EX-99 2 l40444exv99.htm EX-99 exv99
Exhibit 99
         
(GRAPHIC)
  National Fuel Gas Company   Financial News
   
 
      6363 Main Street/Williamsville, NY 14221
 
        
 
      Timothy J. Silverstein
 
      Investor Relations
 
      716-857-6987
Release Date: Immediate August 5, 2010    
 
      David P. Bauer
 
      Treasurer
 
      716-857-7318
NATIONAL FUEL REPORTS THIRD QUARTER EARNINGS
Williamsville, New York: National Fuel Gas Company (“National Fuel” or the “Company”) (NYSE:NFG) today announced consolidated earnings for the third quarter of fiscal 2010 and for the nine months ended June 30, 2010.
HIGHLIGHTS
•   Consolidated Earnings for the third quarter were $42.6 million or $0.51 per share, a decrease of $0.3 million, or $0.02 per share, from the third quarter of fiscal 2009 due to lower earnings in the Pipeline and Storage segment.
•   Compared to the prior year’s third quarter, production of crude oil and natural gas increased approximately 1.7 billion cubic feet equivalent (“Bcfe”), or 15.1%, to 13.3 Bcfe. Appalachian production increased 115% to 4.8 Bcfe, including production from the Marcellus Shale of 2.4 Bcfe. The Company’s production forecast for the entire 2010 fiscal year is expected to be between 48 and 51 Bcfe.
•   Seneca Resources Corporation (“Seneca”) has increased its estimate of net risked Marcellus resource potential to a range of 8 to 15 trillion cubic feet (“Tcf”) across an area of 738,000 acres that it considers to be prospective in the Marcellus Shale.
•   The Company is narrowing its GAAP earnings guidance range for fiscal 2010 to a range of $2.60 to $2.70 per share. The previous earnings guidance had been a range between $2.45 to $2.70 per share. This guidance assumes flat NYMEX pricing of $5.00 per Million British Thermal Units (“MMBtu”) for natural gas and $75.00 per barrel (“Bbl”) for crude oil for unhedged production for the remainder of the fiscal year.
•   The Company’s preliminary GAAP earnings guidance for fiscal 2011 is in the range of $2.60 to $2.90 per share. The 2011 preliminary guidance includes oil and gas production for the Exploration and Production segment in the range of 60 to 70 Bcfe and is based on an assumed average NYMEX price, exclusive of basis differential, of $5.00 per MMBtu for natural gas and $80.00 per Bbl for crude oil.
•   A conference call is scheduled for Friday, August 6, 2010, at 11 a.m. Eastern Time.
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MANAGEMENT COMMENTS
     David F. Smith, Chairman and Chief Executive Officer of National Fuel Gas Company stated: “Results for the third quarter of fiscal year 2010 were consistent with our expectations, supported by strong production growth from the Exploration and Production segment along with the stable and predictable results from the Utility business.”
     “Seneca continues to execute on its aggressive growth plans. With the recent addition of a third Seneca operated rig in the Marcellus Shale, we have accelerated our pace of drilling. This increased drilling, combined with continued strong well results, has allowed us to nearly double the midpoint of our Marcellus resource potential estimate to 11.5 Tcf. The increase in this estimate and the ongoing development of the entire play continue to provide development opportunities for Seneca, Midstream and the Pipeline and Storage segment.”
     “In the Appalachian Basin, industry-wide growth in production has put pressure on natural gas prices. The erosion of historically favorable prices at the import point at the Canadian border has created short-term challenges in the Pipeline and Storage segment. These challenges, however, continue to create opportunities for new infrastructure construction that will help transport Marcellus Shale gas to the major markets.”
     “Our current cash position and strong balance sheet will allow National Fuel to capitalize on the potential provided by the Marcellus Shale, generating long-term value for our shareholders.”
SUMMARY OF RESULTS
     National Fuel had consolidated earnings for the quarter ended June 30, 2010, of $42.6 million, or $0.51 per share, compared to the prior year’s third quarter earnings of $42.9 million, or $0.53 per share, a decrease of $0.3 million or $0.02 per share. (Note: All references to earnings per share are to diluted earnings per share. All amounts are stated in U.S. dollars, and all amounts used in the discussion of earnings and operating results before items impacting comparability (“Operating Results”) are after tax unless otherwise noted).
     Consolidated earnings for the nine months ended June 30, 2010, of $187.5 million, or $2.27 per share, increased $113.8 million, or $1.35 per share, from the same period in the prior year, where earnings were $73.7 million or $0.92 per share.
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    Three Months     Nine Months  
    Ended June 30,     Ended June 30,  
(in thousands except per share amounts)   2010     2009     2010     2009  
Reported GAAP earnings
   $ 42,585     $ 42,904     $ 187,512     $ 73,710  
Items impacting comparability1:
                                
Impairment of oil and gas producing properties
                             108,207  
Impairment of investment in partnership
                             1,085  
Gain on life insurance policies
                             (2,312 )
 
                        
Operating Results
   $ 42,585     $ 42,904     $ 187,512     $ 180,690  
 
                        
 
                                
Reported GAAP earnings per share
   $ 0.51     $ 0.53     $ 2.27     $ 0.92  
Items impacting comparability1:
                                
Impairment of oil and gas producing properties
                             1.35  
Impairment of investment in partnership
                             0.01  
Gain on life insurance policies
                             (0.03 )
 
                        
Operating Results
   $ 0.51     $ 0.53     $ 2.27     $ 2.25  
 
                        
 
1   See discussion of these individual items below.
     As outlined in the table above, certain items included in GAAP earnings impacted the comparability of the Company’s financial results when comparing the nine months ended June 30, 2010, to the comparable period in fiscal 2009. Excluding these items, Operating Results for the nine months ended June 30, 2010, of $187.5 million, or $2.27 per share, increased $6.8 million, or $0.02 per share, from the same period in the prior year, where Operating Results were $180.7 million or $2.25 per share. Items impacting comparability will be discussed in more detail within the discussion of segment earnings below.
DISCUSSION OF RESULTS BY SEGMENT
     (The following discussion of earnings for each segment is summarized in a tabular form at pages 10 through 13 of this report. It may be helpful to refer to those tables while reviewing this discussion.)
Exploration and Production Segment
     The Exploration and Production segment operations are carried out by Seneca Resources Corporation (“Seneca”). Seneca explores for, develops and purchases natural gas and oil reserves in California, in the Appalachian region and in the Gulf of Mexico.
     The Exploration and Production segment’s earnings in the third quarter of fiscal 2010 of $27.9 million, or $0.33 per share, increased $0.8 million, or less than $0.01 per share, when compared with the prior year’s third quarter.
     Overall production for the current quarter of 13.3 Bcfe increased approximately 1.7 Bcfe, or 15.1 percent, compared to the prior year’s third quarter. Production increased approximately 115
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percent in Appalachia mainly due to higher production from Marcellus wells of 2.4 Bcfe. In the Gulf of Mexico, production decreased 0.8 Bcfe. Production in California was consistent with the prior year.
     In addition to the higher production, higher crude oil prices realized after hedging had a positive impact on earnings. Lower natural gas prices realized after hedging reduced earnings. For the quarter ended June 30, 2010, the weighted average oil price received by Seneca (after hedging) was $75.23 per Bbl, an increase of $8.04 per Bbl from the prior year’s quarter. The weighted average natural gas price received by Seneca (after hedging) for the quarter ended June 30, 2010, was $5.74 per thousand cubic feet (“Mcf”), a decrease of $0.20 per Mcf.
     Several other items also impacted earnings including: higher lease operating expenses (“LOE”) (mainly due to higher steam fuel cost and the operating costs associated with the July 2009 acquisition of the Ivanhoe assets in California, and the costs to transport Marcellus production in Appalachia) and higher depletion expense (due mainly to the increase in the depletable base and higher production).
     The Exploration and Production segment’s earnings of $85.0 million, or $1.03 per share, for the nine months ended June 30, 2010, compares to a loss of $38.4 million, or $0.47 per share, for the nine months ended June 30, 2009. The increase was mainly due to the non-cash impairment charge of $108.2 million taken in the first quarter of fiscal 2009 to write down the value of Seneca’s oil and natural gas producing properties. Seneca uses the full cost method of accounting for determining the book value of its oil and natural gas properties. This accounting method 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 period end spot prices (the “ceiling”) with the book value of those reserves at the balance sheet date. If the book value of the reserves exceeds the ceiling calculation, a non-cash impairment charge must be recorded in order to reduce the book value of the reserves to the calculated ceiling. The impairment at December 31, 2008, was mainly driven by a significant decrease in commodity prices. At June 30, 2010, the ceiling exceeded the book value of Seneca’s oil and gas properties by approximately $231 million.
     Excluding the impact of the ceiling test charge in the prior year’s first quarter, Operating Results for the nine months ended June 30, 2010, of $85.0 million, or $1.03 per share, increased $15.2 million, or $0.15 per share, from the prior year. The increase was primarily due to higher natural gas production and higher crude oil prices realized after hedging.
     Overall production for the nine months ended June 30, 2010, increased 17.3 percent to 36.6 Bcfe, an increase of 5.4 Bcfe compared to the prior year’s nine-month period. Production increased 78.9 percent in Appalachia mainly due to 4.1 Bcfe of Marcellus production and higher production from upper Devonian wells. In the Gulf of Mexico, production increased by 4.8 percent. California production was consistent with the prior year.
     In addition to overall higher production, higher crude oil prices realized after hedging contributed to the increase in Operating Results. Lower natural gas prices realized after hedging reduced Operating Results. For the nine months ended June 30, 2010, the weighted average oil price received by Seneca (after hedging) was $75.65 per Bbl, an increase of $12.98 per Bbl from the prior year’s nine-month period. The weighted average natural gas price received by Seneca
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(after hedging) for the nine months ended June 30, 2010, was $6.16 per Mcf, a decrease of $1.12 per Mcf.
     Other items impacting Operating Results for the nine months ended June 30, 2010, were higher depletion expense (mainly due to the increase in production and a higher depletable base) and higher LOE (mainly due to higher steam fuel cost and the operating costs associated with the July 2009 acquisition of the Ivanhoe assets in California, and the costs to transport Marcellus production in Appalachia).
Pipeline and Storage Segment
     The Pipeline and Storage segment 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 western Pennsylvania.
     The Pipeline and Storage segment’s earnings of $7.2 million, or $0.09 per share, for the quarter ended June 30, 2010, decreased $2.0 million, or $0.02 per share, when compared with the same period in the prior fiscal year. Transportation revenues for both Supply Corporation and Empire decreased in the current quarter compared to the third quarter of 2009. Persistent strong Niagara/Chippawa basis prices have caused shippers to evaluate lower cost supply sources, and certain shippers have reduced their imports of natural gas from Canada. This has resulted in some contract terminations on Supply Corporation from Niagara and available firm capacity on Empire from Chippawa remaining unsold. In order to offset these lower shipping volumes, Supply Corporation’s Northern Access expansion project and Empire’s Tioga County Extension Project have been designed to utilize that available capacity to provide producers of Marcellus gas a transportation path from the Marcellus supply basins to Canadian and other northeastern markets.
     Higher operating expense (mainly due to increased pension expense) and property taxes also decreased earnings for the current quarter. An increase in efficiency gas revenue due to higher prices and retained volumes during the current quarter partially offset the decrease in earnings for the quarter.
     The Pipeline and Storage segment’s earnings of $30.0 million, or $0.37 per share, for the nine months ended June 30, 2010, decreased $11.5 million, or $0.15 per share, when compared with the nine months ended June 30, 2009. The decrease in earnings for the current nine-month period was due to higher operating expenses (mainly due to increased pension and other operating expenses), higher property taxes and interest expense and a lower allowance for funds used during construction (“AFUDC”) for the current nine-month period.
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
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and northwestern Pennsylvania. The Utility segment’s earnings of $6.0 million, for the quarter ended June 30, 2010, compare to earnings of $5.4 million, for the quarter ended June 30, 2009.
     In the New York Division, earnings increased $0.4 million. The increase is primarily due to lower interest expense on over recoveries of purchased gas costs, which more than offset higher operating expenses for the quarter. In the Pennsylvania Division, earnings increased $0.2 million. The impact on earnings of warmer weather and higher interest expense was more than offset by a lower effective tax rate.
     The Utility segment’s earnings of $62.3 million for the nine months ended June 30, 2010, increased from earnings of $60.3 million for the nine months ended June 30, 2009. Earnings in the New York Division for the nine months ended June 30, 2010, of $40.6 million decreased $0.1 million compared to the prior year. Higher interest expense on long-term debt and the impact of regulatory true-up adjustments more than offset the impact of lower operating expenses during the nine-month period.
     For the nine months ended June 30, 2010, earnings in the Pennsylvania Division of $21.7 million increased $2.1 million compared to the prior year. Lower operating expenses and a lower effective tax rate more than offset higher interest expense, warmer weather and lower customer usage during the nine-month period.
Energy Marketing
     National Fuel Resources, Inc. (“NFR”) comprises the Company’s Energy Marketing segment. 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.
     The Energy Marketing segment’s earnings for the quarter ended June 30, 2010, of $1.4 million increased $0.1 million compared to the third quarter of the prior year. Earnings for the nine months ended June 30, 2010, in the Energy Marketing segment of $8.5 million increased $1.0 million compared to the prior year. The increase in the quarter and year to date earnings is due to higher margins compared to the same periods in fiscal 2009.
Corporate and All Other
     The Corporate and All Other category includes the following active, wholly owned subsidiaries of the Company: Highland Forest Resources, Inc., a corporation that markets high quality hardwoods from New York and Pennsylvania land holdings; Horizon LFG, Inc., a corporation engaged through subsidiaries in the purchase, processing, transportation and sale of landfill gas; Horizon Power, Inc., a corporation that develops and owns independent electric generation facilities that are fueled by natural gas or landfill gas; and National Fuel Gas Midstream Corporation (“Midstream”), formed to build, own and operate natural gas processing and pipeline gathering facilities in the Appalachian region.
     Earnings in the Corporate and All Other category for the quarter ended June 30, 2010, were $0.1 million compared to the prior year’s third quarter loss of $0.1 million. Earnings from Midstream’s pipeline gathering and natural gas processing operations, higher margins from the
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timber operations and higher margins in the landfill gas operations more than offset a higher effective tax rate.
     Earnings in the Corporate and All Other category for the nine months ended June 30, 2010, were $1.7 million compared to earnings of $2.7 million in the prior year nine-month period. The comparability of the results for the nine months ended June 30, 2010, was impacted by a $2.3 million gain recognized on corporate-owned executive life insurance policies and a $1.1 million impairment in the value of Horizon Power’s 50 percent investment in Energy Systems North East, LLC in the prior year’s first quarter. Excluding these items, Operating Results for the nine months ended June 30, 2010, increased $0.2 million. Earnings from Midstream’s pipeline gathering and processing operations, higher margins from the timber operations (mainly due to lower prices paid for purchased logs and stumpage), higher margins in the landfill gas operations and higher interest income were offset by higher interest expense and a higher effective tax rate.
EARNINGS GUIDANCE
     The Company is narrowing its earnings guidance for fiscal 2010 to reflect actual results for the nine months ended June 30, 2010. The revised GAAP earnings range is $2.60 to $2.70 per share. The previous guidance range had been $2.45 to $2.70 per share. This includes oil and gas production for fiscal 2010 for the Exploration and Production segment in a range between 48 and 51 Bcfe, hedges currently in place, and NYMEX equivalent flat commodity pricing on non-hedged volumes exclusive of basis differential of $5.00 per MMBtu for natural gas and $75.00 per Bbl for crude oil.
     The Company’s preliminary GAAP earnings guidance for fiscal 2011 is in the range of $2.60 to $2.90 per share. This includes oil and gas production for the Exploration and Production segment in the range of 60 to 70 Bcfe and is based on an assumed average NYMEX price, exclusive of basis differential, of $5.00 per MMBtu for natural gas and $80.00 per Bbl for crude oil.
EARNINGS TELECONFERENCE
     The Company will host a conference call on Friday, August 6, 2010, 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 Investor Relations page on National Fuel’s website at investor.nationalfuelgas.com. For those without Internet access, access is also provided by dialing (toll-free) 1-866-783-2142, using the passcode “60304436.” For those unable to listen to the live conference call, a replay will be available at approximately 2 p.m. Eastern Time at the same website link and by phone at (toll-free) 1-888-286-8010, using passcode “88538993.” Both the webcast and telephonic replay will be available until the close of business on Friday, August 13, 2010.
     National Fuel is an integrated energy company with $4.9 billion in assets comprised of the following four operating segments: Exploration and Production, Pipeline and Storage, Utility and Energy Marketing. Additional information about National Fuel is available at www.nationalfuelgas.com or through its investor information service at 1-800-334-2188.
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Analyst Contact:
  Timothy J. Silverstein   716-857-6987
Media Contact:   Donna L. DeCarolis   716-857-7872
Certain statements contained herein, including those regarding estimated future earnings, and statements that are identified by the use of the words “anticipates,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “predicts,” “projects,” “believes,” “seeks,” “will,” “may” and similar expressions, 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: financial and economic conditions, including the availability of credit, and their effect on the Company’s ability to obtain financing on acceptable terms for working capital, capital expenditures and other investments; occurrences affecting the Company’s ability to obtain financing under credit lines or other credit facilities or through the issuance of commercial paper, other short-term notes or debt or equity securities, including any downgrades in the Company’s credit ratings and changes in interest rates and other capital market conditions; 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 terrorist activities, acts of war, major accidents, fires, hurricanes, other severe weather, pest infestation or other natural disasters; changes in demographic patterns and weather conditions; changes in the availability and/or price of natural gas or oil and the effect of such changes on the accounting treatment of derivative financial instruments or the valuation of the Company’s natural gas and oil reserves; impairments under the SEC’s full cost ceiling test for natural gas and oil reserves; uncertainty of oil and gas reserve estimates; 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, weather conditions, shortages, delays or unavailability of equipment and services required in drilling operations, insufficient gathering, processing and transportation capacity, and the need to obtain governmental approvals and permits and comply with environmental laws and regulations; significant differences between the Company’s projected and actual production levels for natural gas or oil; changes in the availability and/or price of derivative financial instruments; changes in the price differentials between oil having different quality and/or different geographic locations, or changes in the price differentials between natural gas having different heating values and/or different geographic locations; changes in laws and regulations to which the Company is subject, including those involving derivatives, taxes, safety, employment, climate change, other environmental matters, and exploration and production activities such as hydraulic fracturing; the nature and projected profitability of pending and potential projects and other investments, and the ability to obtain necessary governmental approvals and permits; significant differences between the Company’s projected and actual capital expenditures and operating expenses, and unanticipated project delays or changes in project costs or plans; inability to obtain new customers or retain existing ones; significant changes in competitive factors affecting the Company; governmental/regulatory actions, initiatives and proceedings, including those involving derivatives, acquisitions, financings, rate cases (which address, among other things, allowed rates of return, rate design and retained natural gas), affiliate relationships, industry structure, franchise renewal, and environmental/safety requirements; unanticipated impacts of restructuring initiatives in the natural gas and electric industries; ability to successfully identify and finance acquisitions or other investments and ability to operate and integrate existing and any subsequently acquired business or properties; changes in actuarial assumptions, the interest rate environment and the return on plan/trust assets related to the Company’s pension and other post-
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retirement benefits, which can affect future funding obligations and costs and plan liabilities; significant changes in tax rates or policies or in rates of inflation or interest; significant changes in the Company’s relationship with its employees or contractors and the potential adverse effects if labor disputes, grievances or shortages were to occur; changes in accounting principles or the application of such principles to the Company; the cost and effects of legal and administrative claims against the Company or activist shareholder campaigns to effect changes at the Company; 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.
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NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
QUARTER ENDED JUNE 30, 2010
                                                 
    Exploration &     Pipeline &             Energy     Corporate /        
(Thousands of Dollars)   Production     Storage     Utility     Marketing     All Other     Consolidated  
     
Third quarter 2009 GAAP earnings
   $ 27,083     $ 9,221     $ 5,396     $ 1,331     $ (127 )   $ 42,904  
 
                                                
Drivers of operating results
                                                
Higher (lower) crude oil prices
     4,227                                       4,227  
Higher (lower) natural gas prices
     (1,072 )                                     (1,072 )
Higher (lower) natural gas production
     7,527                                       7,527  
Higher (lower) crude oil production
     (1,496 )                                     (1,496 )
Higher (lower) processing plant revenues
     717                                       717  
Lower (higher) lease operating expenses
     (3,072 )                                     (3,072 )
Lower (higher) depreciation / depletion
     (3,567 )                             (765 )     (4,332 )
 
                                                
Higher (lower) transportation revenues
             (460 )                             (460 )
Higher (lower) efficiency gas revenues
             622                               622  
Lower (higher) operating costs
     (1,018 )     (1,114 )     (590 )     (283 )     (420 )     (3,425 )
Lower (higher) property, franchise and other taxes
             (544 )                             (544 )
 
                                                
Warmer weather in Pennsylvania
                     (936 )                     (936 )
 
                                                
Income from unconsolidated subsidiaries
                                             —  
 
                                                
Higher (lower) margins
                             473       2,975       3,448  
 
Higher (lower) interest income
             (313 )                             (313 )
Lower (higher) interest expense
     420               474                       894  
 
                                                
Lower (higher) income tax expense / effective tax rate
     (1,740 )             1,842               (1,133 )     (1,031 )
 
All other / rounding
     (126 )     (178 )     (217 )     (110 )     (442 )     (1,073 )
     
 
                                                
Third quarter 2010 GAAP earnings
   $ 27,883     $ 7,234     $ 5,969     $ 1,411     $ 88     $ 42,585  
     

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NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
QUARTER ENDED JUNE 30, 2010
                                                 
    Exploration &     Pipeline &             Energy     Corporate /        
    Production     Storage     Utility     Marketing     All Other     Consolidated  
     
Third quarter 2009 GAAP earnings
   $ 0.33     $ 0.11     $ 0.07     $ 0.02     $ —     $ 0.53  
 
                                                
Drivers of operating results
                                                
Higher (lower) crude oil prices
     0.05                                       0.05  
Higher (lower) natural gas prices
     (0.01 )                                     (0.01 )
Higher (lower) natural gas production
     0.09                                       0.09  
Higher (lower) crude oil production
     (0.02 )                                     (0.02 )
Higher (lower) processing plant revenues
     0.01                                       0.01  
Lower (higher) lease operating expenses
     (0.04 )                                     (0.04 )
Lower (higher) depreciation / depletion
     (0.04 )                             (0.01 )     (0.05 )
 
                                                
Higher (lower) transportation revenues
             (0.01 )                             (0.01 )
Higher (lower) efficiency gas revenues
             0.01                               0.01  
Lower (higher) operating costs
     (0.01 )     (0.01 )     (0.01 )     —       (0.01 )     (0.04 )
Lower (higher) property, franchise and other taxes
             (0.01 )                             (0.01 )
 
                                                
Warmer weather in Pennsylvania
                     (0.01 )                     (0.01 )
 
                                                
Income from unconsolidated subsidiaries
                                             —  
 
                                                
Higher (lower) margins
                             —       0.04       0.04  
 
                                                
Higher (lower) interest income
             —                               —  
Lower (higher) interest expense
     0.01               0.01                       0.02  
 
                                                
Lower (higher) income tax expense / effective tax rate
     (0.02 )             0.02               (0.01 )     (0.01 )
 
                                                
All other / rounding
     (0.02 )     —       (0.01 )     —       (0.01 )     (0.04 )
     
 
                                                
Third quarter 2010 GAAP earnings
   $ 0.33     $ 0.09     $ 0.07     $ 0.02     $ —     $ 0.51  
     

Page 11

 

NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS
NINE MONTHS ENDED JUNE 30, 2010
                                                 
    Exploration &     Pipeline &             Energy     Corporate /        
(Thousands of Dollars)   Production     Storage     Utility     Marketing     All Other     Consolidated  
     
Nine months ended June 30, 2009 GAAP earnings
   $ (38,366 )   $ 41,582     $ 60,303     $ 7,509     $ 2,682     $ 73,710  
Items impacting comparability:
                                                
Gain on life insurance policies
                                     (2,312 )     (2,312 )
Impairment of investment in partnership
                                     1,085       1,085  
Impairment of oil and gas properties
     108,207                                       108,207  
     
Nine months ended June 30, 2009 operating results
     69,841       41,582       60,303       7,509       1,455       180,690  
 
                                                
Drivers of operating results
                                                
Higher (lower) crude oil prices
     20,496                                       20,496  
Higher (lower) natural gas prices
     (16,061 )                                     (16,061 )
Higher (lower) natural gas production
     27,382                                       27,382  
Higher (lower) crude oil production
     (2,646 )                                     (2,646 )
Higher (lower) processing plant revenues
     1,536                                       1,536  
Lower (higher) lease operating expenses
     (4,622 )                                     (4,622 )
Lower (higher) depreciation / depletion
     (7,542 )                             (1,598 )     (9,140 )
 
                                                
Higher (lower) transportation revenues
             (266 )                             (266 )
Higher (lower) efficiency gas revenues
             376                               376  
Lower (higher) operating costs
     (866 )     (3,262 )     3,663       (101 )     (378 )     (944 )
Lower (higher) property, franchise and other taxes
             (1,578 )                             (1,578 )
 
Warmer weather in Pennsylvania
                     (875 )                     (875 )
Higher (lower) usage
                     (2,106 )                     (2,106 )
Regulatory true-up adjustments
                     (1,100 )                     (1,100 )
 
                                                
Income (loss) from unconsolidated subsidiaries
                                     (578 )     (578 )
 
                                                
Higher (lower) margins
                             1,019       6,526       7,545  
 
                                                
Higher (lower) AFUDC*
             (2,835 )                             (2,835 )
Higher (lower) interest income
     (1,097 )     (537 )                     3,184       1,550  
Lower (higher) interest expense
     1,585       (3,201 )     (2,751 )             (3,854 )     (8,221 )
 
                                                
Lower (higher) income tax expense / effective tax rate
     (2,717 )             5,349               (3,594 )     (962 )
 
                                                
All other / rounding
     (243 )     (243 )     (229 )     45       541       (129 )
     
 
                                                
Nine months ended June 30, 2010 GAAP earnings
   $ 85,046     $ 30,036     $ 62,254     $ 8,472     $ 1,704     $ 187,512  
     
 
*   AFUDC = Allowance for Funds Used During Construction

Page 12

 

NATIONAL FUEL GAS COMPANY
RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE
NINE MONTHS ENDED JUNE 30, 2010
                                                 
    Exploration &     Pipeline &             Energy     Corporate /        
    Production     Storage     Utility     Marketing     All Other     Consolidated  
     
Nine months ended June 30, 2009 GAAP earnings
   $ (0.47 )   $ 0.52     $ 0.75     $ 0.09     $ 0.03     $ 0.92  
Items impacting comparability:
                                                
Gain on life insurance policies
                                     (0.03 )     (0.03 )
Impairment of investment in partnership
                                     0.01       0.01  
Impairment of oil and gas properties
     1.35                                       1.35  
     
Nine months ended June 30, 2009 operating results
     0.88       0.52       0.75       0.09       0.01       2.25  
 
                                                
Drivers of operating results
                                                
Higher (lower) crude oil prices
     0.25                                       0.25  
Higher (lower) natural gas prices
     (0.19 )                                     (0.19 )
Higher (lower) natural gas production
     0.33                                       0.33  
Higher (lower) crude oil production
     (0.03 )                                     (0.03 )
Higher (lower) processing plant revenues
     0.02                                       0.02  
Lower (higher) lease operating expenses
     (0.06 )                                     (0.06 )
Lower (higher) depreciation / depletion
     (0.09 )                             (0.02 )     (0.11 )
 
                                                
Higher (lower) transportation revenues
             —                               —  
Higher (lower) efficiency gas revenues
             —                               —  
Lower (higher) operating costs
     (0.01 )     (0.04 )     0.04       —       —       (0.01 )
Lower (higher) property, franchise and other taxes
             (0.02 )                             (0.02 )
 
                                                
Warmer weather in Pennsylvania
                     (0.01 )                     (0.01 )
Higher (lower) usage
                     (0.03 )                     (0.03 )
Regulatory true-up adjustments
                     (0.01 )                     (0.01 )
 
                                                
Income (loss) from unconsolidated subsidiaries
                                     (0.01 )     (0.01 )
 
                                                
Higher (lower) margins
                             0.01       0.08       0.09  
 
                                                
Higher (lower) AFUDC*
             (0.03 )                             (0.03 )
Higher (lower) interest income
     (0.01 )     (0.01 )                     0.04       0.02  
Lower (higher) interest expense
     0.02       (0.04 )     (0.03 )             (0.05 )     (0.10 )
 
                                                
Lower (higher) income tax expense / effective tax rate
     (0.03 )             0.06               (0.04 )     (0.01 )
 
All other / rounding (including impact of higher weighted average shares)
     (0.05 )     (0.01 )     (0.02 )             0.01       (0.07 )
     
 
                                                
Nine months ended June 30, 2010 GAAP earnings
   $ 1.03     $ 0.37     $ 0.75     $ 0.10     $ 0.02     $ 2.27  
     
 
*   AFUDC = Allowance for Funds Used During Construction

Page 13

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
                                 
    Three Months Ended     Nine Months Ended  
    June 30,     June 30,  
    (Unaudited)     (Unaudited)  
(Thousands of Dollars, except per share amounts)   2010     2009     2010     2009  
SUMMARY OF OPERATIONS
                                
Operating Revenues
   $ 354,127     $ 367,111     $ 1,482,518     $ 1,778,919  
 
                        
 
                                
Operating Expenses:
                                
Purchased Gas
     98,400       126,969       605,617       941,171  
Operation and Maintenance
     97,388       91,679       308,903       311,496  
Property, Franchise and Other Taxes
     18,605       17,576       57,719       56,709  
Depreciation, Depletion and Amortization
     50,588       43,659       142,433       127,715  
Impairment of Oil and Gas Producing Properties
     —       —       —       182,811  
 
                        
 
     264,981       279,883       1,114,672       1,619,902  
 
                                
Operating Income
     89,146       87,228       367,846       159,017  
 
                                
Other Income (Expense):
                                
Income from Unconsolidated Subsidiaries
     624       627       1,696       2,719  
Impairment of Investment in Partnership
     —       —       —       (1,804 )
Other Income
     851       1,522       2,473       7,350  
Interest Income
     569       1,460       2,049       4,358  
Interest Expense on Long-Term Debt
     (21,115 )     (21,756 )     (65,238 )     (57,357 )
Other Interest Expense
     (1,874 )     (2,539 )     (5,264 )     (5,013 )
 
                        
 
                                
Income Before Income Taxes
     68,201       66,542       303,562       109,270  
 
                                
Income Tax Expense
     25,616       23,638       116,050       35,560  
 
                        
 
                                
Net Income Available for Common Stock
   $ 42,585     $ 42,904     $ 187,512     $ 73,710  
 
                        
 
                                
Earnings Per Common Share:
                                
Basic
   $ 0.52     $ 0.54     $ 2.31     $ 0.93  
 
                        
Diluted
   $ 0.51     $ 0.53     $ 2.27     $ 0.92  
 
                        
 
                                
Weighted Average Common Shares:
                                
Used in Basic Calculation
     81,801,377       79,551,195       81,178,000       79,450,838  
 
                        
Used in Diluted Calculation
     82,970,921       80,391,402       82,556,730       80,248,787  
 
                        

Page 14

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    June 30,     September 30,  
(Thousands of Dollars)   2010     2009  
 
ASSETS
                
Property, Plant and Equipment
   $ 5,518,060     $ 5,184,844  
Less — Accumulated Depreciation, Depletion and Amortization
     2,164,383       2,051,482  
     
Net Property, Plant and Equipment
     3,353,677       3,133,362  
     
 
                
Current Assets:
                
Cash and Temporary Cash Investments
     458,847       408,053  
Cash Held in Escrow
     2,000       2,000  
Hedging Collateral Deposits
     8,222       848  
Receivables — Net
     143,684       144,466  
Unbilled Utility Revenue
     12,957       18,884  
Gas Stored Underground
     27,245       55,862  
Materials and Supplies — at average cost
     32,753       24,520  
Other Current Assets
     42,639       68,474  
Deferred Income Taxes
     32,893       53,863  
     
Total Current Assets
     761,240       776,970  
     
 
                
Other Assets:
                
Recoverable Future Taxes
     138,435       138,435  
Unamortized Debt Expense
     13,116       14,815  
Other Regulatory Assets
     518,225       530,913  
Deferred Charges
     6,447       2,737  
Other Investments
     76,354       78,503  
Investments in Unconsolidated Subsidiaries
     14,037       14,940  
Goodwill
     5,476       5,476  
Intangible Assets
     20,188       21,536  
Fair Value of Derivative Financial Instruments
     41,897       44,817  
Other
     269       6,625  
     
Total Other Assets
     834,444       858,797  
     
Total Assets
   $ 4,949,361     $ 4,769,129  
     
 
                
CAPITALIZATION AND LIABILITIES
                
Capitalization:
                
Comprehensive Shareholders’ Equity
                
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding - 81,965,317 Shares and 80,499,915 Shares, Respectively
   $ 81,965     $ 80,500  
Paid in Capital
     644,751       602,839  
Earnings Reinvested in the Business
     1,053,176       948,293  
     
Total Common Shareholders’ Equity Before Items of Other Comprehensive Loss
     1,779,892       1,631,632  
Accumulated Other Comprehensive Loss
     (38,153 )     (42,396 )
     
Total Comprehensive Shareholders’ Equity
     1,741,739       1,589,236  
Long-Term Debt, Net of Current Portion
     1,049,000       1,249,000  
     
Total Capitalization
     2,790,739       2,838,236  
     
 
                
Current and Accrued Liabilities:
                
Notes Payable to Banks and Commercial Paper
     —       —  
Current Portion of Long-Term Debt
     200,000       —  
Accounts Payable
     106,087       90,723  
Amounts Payable to Customers
     51,014       105,778  
Dividends Payable
     28,278       26,967  
Interest Payable on Long-Term Debt
     17,203       32,031  
Customer Advances
     1,029       24,555  
Customer Security Deposits
     18,618       17,430  
Other Accruals and Current Liabilities
     65,244       18,875  
Fair Value of Derivative Financial Instruments
     2,776       2,148  
     
Total Current and Accrued Liabilities
     490,249       318,507  
     
 
                
Deferred Credits:
                
Deferred Income Taxes
     735,558       663,876  
Taxes Refundable to Customers
     67,057       67,046  
Unamortized Investment Tax Credit
     3,463       3,989  
Cost of Removal Regulatory Liability
     123,357       105,546  
Other Regulatory Liabilities
     86,106       120,229  
Pension and Other Post-Retirement Liabilities
     420,361       415,888  
Asset Retirement Obligations
     92,601       91,373  
Other Deferred Credits
     139,870       144,439  
     
Total Deferred Credits
     1,668,373       1,612,386  
     
Commitments and Contingencies
     —       —  
     
Total Capitalization and Liabilities
   $ 4,949,361     $ 4,769,129  
     

Page 15

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Nine Months Ended
    June 30,
(Thousands of Dollars)   2010   2009
 
Operating Activities:
                
Net Income Available for Common Stock
   $ 187,512     $ 73,710  
Adjustments to Reconcile Net Income to Net Cash
                
Provided by Operating Activities:
                
Impairment of Oil and Gas Producing Properties
     —       182,811  
Depreciation, Depletion and Amortization
     142,433       127,715  
Deferred Income Taxes
     63,813       (85,494 )
Income from Unconsolidated Subsidiaries, Net of Cash Distributions
     904       180  
Impairment of Investment in Partnership
     —       1,804  
Excess Tax Benefits Associated with Stock-Based Compensation Awards
     (13,207 )     (5,927 )
Other
     7,884       11,751  
Change in:
                
Hedging Collateral Deposits
     (7,374 )     (6,358 )
Receivables and Unbilled Utility Revenue
     6,676       (5,520 )
Gas Stored Underground and Materials and Supplies
     20,384       71,491  
Unrecovered Purchased Gas Costs
     —       35,808  
Prepayments and Other Current Assets
     39,043       37,904  
Accounts Payable
     127       (82,146 )
Amounts Payable to Customers
     (54,764 )     43,019  
Customer Advances
     (23,526 )     (29,788 )
Customer Security Deposits
     1,188       3,314  
Other Accruals and Current Liabilities
     30,961       162,903  
Other Assets
     29,197       (8,517 )
Other Liabilities
     (11,358 )     (14,453 )
 
Net Cash Provided by Operating Activities
   $ 419,893     $ 514,207  
 
 
                
Investing Activities:
                
Capital Expenditures
     ($327,513 )     ($240,312 )
Cash Held in Escrow
     —       (2,000 )
Net Proceeds from Sale of Oil and Gas Producing Properties
     —       3,701  
Other
     (273 )     (1,674 )
 
Net Cash Used in Investing Activities
     ($327,786 )     ($240,285 )
 
 
                
Financing Activities:
                
Excess Tax Benefits Associated with Stock-Based Compensation Awards
   $ 13,207     $ 5,927  
Net Proceeds from Issuance of Long-Term Debt
     —       247,780  
Reduction of Long-Term Debt
     —       (100,000 )
Dividends Paid on Common Stock
     (81,318 )     (77,398 )
Proceeds From Issuance of Common Stock
     26,798       14,760  
 
Net Cash Provided by (Used In) Financing Activities
     ($41,313 )   $ 91,069  
 
Net Increase in Cash and Temporary Cash Investments
     50,794       364,991  
Cash and Temporary Cash Investments at Beginning of Period
     408,053       68,239  
 
Cash and Temporary Cash Investments at June 30
   $ 458,847     $ 433,230  
 

Page 16

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
                                                 
    Three Months Ended           Nine Months Ended    
    June 30,   June 30,
(Thousands of Dollars, except per share amounts) 2010   2009   Variance   2010   2009   Variance
         
EXPLORATION AND PRODUCTION SEGMENT
                                                
Operating Revenues
   $ 112,802     $ 97,619     $ 15,183     $ 328,312     $ 281,410     $ 46,902  
         
 
                                                
Operating Expenses:
                                                
Operation and Maintenance:
                                                
General and Administrative Expense
     8,353       6,849       1,504       25,700       22,465       3,235  
Lease Operating Expense
     15,964       11,775       4,189       43,895       36,944       6,951  
All Other Operation and Maintenance Expense
     2,400       2,325       75       6,734       8,599       (1,865 )
Property, Franchise and Other Taxes (Lease Operating Expense)
     2,878       2,341       537       7,881       7,722       159  
Depreciation, Depletion and Amortization
     28,959       23,472       5,487       78,762       67,159       11,603  
Impairment of Oil and Gas Producing Properties
     —       —       —       —       182,811       (182,811 )
         
 
     58,554       46,762       11,792       162,972       325,700       (162,728 )
         
 
                                                
Operating Income (Loss)
     54,248       50,857       3,391       165,340       (44,290 )     209,630  
 
                                                
Other Income (Expense):
                                                
Interest Income
     190       319       (129 )     500       2,186       (1,686 )
Other Interest Expense
     (7,259 )     (7,905 )     646       (23,013 )     (25,452 )     2,439  
         
 
                                                
Income (Loss) Before Income Taxes
     47,179       43,271       3,908       142,827       (67,556 )     210,383  
Income Tax Expense (Benefit)
     19,296       16,188       3,108       57,781       (29,190 )     86,971  
         
Net Income (Loss)
   $ 27,883     $ 27,083     $ 800     $ 85,046     $ (38,366 )   $ 123,412  
         
 
                                                
Net Income (Loss) Per Share (Diluted)
   $ 0.33     $ 0.33     $ —     $ 1.03     $ (0.47 )   $ 1.50  
         
                                                 
    Three Months Ended           Nine Months Ended    
    June 30,   June 30,
    2010   2009   Variance   2010   2009   Variance
         
PIPELINE AND STORAGE SEGMENT
                                                
Revenues from External Customers
   $ 32,086     $ 30,791     $ 1,295     $ 107,560     $ 105,904     $ 1,656  
Intersegment Revenues
     19,466       20,033       (567 )     60,289       62,026       (1,737 )
         
Total Operating Revenues
     51,552       50,824       728       167,849       167,930       (81 )
         
 
                                                
Operating Expenses:
                                                
Purchased Gas
     67       8       59       139       137       2  
Operation and Maintenance
     18,404       16,690       1,714       55,566       50,546       5,020  
Property, Franchise and Other Taxes
     5,119       4,281       838       15,216       12,789       2,427  
Depreciation, Depletion and Amortization
     8,895       8,750       145       26,617       26,416       201  
         
 
     32,485       29,729       2,756       97,538       89,888       7,650  
         
 
                                                
Operating Income
     19,067       21,095       (2,028 )     70,311       78,042       (7,731 )
 
                                                
Other Income (Expense):
                                                
Interest Income
     65       546       (481 )     117       943       (826 )
Other Income
     119       175       (56 )     365       3,192       (2,827 )
Other Interest Expense
     (6,507 )     (6,505 )     (2 )     (19,684 )     (14,760 )     (4,924 )
         
 
                                                
Income Before Income Taxes
     12,744       15,311       (2,567 )     51,109       67,417       (16,308 )
Income Tax Expense
     5,510       6,090       (580 )     21,073       25,835       (4,762 )
         
Net Income
   $ 7,234     $ 9,221     $ (1,987 )   $ 30,036     $ 41,582     $ (11,546 )
         
 
                                                
Net Income Per Share (Diluted)
   $ 0.09     $ 0.11     $ (0.02 )   $ 0.37     $ 0.52     $ (0.15 )
         

Page 17

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
                                                 
    Three Months Ended           Nine Months Ended    
    June 30,   June 30,
(Thousands of Dollars, except per share amounts)   2010   2009     Variance     2010     2009     Variance  
         
UTILITY SEGMENT
                                                
Revenues from External Customers
   $ 126,326     $ 158,310     $ (31,984 )   $ 707,323     $ 1,009,962     $ (302,639 )
Intersegment Revenues
     2,653       2,940       (287 )     13,315       13,339       (24 )
         
Total Operating Revenues
     128,979       161,250       (32,271 )     720,638       1,023,301       (302,663 )
         
 
                                                
Operating Expenses:
                                                
Purchased Gas
     50,404       80,505       (30,101 )     389,992       681,989       (291,997 )
Operation and Maintenance
     42,899       42,404       495       146,327       155,088       (8,761 )
Property, Franchise and Other Taxes
     10,140       10,491       (351 )     33,142       34,822       (1,680 )
Depreciation, Depletion and Amortization
     10,129       10,010       119       30,125       29,670       455  
         
 
     113,572       143,410       (29,838 )     599,586       901,569       (301,983 )
         
 
                                                
Operating Income
     15,407       17,840       (2,433 )     121,052       121,732       (680 )
 
                                                
Other Income (Expense):
                                                
Interest Income
     164       430       (266 )     1,018       1,349       (331 )
Other Income
     267       251       16       780       763       17  
Other Interest Expense
     (8,998 )     (9,728 )     730       (27,053 )     (22,820 )     (4,233 )
         
 
                                                
Income Before Income Taxes
     6,840       8,793       (1,953 )     95,797       101,024       (5,227 )
Income Tax Expense
     871       3,397       (2,526 )     33,543       40,721       (7,178 )
         
Net Income
   $ 5,969     $ 5,396     $ 573     $ 62,254     $ 60,303     $ 1,951  
         
 
                                                
Net Income Per Share (Diluted)
   $ 0.07     $ 0.07     $ —     $ 0.75     $ 0.75     $ —  
         
                                                 
    Three Months Ended           Nine Months Ended    
    June 30,   June 30,
    2010   2009   Variance   2010   2009   Variance
         
ENERGY MARKETING SEGMENT
                                                
Operating Revenues
   $ 72,830     $ 71,894     $ 936     $ 303,103     $ 350,445     $ (47,342 )
         
 
                                                
Operating Expenses:
                                                
Purchased Gas
     68,704       68,496       208       284,473       333,386       (48,913 )
Operation and Maintenance
     1,847       1,412       435       4,723       4,568       155  
Property, Franchise and Other Taxes
     7       6       1       24       22       2  
Depreciation, Depletion and Amortization
     11       11       —       32       31       1  
         
 
     70,569       69,925       644       289,252       338,007       (48,755 )
         
 
                                                
Operating Income
     2,261       1,969       292       13,851       12,438       1,413  
 
                                                
Other Income (Expense):
                                                
Interest Income
     15       39       (24 )     28       67       (39 )
Other Income
     12       91       (79 )     58       201       (143 )
Other Interest Expense
     (6 )     (14 )     8       (21 )     (209 )     188  
         
 
                                                
Income Before Income Taxes
     2,282       2,085       197       13,916       12,497       1,419  
Income Tax Expense
     871       754       117       5,444       4,988       456  
         
Net Income
   $ 1,411     $ 1,331     $ 80     $ 8,472     $ 7,509     $ 963  
         
 
                                                
Net Income Per Share (Diluted)
   $ 0.02     $ 0.02     $ —     $ 0.10     $ 0.09     $ 0.01  
         

Page 18

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES

SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
                                                 
    Three Months Ended           Nine Months Ended    
    June 30,   June 30,
(Thousands of Dollars, except per share amounts) 2010   2009   Variance   2010   2009   Variance
         
ALL OTHER
                                                
Revenues from External Customers
   $ 9,859     $ 8,269     $ 1,590     $ 35,568     $ 30,523     $ 5,045  
Intersegment Revenues
     1,418       374       1,044       1,418       3,890       (2,472 )
         
Total Operating Revenues
     11,277       8,643       2,634       36,986       34,413       2,573  
         
 
                                                
Operating Expenses:
                                                
Purchased Gas
     1,205       1,181       24       4,209       4,538       (329 )
Operation and Maintenance
     7,111       8,748       (1,637 )     20,692       28,151       (7,459 )
Property, Franchise and Other Taxes
     392       385       7       1,246       1,140       106  
Depreciation, Depletion and Amortization
     2,416       1,243       1,173       6,370       3,918       2,452  
         
 
     11,124       11,557       (433 )     32,517       37,747       (5,230 )
         
 
                                                
Operating Income (Loss)
     153       (2,914 )     3,067       4,469       (3,334 )     7,803  
 
                                                
Other Income (Expense):
                                                
Income from Unconsolidated Subsidiaries
     624       627       (3 )     1,696       2,719       (1,023 )
Impairment of Investment in Partnership
     —       —       —       —       (1,804 )     1,804  
Interest Income
     40       52       (12 )     96       543       (447 )
Other Income
     (7 )     26       (33 )     32       38       (6 )
Other Interest Expense
     (549 )     (560 )     11       (1,629 )     (1,921 )     292  
         
 
                                                
Income (Loss) Before Income Taxes
     261       (2,769 )     3,030       4,664       (3,759 )     8,423  
Income Tax Expense (Benefit)
     75       (1,683 )     1,758       1,739       (3,713 )     5,452  
         
Net Income (Loss)
   $ 186     $ (1,086 )   $ 1,272     $ 2,925     $ (46 )   $ 2,971  
         
 
                                                
Net Income Per Share (Diluted)
   $ —     $ (0.01 )   $ 0.01     $ 0.04     $ —     $ 0.04  
         

Page 19

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
SEGMENT OPERATING RESULTS AND STATISTICS
(UNAUDITED)
                                                 
    Three Months Ended     Nine Months Ended  
    June 30,     June 30,  
(Thousands of Dollars, except per share amounts)   2010     2009     Variance     2010     2009     Variance  
         
CORPORATE
                                                
Revenues from External Customers
   $ 224     $ 228     $ (4 )   $ 652     $ 675     $ (23 )
Intersegment Revenues
     1,003       1,003       —       2,545       3,062       (517 )
         
Total Operating Revenues
     1,227       1,231       (4 )     3,197       3,737       (540 )
         
 
                                                
Operating Expenses:
                                                
Operation and Maintenance
     2,970       2,605       365       9,637       8,573       1,064  
Property, Franchise and Other Taxes
     69       72       (3 )     210       214       (4 )
Depreciation, Depletion and Amortization
     178       173       5       527       521       6  
         
 
     3,217       2,850       367       10,374       9,308       1,066  
         
 
                                                
Operating Loss
     (1,990 )     (1,619 )     (371 )     (7,177 )     (5,571 )     (1,606 )
 
                                                
Other Income (Expense):
                                                
Interest Income
     22,525       22,553       (28 )     67,587       62,243       5,344  
Other Income
     460       979       (519 )     1,238       3,156       (1,918 )
Interest Expense on Long-Term Debt
     (21,115 )     (21,756 )     641       (65,238 )     (57,357 )     (7,881 )
Other Interest Expense
     (985 )     (306 )     (679 )     (1,161 )     (2,824 )     1,663  
         
 
                                                
Loss Before Income Taxes
     (1,105 )     (149 )     (956 )     (4,751 )     (353 )     (4,398 )
Income Tax Benefit
     (1,007 )     (1,108 )     101       (3,530 )     (3,081 )     (449 )
         
Net Income (Loss)
   $ (98 )   $ 959     $ (1,057 )   $ (1,221 )   $ 2,728     $ (3,949 )
         
 
                                                
Net Income (Loss) Per Share (Diluted)
   $ —     $ 0.01     $ (0.01 )   $ (0.02 )   $ 0.03     $ (0.05 )
         
                                                 
    Three Months Ended     Nine Months Ended  
    June 30,     June 30,  
    2010     2009     Variance     2010     2009     Variance  
         
INTERSEGMENT ELIMINATIONS
                                                
Intersegment Revenues
   $ (24,540 )   $ (24,350 )   $ (190 )   $ (77,567 )   $ (82,317 )   $ 4,750  
         
 
                                                
Operating Expenses:
                                                
Purchased Gas
     (21,980 )     (23,221 )     1,241       (73,196 )     (78,879 )     5,683  
Operation and Maintenance
     (2,560 )     (1,129 )     (1,431 )     (4,371 )     (3,438 )     (933 )
         
 
     (24,540 )     (24,350 )     (190 )     (77,567 )     (82,317 )     4,750  
         
 
                                                
Operating Income
     —       —       —       —       —       —  
 
                                                
Other Income (Expense):
                                                
Interest Income
     (22,430 )     (22,479 )     49       (67,297 )     (62,973 )     (4,324 )
Other Interest Expense
     22,430       22,479       (49 )     67,297       62,973       4,324  
         
 
                                                
Net Income
   $ —     $ —     $ —     $ —     $ —     $ —  
         
 
                                                
Net Income Per Share (Diluted)
   $ —     $ —     $ —     $ —     $ —     $ —  
         

Page 20

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
SEGMENT INFORMATION (Continued)
(Thousands of Dollars)
                                                 
    Three Months Ended     Nine Months Ended  
    June 30,     June 30,  
    (Unaudited)     (Unaudited)  
                    Increase                     Increase  
    2010     2009     (Decrease)     2010     2009     (Decrease)  
Capital Expenditures:
                                                
Exploration and Production
   $ 82,863 (1)   $ 34,517 (3)   $ 48,346     $ 273,849 (1) (2)   $ 151,678 (3)   $ 122,171  
Pipeline and Storage
     6,765       7,020       (255 )     22,243       37,240 (4)     (14,997 )
Utility
     13,988       14,557       (569 )     39,513       40,380       (867 )
Energy Marketing
     140       14       126       239       25       214  
 
                                    
Total Reportable Segments
     103,756       56,108       47,648       335,844       229,323       106,521  
All Other
     2,151       3,731       (1,580 )     5,988 (2)     3,805       2,183  
Corporate
     68       104       (36 )     202       149       53  
Eliminations
     —       —       —       —       (344 )     344  
 
                                    
Total Capital Expenditures
   $ 105,975     $ 59,943     $ 46,032     $ 342,034     $ 232,933     $ 109,101  
 
                                    
 
(1)   Amount for the quarter and nine months ended June 30, 2010 includes $24.3 million of accrued capital expenditures, the majority of which was in the Appalachian region. This amount has been excluded from the Consolidated Statement of Cash Flows at June 30, 2010 since it represents a non-cash investing activity at that date.
 
(2)   Capital expenditures for the Exploration and Production segment for the nine months ended June 30, 2010 exclude $9.1 million of capital expenditures, the majority of which was in the Appalachian region. Capital expenditures for All Other for the nine months ended June 30, 2010 exclude $0.7 million of capital expenditures related to the construction of the Midstream Covington Gathering System. Both of these amounts were accrued at September 30, 2009 and paid during the nine months ended June 30, 2010. These amounts were excluded from the Consolidated Statement of Cash Flows at September 30, 2009 since they represented non-cash investing activities at that date. These amounts have been included in the Consolidated Statement of Cash Flows at June 30, 2010.
 
(3)   Amount for the quarter and nine months ended June 30, 2009 includes $9.4 million of accrued capital expenditures, the majority of which was in the Appalachian region. This amount has been excluded from the Consolidated Statement of Cash Flows at June 30, 2009 since it represents a non-cash investing activity at that date.
 
(4)   Amount for the nine months ended June 30, 2009 excludes $16.8 million of capital expenditures related to the Empire Connector project accrued at September 30, 2008 and paid during the nine months ended June 30, 2009. This amount was excluded from the Consolidated Statement of Cash Flows at September 30, 2008 since it represented a non-cash investing activity at that date. The amount has been included in the Consolidated Statement of Cash Flows at June 30, 2009.
     DEGREE DAYS
                                         
                            Percent Colder  
                            (Warmer) Than:  
    Normal     2010     2009     Normal (1)     Last Year (1)  
Three Months Ended June 30
                                        
 
                                        
Buffalo, NY
     927       665       854       (28.3 )     (22.1 )
Erie, PA
     885       631       821       (28.7 )     (23.1 )
 
                                        
Nine Months Ended June 30
                                        
 
                                        
Buffalo, NY
     6,514       6,152       6,558       (5.6 )     (6.2 )
Erie, PA
     6,108       5,842       6,064       (4.4 )     (3.7 )
 
(1)   Percents compare actual 2010 degree days to normal degree days and actual 2010 degree days to actual 2009 degree days.

Page 21

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
EXPLORATION AND PRODUCTION INFORMATION
                                                 
    Three Months Ended     Nine Months Ended  
    June 30,     June 30,  
                    Increase                     Increase  
    2010     2009     (Decrease)     2010     2009     (Decrease)  
Gas Production/Prices:
                                                
Production (MMcf)
                                                
Gulf Coast
     2,745       3,307       (562 )     8,079       7,118       961  
West Coast
     940       1,014       (74 )     2,866       3,063       (197 )
Appalachia
     4,741       2,155       2,586       11,084       6,065       5,019  
 
                                    
Total Production
     8,426       6,476       1,950       22,029       16,246       5,783  
 
                                    
 
                                                
Average Prices (Per Mcf)
                                                
Gulf Coast
   $ 4.95     $ 3.95     $ 1.00     $ 5.26     $ 4.90     $ 0.36  
West Coast
     4.38       3.04       1.34       4.92       4.10       0.82  
Appalachia
     4.45       4.11       0.34       5.10       6.06       (0.96 )
Weighted Average
     4.61       3.86       0.75       5.13       5.18       (0.05 )
Weighted Average after Hedging
     5.74       5.94       (0.20 )     6.16       7.28       (1.12 )
 
                                                
Oil Production/Prices:
                                                
Production (Thousands of Barrels)
                                                
Gulf Coast
     135       176       (41 )     389       470       (81 )
West Coast
     661       654       7       2,007       1,984       23  
Appalachia
     13       14       (1 )     34       41       (7 )
 
                                    
Total Production
     809       844       (35 )     2,430       2,495       (65 )
 
                                    
 
                                                
Average Prices (Per Barrel)
                                                
Gulf Coast
   $ 76.42     $ 56.29     $ 20.13     $ 78.64     $ 50.64     $ 28.00  
West Coast
     71.92       55.77       16.15       71.79       46.84       24.95  
Appalachia
     74.90       48.93       25.97       77.77       54.90       22.87  
Weighted Average
     72.72       55.77       16.95       72.97       47.69       25.28  
Weighted Average after Hedging
     75.23       67.19       8.04       75.65       62.67       12.98  
 
                                                
Total Production (Mmcfe)
     13,280       11,540       1,740       36,609       31,216       5,393  
 
                                    
 
                                                
Selected Operating Performance Statistics:
                                                
General & Administrative Expense per Mcfe (1)
   $ 0.63     $ 0.59     $ 0.04     $ 0.70     $ 0.72     $ (0.02 )
Lease Operating Expense per Mcfe (1)
   $ 1.42     $ 1.22     $ 0.20     $ 1.41     $ 1.43     $ (0.02 )
Depreciation, Depletion & Amortization per Mcfe (1)
   $ 2.18     $ 2.03     $ 0.15     $ 2.15     $ 2.15     $ —  
 
(1)   Refer to page 17 for the General and Administrative Expense, Lease Operating Expense and Depreciation, Depletion, and Amortization Expense for the Exploration and Production segment.

Page 22

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
EXPLORATION AND PRODUCTION INFORMATION
Hedging Summary for the Remaining Three Months of Fiscal 2010
         
SWAPS   Volume   Average Hedge Price
Oil
   0.5 MMBBL   $74.43 / BBL
Gas
   3.9 BCF   $6.95/ MCF
Hedging Summary for Fiscal 2011
         
SWAPS   Volume   Average Hedge Price
Oil
   1.4 MMBBL   $69.76 / BBL
Gas
   19.9 BCF   $6.76 / MCF
Hedging Summary for Fiscal 2012
         
SWAPS   Volume   Average Hedge Price
Oil
   0.8 MMBBL   $68.32 / BBL
Gas
   13.8 BCF   $7.11 / MCF
Hedging Summary for Fiscal 2013
         
SWAPS   Volume   Average Hedge Price
Oil
   0.2 MMBBL   $72.98 / BBL
Gas
   3.8 BCF   $6.65 / MCF
Gross Wells in Process of Drilling
Nine Months Ended June 30, 2010
                                         
                    East        
                    Marcellus     Upper     Total  
    Gulf     West     Shale     Devonian     Company  
Wells in Process — Beginning Period
                                        
Exploratory
     0.00       0.00       16.00 (1) (2)     20.00 (2)     36.00  
Developmental
     0.00       0.00       14.00 (1)     68.00       82.00  
Wells Commenced
                                        
Exploratory
     1.00       0.00       8.00       11.00       20.00  
Developmental
     0.00       43.00       36.00       67.00       146.00  
Wells Completed
                                        
Exploratory
     1.00       0.00       11.00       7.00       19.00  
Developmental
     0.00       42.00       14.00       105.00       161.00  
Wells Plugged & Abandoned
                                        
Exploratory
     0.00       0.00       1.00       1.00       2.00  
Developmental
     0.00       0.00       0.00       2.00       2.00  
Wells Sold
                                        
Exploratory
     0.00       0.00       0.00       1.00       1.00  
Developmental
     0.00       0.00       0.00       0.00       0.00  
Wells in Process — End of Period
                                        
Exploratory
     0.00       0.00       12.00       22.00       34.00  
Developmental
     0.00       1.00       36.00       28.00       65.00  
 
(1)   Gross exploratory wells were decreased by 11 and developmental wells were increased by 11.
 
(2)   Marcellus Shale gross exploratory wells were increased by 2 and Upper Devonian gross exploratory wells were decreased by 2.
Net Wells in Process of Drilling
Nine Months Ended June 30, 2010
                                         
                    East        
                    Marcellus     Upper     Total  
    Gulf     West     Shale     Devonian     Company  
Wells in Process — Beginning Period
                                        
Exploratory
     0.00       0.00       14.00 (3) (4)     19.00 (4)     33.00  
Developmental
     0.00       0.00       8.50 (3)     67.00       75.50  
Wells Commenced
                                        
Exploratory
     0.29       0.00       8.00       11.00       19.29  
Developmental
     0.00       40.72       22.77       67.00       130.49  
Wells Completed
                                        
Exploratory
     0.29       0.00       9.00       7.00       16.29  
Developmental
     0.00       39.72       9.50       105.00       154.22  
Wells Plugged & Abandoned
                                        
Exploratory
     0.00       0.00       1.00       1.00       2.00  
Developmental
     0.00       0.00       0.00       2.00       2.00  
Wells Sold
                                        
Exploratory
     0.00       0.00       0.00       1.00       1.00  
Developmental
     0.00       0.00       0.00       0.00       0.00  
Wells in Process — End of Period
                                        
Exploratory
     0.00       0.00       12.00       21.00       33.00  
Developmental
     0.00       1.00       21.77       27.00       49.77  
 
(3)   Net exploratory wells were decreased by 6.50 and developmental wells were increased by 6.50.
 
(4)   Marcellus Shale net exploratory wells were increased by 1 and Upper Devonian net exploratory wells were decreased by 1.

Page 23

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
EXPLORATION AND PRODUCTION INFORMATION
Fiscal 2011 Financial & Operating Guidance
         
Total Production (Bcfe)
     60 - 70  
 
        
Production by Division (Bcfe)
        
Gulf
     9 - 11  
East
     32 - 39  
West
     19 - 20  
Guidance Based on Crude Oil Average 2011 NYMEX Price ($/Bbl) (without hedges) of $80.00
         
Forecast price differentials
        
 
        
Gulf
   -$2.00 to - $8.00
East
   -$5.00 to - $7.00
West
   -$8.00 to - $11.00
Guidance Based on Natural Gas Average 2011 NYMEX Price ($/MMBtu) (without hedges) of $5.00
         
Forecast price differentials
        
 
        
Gulf
   $0.00 to - $0.10
East
   $0.00 to + $0.25
West
   -$0.10 to - $0.50
 
        
Cost and Expenses $  per Mcfe
        
 
        
Lease Operating Expenses
   $ 1.10 - $1.35  
Depreciation, Depletion and Amortization
   $ 2.12 - $2.22  
Other Taxes (% of Revenue)
   $ 0.10 - $0.20  
Other Operating Expenses
   $ 9M - $11M  
General and Administrative
   $ 38M - $41M  
                 
    Capital Investment by Division   Number of Wells to be Drilled  
Gulf
   $      5M - $15M       0 - 2  
East
   $385M - $440M       120 - 150  
West
   $    35M - $45M       50 - 75  
Total
   $425M - $500M          

Page 24

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
Pipeline & Storage Throughput— (millions of cubic feet — MMcf)
                                                 
    Three Months Ended     Nine Months Ended  
    June 30,     June 30,  
                    Increase                     Increase  
    2010     2009     (Decrease)     2010     2009     (Decrease)  
Firm Transportation — Affiliated
     15,438       17,214       (1,776 )     89,201       98,204       (9,003 )
Firm Transportation — Non-Affiliated
     37,010       43,584       (6,574 )     156,032       198,320       (42,288 )
Interruptible Transportation
     1,016       501       515       3,575       3,375       200  
 
                                    
 
     53,464       61,299       (7,835 )     248,808       299,899       (51,091 )
 
                                    
Utility Throughput — (MMcf)
                                                 
    Three Months Ended     Nine Months Ended  
    June 30,     June 30,  
                    Increase                     Increase  
    2010     2009     (Decrease)     2010     2009     (Decrease)  
Retail Sales:
                                                
Residential Sales
     7,055       8,468       (1,413 )     50,292       55,001       (4,709 )
Commercial Sales
     920       1,221       (301 )     7,666       8,984       (1,318 )
Industrial Sales
     66       55       11       512       499       13  
 
                                    
 
     8,041       9,744       (1,703 )     58,470       64,484       (6,014 )
Off-System Sales
     1,124       —       1,124       4,034       513       3,521  
Transportation
     10,530       10,747       (217 )     51,957       52,476       (519 )
 
                                    
 
     19,695       20,491       (796 )     114,461       117,473       (3,012 )
 
                                    
Energy Marketing Volumes
                                                 
    Three Months Ended   Nine Months Ended
    June 30,   June 30,
                    Increase                   Increase
    2010   2009   (Decrease)   2010   2009   (Decrease)
Natural Gas (MMcf)
    13,047       14,634       (1,587 )     51,144       50,459       685  
 
                                               

Page 25

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
FISCAL 2011 EARNINGS GUIDANCE AND SENSITIVITY
                                         
            Earnings per share sensitivity to changes  
(Fiscal 2011 (Diluted earnings per share guidance*)     from prices used in guidance* ^  
    $1 change per MMBtu gas     $5 change per Bbl oil  
    Earnings Range     Increase     Decrease     Increase     Decrease  
Consolidated Earnings
   $ 2.60 - $2.90       + $0.19       - $0.19       + $0.06       - $0.06  
 
*   Please refer to forward looking statement footnote beginning at page 8 of this document.
 
^   This sensitivity table is current as of August 5, 2010 and only considers revenue from the Exploration and Production segment’s crude oil and natural gas sales. This revenue is based upon pricing used in the Company’s earnings forecast. For its fiscal 2011 earnings forecast, the Company is utilizing flat NYMEX equivalent commodity pricing, exclusive of basis differential, of $5 per MMBtu for natural gas and $80 per Bbl for crude oil. The sensitivities will become obsolete with the passage of time, changes in Seneca’s production forecast, changes in basis differential, as additional hedging contracts are entered into, and with the settling of hedge contracts at their maturity.

Page 26

 

NATIONAL FUEL GAS COMPANY
AND SUBSIDIARIES
                 
    2010     2009  
Quarter Ended June 30 (unaudited)
               
 
                
Operating Revenues
   $ 354,127,000     $ 367,111,000  
 
            
 
                
Net Income Available for Common Stock
   $ 42,585,000     $ 42,904,000  
 
            
 
                
Earnings Per Common Share:
                
Basic
   $ 0.52     $ 0.54  
 
            
Diluted
   $ 0.51     $ 0.53  
 
            
 
                
Weighted Average Common Shares:
                
Used in Basic Calculation
     81,801,377       79,551,195  
 
            
Used in Diluted Calculation
     82,970,921       80,391,402  
 
            
 
                
Nine Months Ended June 30 (unaudited)
                
 
                
Operating Revenues
   $ 1,482,518,000     $ 1,778,919,000  
 
            
 
                
Net Income Available for Common Stock
   $ 187,512,000     $ 73,710,000  
 
            
 
                
Earnings Per Common Share:
                
Basic
   $ 2.31     $ 0.93  
 
            
Diluted
   $ 2.27     $ 0.92  
 
            
 
                
Weighted Average Common Shares:
                
Used in Basic Calculation
     81,178,000       79,450,838  
 
            
Used in Diluted Calculation
     82,556,730       80,248,787  
 
            
 
                
Twelve Months Ended June 30 (unaudited)
                
 
                
Operating Revenues
   $ 1,761,452,000     $ 2,176,776,000  
 
            
 
                
Net Income Available for Common Stock
   $ 214,510,000     $ 116,976,000  
 
            
 
                
Earnings Per Common Share:
                
Basic
   $ 2.65     $ 1.47  
 
            
Diluted
   $ 2.61     $ 1.44  
 
            
 
                
Weighted Average Common Shares:
                
Used in Basic Calculation
     80,941,793       79,805,689  
 
            
Used in Diluted Calculation
     82,335,561       80,994,294  
 
            

Page 27