National Fuel Reports Fourth Quarter and Full Year Fiscal 2021 Earnings

WILLIAMSVILLE, N.Y., Nov. 04, 2021 (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, 2021.

FISCAL 2021 FOURTH QUARTER SUMMARY

• GAAP net income of $87.0 million, or $0.95 per share, compared to GAAP net loss of $145.5 million, or $1.60 per share, in the prior year.

• Adjusted operating results of $87.3 million, or $0.95 per share, an increase of 138%, compared to $0.40 per share in the prior year (see non-GAAP reconciliation on page 2).

• Adjusted EBITDA of $215.9 million, an increase of 35%, compared to $159.6 million in the prior year (see non-GAAP reconciliation on page 25).

• E&P segment Adjusted EBITDA of $120.6 million, an increase of 60% from the prior year.

• E&P segment net production of 79.6 Bcfe, an increase of 12.3 Bcfe, or 18%, from the prior year.

• Gathering segment Adjusted EBITDA of $37.9 million, an increase of 15% from the prior year.

• Pipeline & Storage segment Adjusted EBITDA of $49.1 million, an increase of 5% from the prior year.
  

FISCAL 2021 HIGHLIGHTS

• GAAP net income of $363.6 million, or $3.97 per share, compared to GAAP net loss of $123.8 million, or $1.41 per share, in the prior year.

• Adjusted operating results of $393.1 million, or $4.29 per share, an increase of 47%, compared to $2.92 per share in the prior year (see non-GAAP reconciliation on page 2).

• Successfully integrated the Company's fiscal 2020 Appalachian acquisition, with E&P segment net production of 327.4 Bcfe, an increase of 85.9 Bcfe, or 36%, from the prior year, and a corresponding 38% increase in Gathering segment throughput.

• Reduced E&P segment cash operating costs (combined G&A expense, LOE expense, other operation and maintenance expense, and property, franchise, and other taxes) to $1.14 per Mcfe, a decrease of approximately $0.09 per Mcfe, or 7%, from the prior year.

• Continued growth of Pipeline & Storage segment, with revenues of $343.6 million, an increase of $34.0 million, or 11%, from the prior year, driven largely by the Company's Empire North expansion project.

• Invested $79.7 million in Utility system modernization and reliability, replacing over 150 miles of older vintage mains and services, and bringing 5-year total to over $358 million.

• Increased shareholder dividend for the 51^st consecutive year to an annual rate of $1.82 per share.

• Published second annual Corporate Responsibility Report in September 2021, which includes additional climate-related information under the Task Force on Climate-Related Financial Disclosures framework, enhanced disclosure of scope 1 and scope 2 emissions, and methane intensity and greenhouse gas emission reduction targets.

MANAGEMENT COMMENTS

David P. Bauer, President and Chief Executive Officer of National Fuel Gas Company, stated: “National Fuel closed out an excellent fiscal 2021, with a 47% increase in our adjusted operating results compared to last year. The successful integration of our fiscal 2020 Appalachian acquisition, continued growth of our FERC-regulated pipeline business, and higher commodity prices all contributed to the strong results and position National Fuel for success in the coming years.

“As we move into fiscal 2022, the expected December 1, 2021 in-service of our FM100 expansion and modernization project will drive further growth for National Fuel. Once complete, this project is expected to deliver approximately $50 million in incremental annual revenues for the Pipeline and Storage segment, and will provide desirable pipeline takeaway capacity to higher value Mid-Atlantic markets, allowing for further growth in both our Exploration and Production and Gathering segments.

“Overall, the FM100 Project serves as a key example of the value of our integrated business model. Coupled with the Company’s commitment to reducing our emissions footprint in all segments, as evidenced by our targets set out in our recently published Corporate Responsibility Report, we believe we can generate strong, sustainable returns in the years ahead and deliver long-term value for our shareholders.”

RECONCILIATION OF GAAP EARNINGS TO ADJUSTED OPERATING RESULTS

FISCAL 2022 GUIDANCE UPDATE

National Fuel is revising its fiscal 2022 earnings guidance to reflect updated forecast assumptions and projections, including the impact of increased natural gas price expectations since the Company’s preliminary guidance was announced in August 2021. The Company is now projecting that earnings will be within the range of $5.05 to $5.45 per share, an increase of 22% from the Company’s 2021 adjusted operating results at the midpoint of the updated guidance range.

Due to the meaningful difference between current winter and summer NYMEX forward natural gas prices for fiscal 2022, the Company is revising its guidance to reflect projections for both the first half and second half of this fiscal year. The Company is now assuming that NYMEX natural gas prices will average $5.50 per MMBtu for the first six months of fiscal 2022 (October-March) and $3.75 per MMBtu for the second half of fiscal 2022 (April-September). Additionally, the Company is now assuming that WTI oil prices will average $75.00 per Bbl in fiscal 2022, a $10.00 increase from the $65.00 per Bbl assumed in the previous guidance. For guidance purposes, the Company’s updated projections approximate the current NYMEX forward markets for natural gas and oil and consider the impact of local sales point differentials and new physical firm sales, transportation, and financial hedge contracts.

Consistent with preliminary guidance, the Exploration and Production segment’s fiscal 2022 net production remains unchanged, which is expected to be in the range of 335 to 365 Bcfe. Seneca currently has firm sales contracts in place for approximately 93% of its projected fiscal 2022 Appalachian production, limiting its exposure to in-basin markets. Approximately 76% of Seneca’s expected Appalachian production is either matched by a financial hedge, including a combination of swaps and no-cost collars, or were entered into at a fixed price. The Company’s consolidated and individual segment capital expenditures guidance also remain unchanged from the preliminary guidance.

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 2022 are outlined in the table on page 8.

DISCUSSION OF FOURTH QUARTER RESULTS BY SEGMENT

The following earnings discussion of each operating segment for the quarter ended September 30, 2021 is summarized in a tabular form on pages 9 and 10 of this report (earnings drivers for the fiscal year ended September 30, 2021 are summarized on pages 11 and 12). 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 natural gas and oil reserves, primarily in Pennsylvania and California.

Seneca’s fourth quarter GAAP earnings increased $224.9 million versus the prior year, primarily due to the prior-year fourth quarter impact of a non-cash ceiling test impairment charge of $183.7 million (after-tax). Excluding this item, Seneca’s fourth quarter earnings increased $41.1 million primarily due to higher natural gas production and higher realized natural gas and crude oil prices, as well as lower interest expense and a lower effective income tax rate, partially offset by higher operating expenses.

Seneca produced 79.6 Bcfe during the fourth quarter, an increase of 12.3 Bcfe, or 18%, from the prior year. The improvement was due to an increase in natural gas production, primarily due to the Company's fourth quarter fiscal 2020 Appalachian acquisition coupled with production growth from Seneca's other core development areas. Approximately 6.7 Bcf of the natural gas production increase came from the Eastern Development Area ("EDA"), while the remaining increase of 5.6 Bcf was attributable to Seneca’s Western Development Area ("WDA"). Seneca's crude oil production in California decreased 4 MBbls, or 1%, versus the prior year.

Seneca's average realized natural gas price, after the impact of hedging and transportation costs, was $2.37 per Mcf, an increase of $0.45 per Mcf from the prior year. This increase was primarily due to higher NYMEX prices and higher spot prices at local sales points in Pennsylvania. Seneca's average realized oil price, after the impact of hedging, was $60.04 per Bbl, an increase of $4.34 per Bbl compared to the prior year. The improvement in oil price realizations was primarily due to stronger commodity pricing.

Lease operating and transportation (“LOE”) expense increased $13.0 million primarily due to higher transportation costs in Appalachia from increased production, as well as higher well repairs, workover activity and steam fuel costs in California. LOE expense includes $45.8 million in intercompany expense for gathering and compression services used to connect Seneca’s Appalachian production to sales points along interstate pipelines. DD&A expense increased $1.7 million due largely to higher natural gas production, partially offset by the impact of ceiling test impairments recorded during fiscal 2020. Other taxes increased $2.2 million primarily due to higher impact fee accruals in Pennsylvania, driven by higher expected NYMEX natural gas prices for calendar 2021.

Interest expense decreased $3.6 million due primarily to lower weighted average interest rates as a result of the Company's issuance of a 2.95% coupon 10-year note in February 2021, which replaced a 4.9% coupon 10-year note that was retired in March 2021. The reduction in Seneca's effective income tax rate was primarily driven by a decrease to a valuation allowance for deferred tax assets that was initially established in the second quarter of fiscal 2020, partially offset by a higher effective state income tax rate as a result of the Company's Appalachian acquisition that caused a change in the mix of earnings between state jurisdictions.

Proved Reserves Year-End Update

Seneca’s total proved natural gas and crude oil reserves at September 30, 2021 were 3,853 Bcfe, an increase of 395 Bcfe, or 11%, from September 30, 2020. Seneca’s proved developed reserves at the end of fiscal 2021 were 3,217 Bcfe, representing 84% of total proved reserves, which is consistent with the prior year. The proved reserves base is approximately 97% natural gas and 3% oil. In fiscal 2021, Seneca recorded 696 Bcfe of proved reserve extensions and discoveries, due primarily to Utica and Marcellus locations, and 27 Bcfe of net positive revisions due primarily to certain price-related revisions, improvements in well performance and changes in development plans. As a result, Seneca replaced 221% of its fiscal 2021 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 increased $5.4 million versus the prior year primarily due to higher operating revenues and an increase in other income, as well as a lower effective income tax rate, partially offset by higher O&M expense and higher DD&A expense. The increase in operating revenues of $4.7 million, or 6%, was largely due to new demand charges for transportation service from the Company's Empire North expansion project, which was placed in service near the end of the fourth quarter of fiscal 2020, combined with an increase in revenues from a surcharge for pipeline safety and greenhouse gas regulatory costs, which went into effect in November 2020 in accordance with Supply Corporation's fiscal 2020 rate case settlement. Additionally, the Company recognized increased revenue from a surcharge mechanism for power costs related to electric motor drive compression on the Empire North project, for which offsetting O&M expense was recognized during the quarter. These positive items were partially offset by a modest decrease in transportation revenue from miscellaneous contract revisions. The increase in other income of $2.0 million was primarily due to an increase in allowance for funds used during construction (AFUDC) related to Supply Corporation's FM100 project. The reduction in the Pipeline and Storage segment's effective income tax rate was primarily due to timing differences in book and tax deductions. O&M expense increased $1.5 million primarily due to higher pipeline integrity costs, higher vehicle fuel costs and higher personnel costs, as well as the aforementioned Empire power costs. The increase in DD&A expense of $1.0 million was primarily attributable to incremental depreciation from the Empire North expansion project.

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 primarily delivers Seneca’s gross Appalachian production to the interstate pipeline system.

The Gathering segment’s fourth quarter GAAP earnings increased $1.0 million versus the prior year. The earnings increase was primarily driven by higher operating revenues, which was partially offset by higher DD&A expense, higher O&M expense and a higher effective income tax rate. Operating revenues increased $7.8 million, or 20%, primarily due to new Marcellus and Utica wells that were brought online, as well as from increased gathering throughput resulting from the Company's Appalachian acquisition in August 2020. Compression leasing expenses associated with the Appalachian acquisition were partially responsible for the $3.0 million increase in O&M expense, with the remainder of the increase due to higher compression facility and maintenance costs, as well as higher fuel costs. The increase in DD&A expense of $1.4 million was primarily attributable to incremental depreciation expense related to the Company's Appalachian acquisition, as well as higher average depreciable plant in service compared to the prior year. The increase in the Gathering segment's effective income tax rate was primarily driven by a higher effective state income tax rate as a result of the Company's Appalachian acquisition that caused a change in the mix of earnings between state jurisdictions.

Downstream Businesses

Utility Segment

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

The Utility segment’s fourth quarter net loss was $1.4 million lower than the prior-year fourth quarter primarily due to higher customer margins (operating revenues less purchased gas sold) and lower O&M expense, partially offset by higher DD&A expense. The increase in customer margin was due primarily to the positive impact of adjustments related to certain regulatory rate and cost recovery mechanisms subject to annual reconciliation, as well as higher revenues from the Company's system modernization tracking mechanism in its New York service territory. O&M expense decreased $0.7 million primarily due to lower mandated regulatory compliance fees as well as lower accruals for the allowance for uncollectible accounts, which were higher in the prior-year fourth quarter from the economic backdrop brought on by COVID-19, partially offset by an increase in vehicle fuel costs. The $0.6 million increase in DD&A expense was primarily attributable to higher average depreciable plant in service compared to the prior year.

Corporate and All Other

The Company’s operations that are included in Corporate and All Other generated a combined net loss of $3.2 million in the current year fourth quarter, generally consistent with the combined net loss of $3.0 million generated in the prior-year fourth quarter.

EARNINGS TELECONFERENCE

The Company will host a conference call on Friday, November 5, 2021, at 11 a.m. Eastern Time to discuss this announcement. Pre-registration is required to access the teleconference by phone in a listen-only mode by following this link: http://www.directeventreg.com/registration/event/1909399. To access the webcast, visit the Events Calendar under the News & Events page on the NFG Investor Relations website at investor.nationalfuelgas.com. A replay of the conference call will be available approximately two hours following the teleconference at the same website link and by phone (toll-free) at 800-585-8367 using conference ID number “1909399”. Both the webcast and conference call replay will be available until the close of business on Friday, November 12, 2021.

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; the length and severity of the ongoing 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; changes in the price of natural gas or oil; 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 and oil reserves; delays or changes in costs or plans with respect to Company projects or related projects of other companies, including disruptions due to the COVID-19 pandemic, 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; the Company's ability to successfully integrate acquired assets and achieve expected cost synergies; 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 2022. 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 investments during the fiscal year ending September 30, 2022, 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.