS2020 2019 2020 2019
Operating Revenues:       
Utility and Energy Marketing Revenues$282,634  $357,654  $510,660  $629,747 
Exploration and Production and Other Revenues156,542  146,467  323,735  310,403 
Pipeline and Storage and Gathering Revenues51,919  48,423  100,888  102,641 
 491,095  552,544  935,283  1,042,791 
Operating Expenses:       
Purchased Gas118,270  195,037  210,542  333,697 
Operation and Maintenance:       
  Utility and Energy Marketing51,725  48,559  94,981  92,475 
  Exploration and Production and Other39,959  40,141  76,652  72,936 
  Pipeline and Storage and Gathering27,305  27,249  53,190  52,182 
Property, Franchise and Other Taxes22,743  22,535  45,887  46,540 
Depreciation, Depletion and Amortization77,912  65,664  152,830  129,918 
Impairment of Oil and Gas Producing Properties177,761    177,761   
 515,675  399,185  811,843  727,748 
        
Operating Income (Loss)(24,580) 153,359  123,440  315,043 
        
Other Income (Expense):       
Other Income (Deductions)(17,480) (5,919) (20,520) (15,521)
Interest Expense on Long-Term Debt(25,270) (25,273) (50,713) (50,713)
Other Interest Expense(1,892) (1,787) (3,443) (2,860)
        
Income (Loss) Before Income Taxes(69,222) 120,380  48,764  245,949 
        
Income Tax Expense36,846  29,785  68,241  52,693 
        
Net Income (Loss) Available for Common Stock$(106,068) $90,595  $(19,477) $193,256 
        
Earnings (Loss) Per Common Share       
Basic$(1.23) $1.05  $(0.23) $2.24 
Diluted$(1.23) $1.04  $(0.23) $2.23 
        
Weighted Average Common Shares:       
Used in Basic Calculation86,561,066 86,290,047 86,469,258 86,159,932
Used in Diluted Calculation86,561,066 86,767,673 86,469,258 86,738,809


NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
  
 March 31, September 30,
(Thousands of Dollars) 2020  2019
    
ASSETS   
Property, Plant and Equipment$11,559,528  $11,204,838 
Less - Accumulated Depreciation, Depletion and Amortization 6,003,658   5,695,328 
Net Property, Plant and Equipment 5,555,870   5,509,510 
    
Current Assets:   
Cash and Temporary Cash Investments 111,655   20,428 
Hedging Collateral Deposits 10,728   6,832 
Receivables - Net 172,011   139,956 
Unbilled Revenue 44,715   18,758 
Gas Stored Underground 8,860   36,632 
Materials and Supplies - at average cost 48,113   40,717 
Unrecovered Purchased Gas Costs    2,246 
Other Current Assets 100,188   97,054 
Total Current Assets 496,270   362,623 
    
Other Assets:   
Recoverable Future Taxes 115,934   115,197 
Unamortized Debt Expense 13,151   14,005 
Other Regulatory Assets 161,800   167,320 
Deferred Charges 56,855   33,843 
Other Investments 137,044   144,917 
Goodwill 5,476   5,476 
Prepaid Post-Retirement Benefit Costs 71,381   60,517 
Fair Value of Derivative Financial Instruments 94,797   48,669 
Other 81   80 
Total Other Assets 656,519   590,024 
Total Assets$6,708,659  $6,462,157 
    
CAPITALIZATION AND LIABILITIES   
Capitalization:   
Comprehensive Shareholders' Equity   
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and   
Outstanding - 86,561,532 Shares and 86,315,287 Shares, Respectively$86,562  $86,315 
Paid in Capital 835,444   832,264 
Earnings Reinvested in the Business 1,176,870   1,272,601 
Accumulated Other Comprehensive Loss (18,917)  (52,155)
Total Comprehensive Shareholders' Equity 2,079,959   2,139,025 
Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs 2,134,964   2,133,718 
Total Capitalization 4,214,923   4,272,743 
    
Current and Accrued Liabilities:   
Notes Payable to Banks and Commercial Paper 230,000   55,200 
Current Portion of Long-Term Debt     
Accounts Payable 106,938   132,208 
Amounts Payable to Customers 17,213   4,017 
Dividends Payable 37,654   37,547 
Interest Payable on Long-Term Debt 18,508   18,508 
Customer Advances 615   13,044 
Customer Security Deposits 14,999   16,210 
Other Accruals and Current Liabilities 150,239   139,600 
Fair Value of Derivative Financial Instruments 7,652   5,574 
Total Current and Accrued Liabilities 583,818   421,908 
    
Deferred Credits:   
Deferred Income Taxes 777,299   653,382 
Taxes Refundable to Customers 360,331   366,503 
Cost of Removal Regulatory Liability 224,546   221,699 
Other Regulatory Liabilities 157,371   142,367 
Pension and Other Post-Retirement Liabilities 126,959   133,729 
Asset Retirement Obligations 128,779   127,458 
Other Deferred Credits 134,633   122,368 
Total Deferred Credits 1,909,918   1,767,506 
Commitments and Contingencies     
Total Capitalization and Liabilities$6,708,659  $6,462,157 


     
     
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
  Six Months Ended
  March 31,
(Thousands of Dollars) 2020 2019
     
Operating Activities:    
Net Income (Loss) Available for Common Stock $(19,477) $193,256 
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities:
    
Impairment of Oil and Gas Producing Properties 177,761   
Depreciation, Depletion and Amortization 152,830  129,918 
Deferred Income Taxes 104,883  90,468 
Stock-Based Compensation 7,580  10,731 
Other 9,800  7,997 
Change in:    
Receivables and Unbilled Revenue (58,248) (130,377)
Gas Stored Underground and Materials and Supplies 20,086  29,093 
Unrecovered Purchased Gas Costs 2,246  (1,556)
Other Current Assets (3,134) 10,438 
Accounts Payable (5,465) 10,226 
Amounts Payable to Customers 13,196  12,069 
Customer Advances (12,429) (13,176)
Customer Security Deposits (1,211) (7,184)
Other Accruals and Current Liabilities 9,076  48,028 
Other Assets (10,359) (38,686)
Other Liabilities 3,857  (10,410)
Net Cash Provided by Operating Activities $390,992  $340,835 
     
Investing Activities:    
Capital Expenditures $(395,486) $(386,579)
Other 4,167  (2,616)
Net Cash Used in Investing Activities $(391,319) $(389,195)
     
Financing Activities:    
Changes in Notes Payable to Banks and Commercial Paper $174,800  $ 
Dividends Paid on Common Stock (75,197) (73,197)
Net Repurchases of Common Stock (4,153) (8,864)
Net Cash Provided by (Used in) Financing Activities $95,450  $(82,061)
     
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash 95,123  (130,421)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 27,260  233,047 
Cash, Cash Equivalents, and Restricted Cash at March 31 $122,383  $102,626 


          
          
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
          
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
          
UPSTREAM BUSINESS
          
          
 Three Months Ended Six Months Ended
(Thousands of Dollars, except per share amounts)March 31, March 31,
EXPLORATION AND PRODUCTION SEGMENT2020 2019 Variance 20202019Variance
Total Operating Revenues$155,560  $146,102  $9,458  $321,499 $308,978 $12,521 
          
Operating Expenses:         
Operation and Maintenance:         
General and Administrative Expense17,429  17,113  316  32,809 32,312 497 
Lease Operating and Transportation Expense51,730  45,941  5,789  102,531 88,503 14,028 
All Other Operation and Maintenance Expense3,084  2,900  184  6,041 5,252 789 
Property, Franchise and Other Taxes3,471  3,310  161  8,171 9,673 (1,502)
Depreciation, Depletion and Amortization45,136  35,888  9,248  89,284 70,588 18,696 
Impairment of Oil and Gas Producing Properties177,761    177,761  177,761  177,761 
 298,611  105,152  193,459  416,597 206,328 210,269 
          
Operating Income (Loss)(143,051) 40,950 (184,001) (95,098)102,650(197,748)
          
Other Income (Expense):         
Non-Service Pension and Post-Retirement Benefit Costs(395) (4) (391) (790)(8)(782)
Interest and Other Income208  279  (71) 441 562 (121)
Interest Expense(14,163) (13,548) (615) (28,220)(26,711)(1,509)
          
Income (Loss) Before Income Taxes(157,401) 27,677  (185,078) (123,667)76,493 (200,160)
Income Tax Expense17,874  5,804  12,070  27,632 16,406 11,226 
Net Income (Loss)$(175,275) $21,873  $(197,148) $(151,299)$60,087 $(211,386)
          
Net Income (Loss) Per Share (Diluted)$(2.03) $0.25  $(2.28) $(1.75)$0.69 $(2.44)
          


          
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
          
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
          
MIDSTREAM BUSINESSES
          
          
 Three Months Ended Six Months Ended
(Thousands of Dollars, except per share amounts)March 31, March 31,
PIPELINE AND STORAGE SEGMENT2020 2019 Variance 20202019Variance
Revenues from External Customers$51,919  $48,421  $3,498  $100,888 $102,639 $(1,751)
Intersegment Revenues27,326  23,918  3,408  50,577 46,769 3,808 
Total Operating Revenues79,245  72,339  6,906  151,465 149,408 2,057 
          
Operating Expenses:         
Purchased Gas(3) 510  (513) (10)813 (823)
Operation and Maintenance22,014  22,907  (893) 42,945 44,540 (1,595)
Property, Franchise and Other Taxes8,132  7,641  491  16,487 14,949 1,538 
Depreciation, Depletion and Amortization13,356  11,293  2,063  24,960 22,407 2,553 
 43,499  42,351  1,148  84,382 82,709 1,673 
          
Operating Income35,746  29,988  5,758  67,083 66,699 384 
          
Other Income (Expense):         
Non-Service Pension and Post-Retirement Benefit (Costs) Credit(174) 930  (1,104) (349)1,397 (1,746)
Interest and Other Income1,535  1,043  492  3,088 2,502 586 
Interest Expense(7,152) (7,500) 348  (14,264)(14,786)522 
          
Income Before Income Taxes29,955  24,461  5,494  55,558 55,812 (254)
Income Tax Expense7,868  6,712  1,156  15,366 12,961 2,405 
Net Income$22,087  $17,749  $4,338  $40,192 $42,851 $(2,659)
          
Net Income Per Share (Diluted)$0.26  $0.20  $0.06  $0.46 $0.49 $(0.03)
          
          
 Three Months Ended Six Months Ended
 March 31, March 31,
GATHERING SEGMENT2020 2019 Variance 20202019Variance
Revenues from External Customers$  $2  $(2) $ $2 $(2)
Intersegment Revenues35,267  29,366  5,901  70,055 59,056 10,999 
Total Operating Revenues35,267  29,368  5,899  70,055 59,058 10,997 
          
Operating Expenses:         
Operation and Maintenance5,702  4,752  950  11,044 8,464 2,580 
Property, Franchise and Other Taxes24  18  6  38 48 (10)
Depreciation, Depletion and Amortization5,279  4,673  606  10,418 9,351 1,067 
 11,005  9,443  1,562  21,500 17,863 3,637 
          
Operating Income24,262  19,925  4,337  48,555 41,195 7,360 
          
Other Income (Expense):         
Non-Service Pension and Post-Retirement Benefit Costs(71) (1) (70) (143)(83)(60)
Interest and Other Income89  190  (101) 157 315 (158)
Interest Expense(2,160) (2,345) 185  (4,379)(4,723)344 
          
Income Before Income Taxes22,120  17,769  4,351  44,190 36,704 7,486 
Income Tax Expense2,222  5,079  (2,857) 8,348 9,832 (1,484)
Net Income$19,898  $12,690  $7,208  $35,842 $26,872 $8,970 
          
Net Income Per Share (Diluted)$0.23  $0.15  $0.08  $0.42 $0.31 $0.11 
          


          
          
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
          
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
          
DOWNSTREAM BUSINESS
          
          
 Three Months Ended Six Months Ended
(Thousands of Dollars, except per share amounts)March 31, March 31,
UTILITY SEGMENT2020 2019 Variance 20202019Variance
Revenues from External Customers$250,556  $298,636  $(48,080) $445,465 $518,647 $(73,182)
Intersegment Revenues3,937  4,394  (457) 5,853 7,040 (1,187)
Total Operating Revenues254,493  303,030  (48,537) 451,318 525,687 (74,369)
          
Operating Expenses:         
Purchased Gas119,411  165,235  (45,824) 204,116 277,115 (72,999)
Operation and Maintenance51,070  47,795  3,275  93,913 90,950 2,963 
Property, Franchise and Other Taxes10,820  11,312  (492) 20,634 21,365 (731)
Depreciation, Depletion and Amortization13,751  13,365  386  27,382 26,656 726 
 195,052  237,707  (42,655) 346,045 416,086 (70,041)
          
Operating Income59,441  65,323  (5,882) 105,273 109,601 (4,328)
          
Other Income (Expense):         
Non-Service Pension and Post-Retirement Benefit Costs(12,388) (12,686) 298  (19,151)(19,614)463 
Interest and Other Income294  1,068  (774) 1,245 1,780 (535)
Interest Expense(5,516) (6,263) 747  (11,190)(12,157)967 
          
Income Before Income Taxes41,831  47,442  (5,611) 76,177 79,610 (3,433)
Income Tax Expense10,332  11,853  (1,521) 18,095 18,373 (278)
Net Income$31,499  $35,589  $(4,090) $58,082 $61,237 $(3,155)
          
Net Income Per Share (Diluted)$0.36  $0.41  $(0.05) $0.67 $0.71 $(0.04)
          


NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
          
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
          
 Three Months Ended Six Months Ended
(Thousands of Dollars, except per share amounts)March 31, March 31
ALL OTHER2020 2019 Variance 20202019Variance
Revenues from External Customers$32,925  $59,328  $(26,403) $67,161 $112,416 $(45,255)
Intersegment Revenues79  43  36  256 375 (119)
Total Operating Revenues33,004  59,371  (26,367) 67,417 112,791 (45,374)
Operating Expenses:         
Purchased Gas29,151  56,820  (27,669) 61,184 108,337 (47,153)
Operation and Maintenance1,875  1,944  (69) 3,578 3,822 (244)
Property, Franchise and Other Taxes176  134  42  320 270 50 
Depreciation, Depletion and Amortization206  254  (48) 408 536 (128)
 31,408  59,152  (27,744) 65,490 112,965 (47,475)
          
Operating Income (Loss)1,596  219  1,377  1,927 (174)2,101 
          
Other Income (Expense):         
Non-Service Pension and Post-Retirement Benefit Costs(69) (11) (58) (138)(133)(5)
Interest and Other Income193  360  (167) 471 666 (195)
Interest Expense(24) (8) (16) (42)(13)(29)
          
Income Before Income Taxes1,696  560  1,136  2,218 346 1,872 
Income Tax Expense (Benefit)527  144  383  678 (153)831 
Net Income$1,169  $416  $753  $1,540 $499 $1,041 
Net Income Per Share (Diluted)$0.01  $0.01  $  $0.02 $0.01 $0.01 
      
 Three Months Ended Six Months Ended
 March 31, March 31,
CORPORATE2020 2019 Variance 20202019Variance
Revenues from External Customers$135  $55  $80  $270 $109 $161 
Intersegment Revenues1,094  1,165  (71) 2,187 2,329 (142)
Total Operating Revenues1,229  1,220  9  2,457 2,438 19 
Operating Expenses:         
Operation and Maintenance3,499  3,955  (456) 6,142 6,751 (609)
Property, Franchise and Other Taxes120  120    237 235 2 
Depreciation, Depletion and Amortization184  191  (7) 378 380 (2)
 3,803  4,266  (463) 6,757 7,366 (609)
          
Operating Loss(2,574) (3,046) 472  (4,300)(4,928)628 
          
Other Income (Expense):         
Non-Service Pension and Post-Retirement Benefit Costs(775) (647) (128) (1,550)(1,385)(165)
Interest and Other Income22,801  32,761  (9,960) 53,874 56,377 (2,503)
Interest Expense on Long-Term Debt(25,270) (25,273) 3  (50,713)(50,713) 
Other Interest Expense(1,605) (1,324) (281) (3,023)(2,367)(656)
          
Income (Loss) before Income Taxes(7,423) 2,471  (9,894) (5,712)(3,016)(2,696)
Income Tax Expense (Benefit)(1,977) 193  (2,170) (1,878)(4,726)2,848 
Net Income (Loss)$(5,446) $2,278  $(7,724) $(3,834)$1,710 $(5,544)
Net Income (Loss) Per Share (Diluted)$(0.06) $0.02  $(0.08) $(0.05)$0.02 $(0.07)
          
          
 Three Months Ended Six Months Ended
 March 31, March 31,
INTERSEGMENT ELIMINATIONS2020 2019 Variance 20202019Variance
Intersegment Revenues$(67,703) $(58,886) $(8,817) $(128,928)$(115,569)$(13,359)
Operating Expenses:         
Purchased Gas(30,289) (27,528) (2,761) (54,748)(52,568)(2,180)
Operation and Maintenance(37,414) (31,358) (6,056) (74,180)(63,001)(11,179)
 (67,703) (58,886) (8,817) (128,928)(115,569)(13,359)
          
Operating Income         
          
Other Income (Expense):         
Interest and Other Deductions(28,728) (29,201) 473  (57,675)(57,897)222 
Interest Expense28,728  29,201  (473) 57,675 57,897 (222)
Net Income (Loss)$  $  $  $ $ $ 
Net Income (Loss) Per Share (Diluted)$  $  $  $ $ $ 


            
            
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
            
SEGMENT INFORMATION (Continued)
(Thousands of Dollars)
            
            
 Three Months Ended Six Months Ended
 March 31, March 31,
 (Unaudited) (Unaudited)
     Increase     Increase
 2020 2019 (Decrease) 2020 2019 (Decrease)
            
Capital Expenditures:           
Exploration and Production$102,424 (1)$142,571 (3)$(40,147) $229,343 (1)(2)$262,786 (3)(4)$(33,443)
Pipeline and Storage25,554 (1)22,674 (3)2,880  82,638 (1)(2)52,638 (3)(4)30,000 
Gathering15,072 (1)12,680 (3)2,392  24,910 (1)(2)21,470 (3)(4)3,440 
Utility19,457 (1)19,735 (3)(278) 36,622 (1)(2)35,657 (3)(4)965 
Total Reportable Segments162,507  197,660  (35,153) 373,513  372,551  962 
All Other1  22  (21) 22  41  (19)
Corporate134  85  49  320  103  217 
Total Capital Expenditures$162,642  $197,767  $(35,125) $373,855  $372,695  $1,160 

(1)       Capital expenditures for the quarter and six months ended March 31, 2020, include accounts payable and accrued liabilities related to capital expenditures of $41.2 million, $9.7 million, $4.4 million, and $4.2 million in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Utility segment, respectively.  These amounts have been excluded from the Consolidated Statement of Cash Flows at March 31, 2020, since they represent non-cash investing activities at that date.

(2)       Capital expenditures for the six months ended March 31, 2020, exclude capital expenditures of $38.0 million, $23.8 million, $6.6 million and $12.7 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, 2019 and paid during the six months ended March 31, 2020.  These amounts were excluded from the Consolidated Statement of Cash Flows at September 30, 2019, since they represented non-cash investing activities at that date.  These amounts have been included in the Consolidated Statement of Cash Flows at March 31, 2020.

(3)       Capital expenditures for the quarter and six months ended March 31, 2019, include accounts payable and accrued liabilities related to capital expenditures of $53.4 million, $10.7 million, $7.4 million, and $3.4 million in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Utility segment, respectively.  These amounts have been excluded from the Consolidated Statement of Cash Flows at March 31, 2019, since they represent non-cash investing activities at that date.

(4)       Capital expenditures for the six months ended March 31, 2019, exclude capital expenditures of $51.3 million, $21.9 million, $6.1 million and $9.5 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, 2018 and paid during the six months ended March 31, 2019.  These amounts were excluded from the Consolidated Statement of Cash Flows at September 30, 2018, since they represented non-cash investing activities at that date.  These amounts have been included in the Consolidated Statement of Cash Flows at March 31, 2019.

          
DEGREE DAYS         
          
       Percent Colder
       (Warmer) Than:
Three Months Ended March 31Normal 2020 2019   Normal (1) Last Year (1)
          
Buffalo, NY3,326 2,738 3,372 (17.7) (18.8)
Erie, PA3,142 2,555 3,096 (18.7) (17.5)
          
Six Months Ended March 31         
          
Buffalo, NY5,579 4,970 5,697 (10.9) (12.8)
Erie, PA5,186 4,461 5,126 (14.0) (13.0)
          

(1)       Percents compare actual 2020 degree days to normal degree days and actual 2020 degree days to actual 2019 degree days.

             
             
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
             
EXPLORATION AND PRODUCTION INFORMATION
             
             
  Three Months Ended Six Months Ended
  March 31, March 31,
      Increase     Increase
  2020 2019 (Decrease) 2020 2019 (Decrease)
             
Gas Production/Prices:            
Production (MMcf)            
Appalachia 55,638  44,883  10,755  109,922  90,188  19,734 
West Coast 479  487  (8) 966  989  (23)
Total Production 56,117  45,370  10,747  110,888  91,177  19,711 
             
Average Prices (Per Mcf)            
Appalachia $1.77  $2.65  $(0.88) $1.97  $2.79  $(0.82)
West Coast 4.34  6.06  (1.72) 4.67  6.40  (1.73)
Weighted Average 1.80  2.69  (0.89) 1.99  2.83  (0.84)
Weighted Average after Hedging 2.12  2.58  (0.46) 2.22  2.60  (0.38)
             
Oil Production/Prices:            
Production (Thousands of Barrels)            
Appalachia 1  1    2  2   
West Coast 605  563  42  1,206  1,134  72 
Total Production 606  564  42  1,208  1,136  72 
             
Average Prices (Per Barrel)            
Appalachia $55.90  $47.54  $8.36  $55.48  $55.93  $(0.45)
West Coast 49.91  61.85  (11.94) 56.25  63.79  (7.54)
Weighted Average 49.92  61.82  (11.90) 56.25  63.78  (7.53)
Weighted Average after Hedging 58.23  61.01  (2.78) 60.57  61.36  (0.79)
             
Total Production (MMcfe) 59,753  48,754  10,999  118,136  97,993  20,143 
             
Selected Operating Performance Statistics:            
General & Administrative Expense per Mcfe (1) $0.29  $0.35  $(0.06) $0.28  $0.33  $(0.05)
Lease Operating and Transportation Expense per Mcfe (1)(2) $0.87  $0.94  $(0.07) $0.87  $0.90  $(0.03)
Depreciation, Depletion & Amortization per Mcfe (1) $0.76  $0.74  $0.02  $0.76  $0.72  $0.04 
             

(1)       Refer to page 16 for the General and Administrative Expense, Lease Operating and Transportation Expense and Depreciation, Depletion, and Amortization Expense for the Exploration and Production segment.

(2)       Amounts include transportation expense of $0.56 and $0.56 per Mcfe for the three months ended March 31, 2020 and March 31, 2019, respectively. Amounts include transportation expense of $0.57 and $0.55 per Mcfe for the six months ended March 31, 2020 and March 31, 2019, respectively.

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
       
EXPLORATION AND PRODUCTION INFORMATION
 
Hedging Summary for Remaining Six Months of Fiscal 2020 Volume  Average Hedge Price
Oil Swaps      
Brent 690,000 BBL $64.55 / BBL
NYMEX 162,000 BBL $50.52 / BBL
Total 852,000 BBL $61.88 / BBL
       
Gas Swaps      
NYMEX 45,700,000 MMBTU $2.67 / MMBTU
DAWN 3,600,000 MMBTU $3.00 / MMBTU
Fixed Price Physical Sales 29,608,125 MMBTU $2.18 / MMBTU
Total 78,908,125 MMBTU   
       
Hedging Summary for Fiscal 2021 Volume  Average Hedge Price
Oil Swaps      
Brent 696,000 BBL $64.29 / BBL
NYMEX 156,000 BBL $51.00 / BBL
Total 852,000 BBL $61.86 / BBL
       
Gas Swaps      
NYMEX 117,920,000 MMBTU $2.61/ MMBTU
  DAWN 600,000 MMBTU $3.00 / MMBTU
No Cost Collars 25,850,000 MMBTU $2.28 / MMBTU (Floor) / $2.77 / MMBTU (Ceiling)
Fixed Price Physical Sales 46,810,846 MMBTU $2.22 / MMBTU
Total 191,180,846 MMBTU   
       
Hedging Summary for Fiscal 2022 Volume  Average Hedge Price
Oil Swaps      
Brent 300,000 BBL $60.07 / BBL
NYMEX 156,000 BBL $51.00 / BBL
Total 456,000 BBL $56.97 / BBL
       
Gas Swaps      
NYMEX 62,550,000 MMBTU $2.52 / MMBTU
No Cost Collars 2,350,000 MMBTU $2.28 / MMBTU (Floor) / $2.77 / MMBTU (Ceiling)
Fixed Price Physical Sales 40,588,964 MMBTU $2.23 / MMBTU
Total 105,488,964 MMBTU   
       
       
Hedging Summary for Fiscal 2023 Volume  Average Hedge Price
Gas Swaps      
NYMEX 17,500,000 MMBTU $2.47 / MMBTU
Fixed Price Physical Sales 36,961,007 MMBTU $2.26 / MMBTU
Total 54,461,007 MMBTU   
       
Hedging Summary for Fiscal 2024 Volume  Average Hedge Price
Gas Swaps      
NYMEX 1,150,000 MMBTU $2.45 / MMBTU
Fixed Price Physical Sales 20,801,194 MMBTU $2.25 / MMBTU
Total 21,951,194 MMBTU   
       
Hedging Summary for Fiscal 2025 Volume  Average Hedge Price
Fixed Price Physical Sales 2,293,200 MMBTU $2.18 / MMBTU


     


             
NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
             
             
             
Pipeline & Storage Throughput - (millions of cubic feet - MMcf)    
             
  Three Months Ended Six Months Ended
  March 31, March 31,
      Increase     Increase
  2020 2019 (Decrease) 2020 2019 (Decrease)
Firm Transportation - Affiliated 42,602  50,967  (8,365) 77,269  86,668  (9,399)
Firm Transportation - Non-Affiliated 153,197  148,653  4,544  327,178  304,855  22,323 
Interruptible Transportation 531  750  (219) 1,244  1,665  (421)
  196,330  200,370  (4,040) 405,691  393,188  12,503 
             
Gathering Volume - (MMcf)            
  Three Months Ended Six Months Ended
  March 31, March 31,
      Increase     Increase
  2020 2019 (Decrease) 2020 2019 (Decrease)
Gathered Volume - Affiliated 65,134  54,157  10,977  129,526  108,845  20,681 
             
             
Utility Throughput - (MMcf)            
  Three Months Ended Six Months Ended
  March 31, March 31,
      Increase     Increase
  2020 2019 (Decrease) 2020 2019 (Decrease)
Retail Sales:            
Residential Sales 26,155  30,906  (4,751) 45,631  50,686  (5,055)
Commercial Sales 4,033  4,712  (679) 6,846  7,558  (712)
Industrial Sales 183  284  (101) 400  488  (88)
  30,371  35,902  (5,531) 52,877  58,732  (5,855)
Transportation 25,157  28,928  (3,771) 45,712  51,198  (5,486)
  55,528  64,830  (9,302) 98,589  109,930  (11,341)
             


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 Adjusted 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 Adjusted Operating Results as reported GAAP earnings before items impacting comparability.  The following table reconciles National Fuel's reported GAAP earnings to Adjusted Operating Results for the three and six months ended March 31, 2020 and 2019:

  Three Months Ended Six Months Ended
  March 31, March 31,
(in thousands except per share amounts) 2020 2019 2020 2019
Reported GAAP Earnings $(106,068) $90,595  $(19,477) $193,256 
Items impacting comparability        
Impairment of oil and gas properties (E&P) 177,761    177,761   
Tax impact of impairment of oil and gas properties (48,503)   (48,503)  
Deferred tax valuation allowance 56,770    56,770   
Remeasurement of deferred income taxes under 2017 Tax Reform       (5,000)
Mark-to-market adjustments due to hedge ineffectiveness (E&P)   6,742    237 
Tax impact of mark-to-market adjustments due to hedge ineffectiveness   (1,416)   (50)
Unrealized (gain) loss on other investments (Corporate/All Other) 5,414  (3,831) 6,433  2,516 
Tax impact of unrealized (gain) loss on other investments (1,137) 805  (1,351) (528)
Adjusted Operating Results $84,237  $92,895  $171,633  $190,431 
         
Reported GAAP Earnings per share $(1.23) $1.04  $(0.23) $2.23 
Items impacting comparability        
Impairment of oil and gas properties, net of tax (E&P) 1.49    1.49   
Deferred tax valuation allowance 0.66    0.66   
Remeasurement of deferred income taxes under 2017 Tax Reform       (0.06)
Mark-to-market adjustments due to hedge ineffectiveness, net of tax (E&P)   0.06     
Unrealized (gain) loss on other investments, net of tax (Corporate/All Other) 0.05  (0.03) 0.06  0.02 
Rounding       0.01 
Adjusted Operating Results per share $0.97  $1.07  $1.98  $2.20 

Management defines 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.  The following tables reconcile National Fuel's reported GAAP earnings to Adjusted EBITDA for the three and six months ended March 31, 2020 and 2019:

  Three Months Ended Six Months Ended
  March 31, March 31,
(in thousands) 2020 2019 2020 2019
Reported GAAP Earnings $(106,068) $90,595  $(19,477) $193,256 
Depreciation, Depletion and Amortization 77,912  65,664  152,830  129,918 
Other (Income) Deductions 17,480  5,919  20,520  15,521 
Interest Expense 27,162  27,060  54,156  53,573 
Income Taxes 36,846  29,785  68,241  52,693 
Mark-to-Market Adjustments due to Hedge Ineffectiveness   6,742    237 
Impairment of Oil and Gas Producing Properties 177,761    177,761   
Adjusted EBITDA $231,093  $225,765  $454,031  $445,198 
         
Adjusted EBITDA by Segment        
Pipeline and Storage Adjusted EBITDA $49,102  $41,281  $92,043  $89,106 
Gathering Adjusted EBITDA 29,541  24,598  58,973  50,546 
Total Midstream Businesses Adjusted EBITDA 78,643  65,879  151,016  139,652 
Exploration and Production Adjusted EBITDA 79,846  83,580  171,947  173,475 
Utility Adjusted EBITDA 73,192  78,688  132,655  136,257 
Corporate and All Other Adjusted EBITDA (588) (2,382) (1,587) (4,186)
Total Adjusted EBITDA $231,093  $225,765  $454,031  $445,198 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
 SEGMENT ADJUSTED EBITDA

  Three Months Ended Six Months Ended
  March 31, March 31,
(in thousands) 2020 2019 2020 2019
Exploration and Production Segment        
Reported GAAP Earnings $(175,275) $21,873  $(151,299) $60,087 
Depreciation, Depletion and Amortization 45,136  35,888  89,284  70,588 
Other (Income) Deductions 187  (275) 349  (554)
Interest Expense 14,163  13,548  28,220  26,711 
Income Taxes 17,874  5,804  27,632  16,406 
Mark-to-Market Adjustments due to Hedge Ineffectiveness   6,742    237 
Impairment of Oil and Gas Producing Properties 177,761    177,761   
Adjusted EBITDA $79,846  $83,580  $171,947  $173,475 
         
Pipeline and Storage Segment        
Reported GAAP Earnings $22,087  $17,749  $40,192  $42,851 
Depreciation, Depletion and Amortization 13,356  11,293  24,960  22,407 
Other (Income) Deductions (1,361) (1,973) (2,739) (3,899)
Interest Expense 7,152  7,500  14,264  14,786 
Income Taxes 7,868  6,712  15,366  12,961 
Adjusted EBITDA $49,102  $41,281  $92,043  $89,106 
         
Gathering Segment        
Reported GAAP Earnings $19,898  $12,690  $35,842  $26,872 
Depreciation, Depletion and Amortization 5,279  4,673  10,418  9,351 
Other (Income) Deductions (18) (189) (14) (232)
Interest Expense 2,160  2,345  4,379  4,723 
Income Taxes 2,222  5,079  8,348  9,832 
Adjusted EBITDA $29,541  $24,598  $58,973  $50,546 
         
Utility Segment        
Reported GAAP Earnings $31,499  $35,589  $58,082  $61,237 
Depreciation, Depletion and Amortization 13,751  13,365  27,382  26,656 
Other (Income) Deductions 12,094  11,618  17,906  17,834 
Interest Expense 5,516  6,263  11,190  12,157 
Income Taxes 10,332  11,853  18,095  18,373 
Adjusted EBITDA $73,192  $78,688  $132,655  $136,257 
         
Corporate and All Other        
Reported GAAP Earnings $(4,277) $2,694  $(2,294) $2,209 
Depreciation, Depletion and Amortization 390  445  786  916 
Other (Income) Deductions 6,578  (3,262) 5,018  2,372 
Interest Expense (1,829) (2,596) (3,897) (4,804)
Income Taxes (1,450) 337  (1,200) (4,879)
Adjusted EBITDA $(588) $(2,382) $(1,587) $(4,186)


Analyst Contact:
Kenneth E. Webster
716-857-7067

Media Contact:
Karen L. Merkel
716-857-7654

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