Financial Instruments

12 Months Ended

Sep. 30, 2022

Financial Instruments, Owned, at Fair Value, by Type, Alternative [Abstract]

Long-Term Debt

The fair market value of the Company’s debt, as presented in the table below, was determined using a discounted cash flow model, which incorporates the Company’s credit ratings and current market conditions in determining the yield, and subsequently, the fair market value of the debt. Based on these criteria, the fair market value of long-term debt, including current portion, was as follows:


	At September 30
	2022 Carrying Amount		2022 Fair Value		2021 Carrying Amount		2021 Fair Value
	(Thousands)
Long-Term Debt	$	2,632,409	$	2,453,209	$	2,628,687	$	2,898,552

The fair value amounts are not intended to reflect principal amounts that the Company will ultimately be required to pay. Carrying amounts for other financial instruments recorded on the Company’s Consolidated

Balance Sheets approximate fair value. The fair value of long-term debt was calculated using observable inputs (U.S. Treasuries for the risk-free component and company specific credit spread information — generally obtained from recent trade activity in the debt). As such, the Company considers the debt to be Level 2.

Any temporary cash investments, notes payable to banks and commercial paper are stated at cost. Temporary cash investments are considered Level 1, while notes payable to banks and commercial paper are considered to be Level 2. Given the short-term nature of the notes payable to banks and commercial paper, the Company believes cost is a reasonable approximation of fair value.

Other Investments

The components of the Company's Other Investments are as follows (in thousands):


	At September 30
	2022		2021
	(Thousands)
Life Insurance Contracts	$	42,171	$	44,560
Equity Mutual Fund	19,506		34,433
Fixed Income Mutual Fund	33,348		70,639

	$	95,025	$	149,632

Investments in life insurance contracts are stated at their cash surrender values or net present value. Investments in an equity mutual fund and a fixed income mutual fund are stated at fair value based on quoted market prices with changes in fair value recognized in net income. The insurance contracts and equity mutual fund are primarily informal funding mechanisms for various benefit obligations the Company has to certain employees. The fixed income mutual fund is primarily an informal funding mechanism for certain regulatory obligations that the Company has to Utility segment customers in its Pennsylvania jurisdiction, as discussed in Note F — Regulatory Matters, and for various benefit obligations the Company has to certain employees.

Derivative Financial Instruments

The Company uses derivative financial instruments to manage commodity price risk in the Exploration and Production segment. The Company enters into over-the-counter no cost collars and over-the-counter swap agreements for natural gas to manage the price risk associated with forecasted sales of natural gas. In addition, the Company also enters into foreign exchange forward contracts to manage the risk of currency fluctuations associated with transportation costs denominated in Canadian currency in the Exploration and Production segment. These instruments are accounted for as cash flow hedges. The duration of the Company’s cash flow hedges does not typically exceed 5 years while the foreign currency forward contracts do not exceed 8 years.

On June 30, 2022, the Company completed the sale of Seneca’s California assets. Under the terms of the purchase and sale agreement, the Company can receive up to three annual contingent payments between calendar year 2023 and calendar year 2025, not to exceed $10 million per year, with the amount of each annual payment calculated as $1.0 million for each $1 per barrel that the ICE Brent Average for each calendar year exceeds $95 per barrel up to $105 per barrel. The Company has determined that this contingent consideration meets the definition of a derivative under the authoritative accounting guidance. Changes in the fair value of this contingent consideration are marked-to-market each reporting period, with changes in fair value recognized in Other Income (Deductions) on the Consolidated Statement of Income. The fair value of this contingent consideration was estimated to be $12.6 million and $8.2 million at June 30, 2022 and September 30, 2022, respectively. A $4.4 million mark-to-market adjustment was recorded during the quarter ended September 30, 2022.

The Company has presented its net derivative assets and liabilities as “Fair Value of Derivative Financial Instruments” on its Consolidated Balance Sheets at September 30, 2022 and September 30, 2021.

Cash Flow Hedges

For derivative financial instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period or periods during which the hedged transaction affects earnings.

As of September 30, 2022, the Company had 420.8 Bcf of natural gas commodity derivative contracts (swaps and no cost collars) outstanding.

As of September 30, 2022, the Company was hedging a total of $49.4 million of forecasted transportation costs denominated in Canadian dollars with foreign currency forward contracts.

As of September 30, 2022, the Company had $784.7 million ($572.2 million after-tax) of net hedging losses included in the accumulated other comprehensive income (loss) balance. It is expected that $476.7 million ($347.6 million after-tax) of such unrealized losses will be reclassified into the Consolidated Statement of Income within the next 12 months as the underlying hedged transactions are recorded in earnings.


The Effect of Derivative Financial Instruments on the Statement of Financial Performance for the Year Ended September 30, 2022 and 2021 (Dollar Amounts in Thousands)
Derivatives in Cash Flow Hedging Relationships	Amount of Derivative Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on the Consolidated Statement of Comprehensive Income (Loss) for the Year Ended September 30,				Location of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income	Amount of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income for the Year Ended September 30,
	2022		2021			2022			2021
Commodity Contracts	$	(1,048,200)	$	(668,074)	Operating Revenue	$	(882,594)	(1)	$	(83,973)

Foreign Currency Contracts	(2,631)		2,703		Operating Revenue	13			262
Total	$	(1,050,831)	$	(665,371)		$	(882,581)		$	(83,711)

(1)On June 30, 2022, the Company completed the sale of Seneca's California assets. Because of this sale, the Company terminated its remaining crude oil derivative contracts and discontinued hedge accounting for such contracts. A loss of $44.6 million was reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet to Operating Revenues on the Consolidated Statement of Income for the year ended September 30, 2022. This loss is included in the reported reclassification amounts.

Credit Risk

The Company may be exposed to credit risk on any of the derivative financial instruments that are in a gain position. Credit risk relates to the risk of loss that the Company would incur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. To mitigate such credit risk, management performs a credit check, and then on a quarterly basis monitors counterparty credit exposure. The majority of the Company’s counterparties are financial institutions and energy traders. The Company has over the-counter swap positions, no cost collars and applicable foreign currency forward contracts with nineteen counterparties of which one is in a net gain position. The Company had $1.0 million of credit exposure with the counterparty in a gain position at September 30, 2022. As of September 2022, no collateral was received from the counterparties by the Company. The Company's gain position on such derivative financial instruments had not exceeded the established thresholds at which the counterparties would be required to post collateral, nor had the counterparties' credit ratings declined to levels at which the counterparties were required to post collateral.

As of September 30, 2022, seventeen of the nineteen counterparties to the Company’s outstanding derivative financial contracts (specifically the over-the-counter swaps, over-the-counter no cost collars and

applicable foreign currency forward contracts) had a common credit-risk related contingency feature. In the event the Company’s credit rating increases or falls below a certain threshold (applicable debt ratings), the available credit extended to the Company would either increase or decrease. A decline in the Company’s credit rating, in and of itself, would not cause the Company to be required to post or increase the level of its hedging collateral deposits (in the form of cash deposits, letters of credit or treasury debt instruments). If the Company’s outstanding derivative financial instrument contracts with a credit-risk contingency feature were in a liability position (or if the liability were larger) and/or the Company’s credit rating declined, then hedging collateral deposits or an increase to such deposits could be required. At September 30, 2022, the fair market value of the derivative financial instrument liabilities with a credit-risk related contingency feature was $564.3 million according to the Company's internal model (discussed in Note I — Fair Value Measurements) and the Company posted $91.7 million in hedging collateral deposits. Depending on the movement of commodity prices in the future, it is possible that these liability positions could swing into asset positions, at which point the Company would be exposed to credit risk on its derivative financial instruments. In that case, the Company's counterparties could be required to post hedging collateral deposits.

The Company’s requirement to post hedging collateral deposits and the Company's right to receive hedging collateral deposits is based on the fair value determined by the Company’s counterparties, which may differ from the Company’s assessment of fair value.