National Fuel Reports Fourth Quarter and Full Year Fiscal 2024 Earnings

WILLIAMSVILLE, N.Y., Nov. 06, 2024 (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, 2024.

FISCAL 2024 FOURTH QUARTER SUMMARY

• GAAP net loss of $167.6 million, or $1.84 per share, which includes $237.8 million in non-cash impairment charges.
• Adjusted operating results of $70.5 million, or $0.77 per share, compared to $72.2 million, or $0.78 per share, in the prior year (see non-GAAP reconciliation on page 2).
• Supply Corporation filed a certificate application with FERC for its Tioga Pathway Project, a modernization and expansion project that is expected to provide 190,000 dekatherms per day of firm transportation capacity and $15 million in annual expansion revenues.
• In the Utility segment, a Joint Proposal was filed with the New York State utility commission for a three-year settlement of its rate proceeding, which, subject to approval, incorporates an $86 million annual revenue requirement increase over three years, with the first-year impact of $57 million in fiscal 2025 and the remainder in fiscal 2026 and 2027.
• In the E&P segment, hedging-related gains of $61 million drove a $0.07 per Mcfe increase in natural gas price realizations, despite NYMEX decreasing by $0.40 per MMBtu compared to the prior year.

• The Company continued its long history of returning cash to shareholders by announcing its 54^th consecutive dividend increase, to an annual rate of $2.06 per share, and through the fiscal year, repurchased $65 million of common stock as part of its $200 million share repurchase program that was authorized in March.
• E&P segment capital efficiency continued to improve, with non-acquisition capital expenditures decreasing by $58 million, or 10%, compared to the prior year (see page 20), while production increased by approximately 5% to 392.0 Bcf.
• Gathering segment throughput and revenues increased 6% from the prior year, driven by growth in affiliated and third-party throughput.
• Pipeline & Storage segment revenues increased $33.2 million, or 9%, from the prior year, primarily due to the settlement of the Supply Corporation rate case, which led to increased rates effective February 2024.
• Utility segment net income increased $8.7 million, or 18%, compared to the prior year, largely attributable to the continued impact of a rate settlement in its Pennsylvania service territory, effective August 2023.

David P. Bauer, President and CEO, stated: "National Fuel had a good quarter driven largely by the constructive outcomes in our recent ratemaking activity at our Utility and Pipeline and Storage segments. Commodity prices were challenging for our Upstream business, but the significant gains from our hedge portfolio more than offset the impact of the substantial decline in natural gas prices.  

"During the quarter, we achieved key milestones that position the Company to deliver long-term earnings and free cash flow growth. At Distribution Corporation, we reached a multi-year settlement of our New York rate case, which we expect will be approved in the coming months. Further, Supply Corporation filed a certificate application for our 190,000 Dth per day Tioga Pathway Project, which we expect will be in-service in late 2026. Lastly, our Seneca and NFG Midstream teams continue to see success with our transition to the Eastern Development Area, with continued operational enhancements and strong well performance driving further improvements to our capital efficiency.

"Taken together, the progress made during the quarter further improves the long-term outlook for National Fuel and positions us well to create long-term value for our shareholders.”    

RECONCILIATION OF GAAP EARNINGS TO ADJUSTED OPERATING RESULTS

FISCAL 2025 GUIDANCE UPDATE

National Fuel is updating its guidance for fiscal 2025 adjusted operating results, which are now expected to be within a range of $5.50 to $6.00 per share. This updated range reflects the impact of anticipated lower natural gas prices, partially offset by a projected decrease in Seneca's per unit operating expenses. Adjusted operating results exclude any future potential items impacting comparability, including a non-cash ceiling test impairment anticipated in the Exploration and Production segment in the first quarter of fiscal 2025.

The Company is now assuming NYMEX natural gas prices will average $2.80 per MMBtu for fiscal 2025, a decrease of $0.45 from preliminary guidance that was initiated last quarter. This updated natural gas price projection approximates the current NYMEX forward curve at this time, however, given the recent volatility in NYMEX natural gas prices, the Company is providing the following sensitivities to its adjusted operating results guidance range:

Seneca's production guidance for fiscal 2025 remains unchanged, with a range of 400 to 420 Bcfe, and does not incorporate any potential price-related curtailments. Seneca currently has firm sales contracts in place for 89% of its projected fiscal 2025 natural gas production, significantly limiting its exposure to in-basin markets. Further, 63% of expected production is either matched by a financial hedge, including a combination of swaps and no-cost collars, or was entered into at a fixed price.

Additionally, Seneca's depreciation, depletion and amortization ("DD&A”) guidance range was revised downward to reflect the impact of the fourth quarter fiscal 2024 ceiling test impairment and the associated impact on the full cost pool, while all other unit costs are expected to be in line with previous expectations.

The Company's other fiscal 2025 guidance assumptions remain largely unchanged and are detailed 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, 2024 is summarized in a tabular form on pages 9 and 10 of this report (earnings drivers for the fiscal year ended September 30, 2024 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 primarily natural gas reserves in Pennsylvania.

Seneca's fourth quarter GAAP earnings decreased $203.2 million versus the prior year. This was primarily driven by non-cash, pre-tax impairment charges of $272.4 million ($204.1 million after-tax), the vast majority of which is related to a "ceiling test” impairment which required Seneca to write-down the book value of its reserves under the full cost method of accounting. Excluding impairments, as well as the net impact of unrealized losses related to reductions in the fair value of contingent consideration received in connection with the June 2022 divestiture of Seneca's California assets (see table above), Seneca's adjusted operating results increased $4.1 million primarily due to higher realized natural gas prices and a lower effective income tax rate, partially offset by lower natural gas production and higher operating expenses.

Each quarter, Seneca is required to perform a ceiling test comparing the present value of future net revenues from its reserves, after the effect of income taxes, with the book value of those reserves at the balance sheet date. The future net reserves ("the ceiling”) are based on an unweighted arithmetic average of first day of the month pricing for each month within the 12-month period prior to the end of the reporting period, adjusted for the impact of Seneca's future natural gas hedges, discounted at the required rate of 10%. 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. For purposes of the ceiling test, the 12-month average of first day of the month pricing for NYMEX natural gas for the period ended September 30, 2024 was $2.21 per MMBtu. It is expected that Seneca will record an additional non-cash impairment in the first quarter of fiscal 2025 and could record additional impairments beyond that depending on the commodity price environment.

During the fourth quarter, Seneca produced 91.9 Bcf of natural gas, a decrease of 1.8 Bcf, or 2%, from the prior year. During the quarter, Seneca voluntarily curtailed 1.5 Bcf of production due to low in-basin pricing. Absent those curtailments, production would have been largely unchanged compared to the prior year.

Seneca's average realized natural gas price, after the impact of hedging and transportation costs, was $2.40 per Mcf, an increase of $0.07 per Mcf, or 3%, from the prior year. Seneca's hedging portfolio provided an uplift of $0.67 per Mcf during the quarter, which more than offset a 13% decrease in pre-hedge natural gas price realizations versus the prior year.

On a per unit basis, fourth quarter lease operating and transportation expense ("LOE”) was $0.74 per Mcf, an increase of $0.05 per Mcf from the prior year. On an absolute basis, LOE increased $3.2 million ($0.03 per Mcf) largely as a result of the timing of certain repairs and maintenance costs, as well as some one-time road repair costs related to Tropical Storm Debby, and higher intercompany gathering costs. LOE included $51.3 million ($0.56 per Mcf) for gathering and compression services from the Company's Gathering segment to connect Seneca's production to sales points along interstate pipelines.

General and administrative ("G&A”) expense was $0.20 per Mcf, an increase of $0.02 per Mcf from the prior year. On an absolute basis, Seneca's G&A expense increased $0.8 million primarily due to increases in personnel costs.

DD&A expense was $0.69 per Mcf, a decrease of $0.02 per Mcf from the prior year. Absolute DD&A expense decreased $2.6 million ($0.03 per Mcf) due to the ceiling test impairment incurred during the third quarter of fiscal 2024 that lowered Seneca's full cost pool depletable base.

The reduction in Seneca's income tax expense was primarily driven by a decrease in pre-tax income and lower state income tax expense. The lower state income taxes were a result of a decrease in Pennsylvania's state income tax rate from 9.99% in the prior year to 8.99% in the current year, as well as the change in the mix of revenues between state jurisdictions.

Proved Reserves Year-End Update

Seneca's total proved reserves at September 30, 2024 were 4,753 Bcfe, an increase of 217 Bcfe, or 5%, from September 30, 2023. This increase was a result of Seneca replacing 155% of its fiscal 2024 production. Proved developed reserves at the end of fiscal 2024 were 3,486 Bcfe, representing 73% of total proved reserves. In fiscal 2024, Seneca added 602 Bcfe of proved reserve extensions and discoveries and 7 Bcfe of net positive revisions due primarily to improvements in well performance and changes in development plans, partially offset by price-related revisions.

Midstream Businesses

Pipeline and Storage Segment

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

The Pipeline and Storage segment's fourth quarter GAAP earnings decreased $29.2 million versus the prior year. This was primarily driven by a non-cash, pre-tax impairment charge of $46.1 million ($33.8 million after-tax) to write-down the carrying value of certain assets associated with Supply Corporation and Empire's Northern Access project. Excluding this impairment, the Pipeline and Storage segment's adjusted operating results increased $4.6 million primarily due to higher operating revenues, partly offset by higher operation and maintenance ("O&M”) and interest expenses.

The impairment of the Northern Access project was a result of a detailed revi