National fuel reports third quarter earnings
Williamsville, n.y.--(business wire)--national fuel gas company (“national fuel” or the “company”) (nyse:nfg) today announced consolidated results for the third quarter of its 2016 fiscal year and for the nine months ended june 30, 2016. fiscal 2016 third quarter earnings summary consolidated net income of $8.3 million or $0.10 per share operating results, excluding items impacting comparability, of $58.1 million or $0.68 per share impairment of oil and gas properties of $82.7 million ($47.9 million after tax) consolidated adjusted ebitda of $189.8 million, an increase of $10.4 million versus prior year (see non-gaap reconciliation on page 25) production of 44.0 bcfe, a 22% increase from prior year and 12% increase from the second quarter net appalachian natural gas spot sales of approximately 6.4 bcf average natural gas and crude oil prices after hedging of $2.86 per mcf and $58.79 per bbl, respectively midstream businesses ebitda of $70.9 million, an increase of $12.0 million or 20% versus prior year raising and tightening fiscal 2016 earnings guidance initiating fiscal 2017 earnings guidance with a range of $2.85 to $3.15 per share operating results management comments ronald j. tanski, president and chief executive officer of national fuel gas company, stated: "each of our business segments contributed to a very good quarter of operations for the company. in our upstream segment, seneca's marcellus production grew by an impressive 25 percent due to increased takeaway capacity on national fuel pipelines and improved pricing in appalachia. this higher production also contributed to the increased throughput we achieved in our gathering and pipeline and storage segments. while commodity pricing in the appalachian basin has improved, the methodology imposed under the full-cost accounting rules required us to once again incur a non-cash impairment charge. we expect that the pricing curve will level out and soon bring an end to these impairment charges. "the steps we have taken in fiscal 2016 have positioned national fuel well financially and operationally. in fiscal 2017, we plan to execute our integrated strategy to grow our upstream and midstream businesses in appalachia. we are pleased that iog elected to continue participating with us in drilling additional marcellus wells over the next year, allowing us to dedicate capital to our midstream pipeline businesses while maintaining activity levels upstream. we recently received a positive environmental assessment from the federal energy regulatory commission for our northern access project and remain on schedule to obtain the additional regulatory approvals to build the project to meet the anticipated november 2017 in-service date. while we continue to be encouraged by firming natural gas prices, we will maintain the current pace of our drilling program over the next year in order to grow production into the northern access capacity as efficiently as possible. this strategy should result in steady, but significant, growth across our upstream and midstream businesses.” discussion of third quarter results by segment the following discussion of the earnings of each segment is summarized in a tabular form on pages 9 through 12 of this report. it may be helpful to refer to those tables while reviewing this discussion. upstream business exploration and production segment the exploration and production segment operations are carried out by seneca resources corporation ("seneca"). seneca explores for, develops and produces natural gas and oil reserves, primarily in pennsylvania and california. june 30, 2016 june 30, 2015 the quarter over quarter variance in the exploration and production segment's net loss is mainly due to lower impairment charges that were recorded to write down the value of seneca’s oil and natural gas reserves under the full cost method of accounting. the non-cash, pre-tax impairment charge recorded in the current year's third quarter was $82.7 million ($47.9 million after-tax) versus $588.7 million ($339.8 million after-tax) in the prior year. 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. unless oil and gas prices improve, seneca expects to incur an additional impairment charge in the fourth quarter of the fiscal year ending september 30, 2016. seneca also incurred $3.2 million ($1.8 million after tax) of professional and legal expenses during the third quarter relating to the extension of the joint development agreement that seneca entered into in june 2016. these transaction costs were recorded to general and administrative ("g&a") expense. excluding these items, operating results in the exploration and production segment in the current year’s third quarter were $30.6 million, or $0.36 per share, compared to $16.7 million, or $0.20 per share, in the prior year’s third quarter, an increase of $13.9 million or $0.16 per share. the increase in operating results is mainly due to higher natural gas production and lower operating expenses, offset partially by lower realized natural gas and crude oil prices after hedging, lower oil production and higher interest expense. seneca's net third quarter fiscal 2016 production was 44.0 billion cubic feet equivalent ("bcfe"), an increase of 7.8 bcfe, or 22 percent, from the prior fiscal year's third quarter, and an increase of 4.8 bcfe, or 12 percent, versus the second quarter of fiscal 2016. net natural gas production for the quarter was 39.6 bcf, an increase of 8.0 bcf, or 25 percent, versus prior year due mainly to new incremental firm transportation capacity that became available to seneca during the first quarter of fiscal 2016. in addition, improved local spot pricing in pennsylvania allowed seneca to sell approximately 6.4 bcf of net production in local spot markets during the quarter, the first meaningful spot production volumes seneca has sold since the first quarter of fiscal 2015. seneca's voluntary production curtailments decreased 7.1 bcf from the estimated 11.8 bcf of net production curtailed in the third quarter of fiscal 2015 and 4.4 bcf from the estimated 9.1 bcf curtailed during the second quarter of fiscal 2016. seneca produced 728 thousand barrels ("mbbl") of crude oil during the third quarter, a decrease of 31 mbbl, or 4.1 percent, when compared to the prior year due primarily to a temporary disruption in steam flood operations in north midway sunset and lower overall well workover activity in response to the decline in oil market prices. seneca's average realized natural gas price, after the impact of hedging, for the third quarter was $2.86 per thousand cubic feet ("mcf"), a decrease of $0.46 per mcf versus the prior year third quarter. seneca's average realized oil price, after the impact of hedging, for the third quarter was $58.79 per barrel ("bbl"), a decrease of $10.86 per bbl when compared to the prior year third quarter. seneca's average realized natural gas and oil prices benefited from a $1.11 per mcf and $19.75 per bbl uplift, respectively, from financial hedges settled during the quarter. lease operating and transportation ("loe") expense decreased by $0.5 million versus the prior year third quarter due to lower per unit loe offset partially by the impact of higher production. on a per unit of production basis, loe for the third quarter decreased by $0.21 per mcf equivalent ("mcfe") to $0.88 per mcfe. the decrease is largely due to a reduction in well maintenance and steam costs in seneca's california division and lower salt water disposal and maintenance costs in seneca's appalachian division. g&a expense, excluding the $3.2 million of professional fees related to the joint development agreement discussed above, was $13.4 million for the third quarter, a decrease of $3.7 million versus the prior year due primarily to lower personnel costs at seneca. depreciation, depletion and amortization ("dd&a") expense decreased $24.8 million versus the prior year third quarter due to lower per unit dd&a, offset partially by the impact of higher production. on a per unit of production basis, dd&a decreased $0.84 per mcfe to $0.71 per mcfe due primarily to a lower depletable fixed asset balance resulting from the ceiling test impairment charges recorded during the prior four quarters and higher natural gas reserve balances at september 30, 2015. property, franchise and other taxes decreased $2.3 million versus the prior year third quarter due primarily to reimbursements received from seneca's joint development partner for its share of pennsylvania impact fees and the general decline in oil and natural gas market prices, which have lowered the assessed values of seneca's california oil properties and impact fee payments in pennsylvania. the $2.6 million increase in interest expense is due to the full quarter impact of the long-term debt issuance that occurred at the end of the quarter ended june 30, 2015. 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. june 30, 2016 june 30, 2015 the pipeline and storage segment's third quarter earnings were relatively flat versus the prior year as the increase in operating revenues were offset by increases in operation and maintenance ("o&m"), dd&a and interest expenses. operating revenues increased $6.9 million, or 10 percent, as a result of the three expansion projects - northern access 2015, westside expansion & modernization, and tuscarora lateral - that were placed in service during the first quarter of fiscal 2016. o&m expense increased $2.2 million versus prior year's third quarter due primarily to higher post-retirement benefit costs and expenses associated with the operation of new and expanded compression assets. dd&a expense for the quarter increased $1.4 million due to higher gross plant in service, which was largely attributable to the expansion projects that were placed in service within the last year. the $1.9 million increase in interest expense is due to the full quarter impact of the long-term debt issuance that occurred at the end of the quarter ended june 30, 2015, coupled with lower capitalized interest resulting from the decline in pipeline expansion construction work in progress during the current quarter. gathering segment the gathering segment’s operations are carried out by national fuel gas midstream corporation’s subsidiary limited liability companies. the gathering segment constructs, owns and operates natural gas gathering pipelines and compression facilities in the appalachian region which currently delivers seneca’s gross appalachian production to the interstate pipeline system. june 30, 2016 june 30, 2015 the increase in the gathering segment's third quarter earnings is due primarily to higher gathering revenues, offset partially by higher o&m, dd&a and interest expenses. operating revenues increased $8.6 million, or 51 percent, versus prior year's third quarter mainly due to a 15.0 bcf increase in gathered volume on the clermont gathering system ("clermont"), a result of seneca's increased gross production volumes. o&m expense increased $0.7 million due to higher costs associated with operating various clermont compression projects placed in service during the current fiscal year. dd&a expense increased $1.4 million due to higher gross plant in service during the quarter. the $2.0 million increase in interest expense is due to the full quarter impact of the long-term debt issuance that occurred at the end of the quarter ended june 30, 2015, coupled with lower capitalized interest resulting from the clermont projects being placed in service. 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. june 30, 2016 june 30, 2015 the decrease in the utility segment's third quarter earnings was largely attributable to the impact of higher o&m expenses, which increased $2.5 million versus the prior year due to higher personnel costs and expenses relating to the implementation of the new customer information system that went in service during the quarter. the utility segment's earnings were further reduced by higher dd&a expense and lower margins. energy marketing segment the energy marketing segment's operations are carried out by national fuel resources, inc. (“nfr”). nfr markets natural gas to industrial, wholesale, commercial, public authority and residential customers primarily in western and central new york and northwestern pennsylvania, offering competitively priced natural gas to its customers. june 30, 2016 june 30, 2015 the decrease in the energy marketing segment's third quarter earnings is due primarily to lower margins, which were negatively impacted by changes in natural gas prices at local purchase points relative to nymex-based customer sales contracts. corporate and all other the corporate and all other category net loss of $0.9 million for the quarter ended june 30, 2016, compares to a net loss of $1.2 million in the prior year’s third quarter. the $0.3 million decrease in the net loss impacted consolidated earnings by less than $0.01 per share. earnings guidance the company is updating and narrowing earnings guidance for fiscal 2016 to a range of $2.90 to $3.00 per share exclusive of any ceiling test impairment charges. these charges were $531 million after-tax, or $6.26 per share, for the nine months ended june 30, 2016. while the company expects to incur an additional ceiling test impairment charge in the fourth quarter of fiscal 2016, the amount of this charge 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 amount of the expected ceiling test impairment charges is not reasonably determinable at this time, the company is unable to provide earnings guidance other than on a non-gaap basis that excludes those charges. the company's updated fiscal 2016 guidance reflects actual third quarter results and the following revised forecast assumptions: the company is also initiating preliminary earnings, capital expenditures, and exploration and production segment operations guidance for fiscal 2017. earnings teleconference the company will host a conference call on friday, august 5, 2016, at 11 a.m. eastern time to discuss this announcement. there are two ways to access this call. for those with internet access, visit the 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) 877-706-7579, using conference id number “46345887.” for those unable to listen to the live conference call, an audio replay will be available at approximately 3 p.m. eastern time at the same website link and by phone at (toll-free) 855-859-2056 or 404-537-3406, using conference id number “46345887.” both the webcast and telephonic replay will be available until the close of business on friday, august 12, 2016. national fuel is an integrated energy company reporting financial results for five operating segments: exploration and production, pipeline and storage, gathering, utility, and energy marketing. 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; delays or changes in costs or plans with respect to company projects or related projects of other companies, including difficulties or delays in obtaining necessary governmental approvals, permits or orders or in obtaining the cooperation of interconnecting facility operators; 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; factors affecting the company’s ability to successfully identify, drill for and produce economically viable natural gas and oil reserves, including among others geology, lease availability, title disputes, weather conditions, shortages, delays or unavailability of equipment and services required in drilling operations, insufficient gathering, processing and transportation capacity, the need to obtain governmental approvals and permits, and compliance with environmental laws and regulations; changes in laws, regulations or judicial interpretations to which the company is subject, including those involving derivatives, taxes, safety, employment, climate change, other environmental matters, real property, and exploration and production activities such as hydraulic fracturing; changes in 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; 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 economic conditions, including global, national or regional recessions, and their effect on the demand for, and customers’ ability to pay for, the company’s products and services; the creditworthiness or performance of the company’s key suppliers, customers and counterparties; economic disruptions or uninsured losses resulting from major accidents, fires, severe weather, natural disasters, terrorist activities, acts of war, cyber attacks or pest infestation; significant differences between the company’s projected and actual capital expenditures and operating expenses; 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; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide other post-retirement benefits; or increasing costs of insurance, changes in coverage and the ability to obtain insurance. the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof. midstream businesses downstream businesses midstream businesses downstream businesses midstream businesses downstream businesses midstream businesses downstream businesses summary of operations exploration and production segment pipeline and storage segment gathering segment utility segment energy marketing segment all other corporate intersegment eliminations capital expenditures: 47,269 (1) (1) (2) (3) (4) degree days three months ended june 30 nine months ended june 30 (1) exploration and production information gas production/prices: oil production/prices: selected operating performance statistics: (1) (2) exploration and production information volume average hedge price volume average hedge price volume average hedge price volume average hedge price volume average hedge price volume average hedge price exploration and production information gross wells in process of drilling nine months ended june 30, 2016 (1) net wells in process of drilling nine months ended june 30, 2016 (1) 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 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 operating results as reported gaap earnings before items impacting comparability. the table at page 1 of this report reconciles national fuel's reported gaap earnings to operating results for the three and nine months ended june 30, 2016 and 2015. management defines adjusted ebitda as reported gaap earnings before the following items: interest expense, depreciation, depletion and amortization, interest and other income, impairments, items impacting comparability and income taxes. the following tables reconcile national fuel's reported gaap earnings to adjusted ebitda for the three and nine months ended june 30, 2016 and 2015: properties fees exploration and production segment pipeline and storage segment gathering segment utility segment energy marketing segment corporate and all other quarter ended june 30 (unaudited) nine months ended june 30 (unaudited) twelve months ended june 30 (unaudited)
