GLOSSARY OF TERMS

Frequently used abbreviations, acronyms, or terms used in this report:

National Fuel Gas Companies

Regulatory Agencies 

Other

Reference to “the Company”"the Company" in this report means the Registrant or the Registrant and its subsidiaries collectively, as appropriate in the context of the disclosure.  All references to a certain year in this report are to the Company’s fiscal year ended September 30 of that year, unless otherwise noted.

This Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements should be read with the cautionary statements and important factors included in this Form 10-Q at Item 2—MD&A, under the heading “Safe Harbor for Forward-Looking Statements.” Forward-looking statements are all statements other than statements of historical fact, including, without limitation, statements regarding future prospects, plans, objectives, goals, projections, estimates of oil and gas quantities, strategies, future events or performance and underlying assumptions, capital structure, anticipated capital expenditures, completion of construction and other projects, projections for pension and other post-retirement benefit obligations, impacts of the adoption of new accounting rules, and possible outcomes of litigation or regulatory proceedings, as well as 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.

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Part I.  Financial Information

Item 1.  Financial Statements

National Fuel Gas Company

Consolidated Statements of Income and Earnings

Reinvested in the Business

(Unaudited)

National Fuel Gas Company

Consolidated Statements of Comprehensive Income

(Unaudited)

Revisions were made on the Consolidated Balance Sheet at September 30, 2011. This reclassification pertains to pension and post-retirement benefit regulatory asset and regulatory liability balances. The Company has switched from a “gross” presentation to a “net” presentation, which is consistent with the methodology used by the various regulators in analyzing such regulatory asset and liability balances. This reclassification did not impact the Consolidated Statement of Income. In the Consolidated Statement of Cash Flows for the nine monthsquarter ended June 30,December 31, 2011 the changeto reflect non-cash investing activities embedded in Other Liabilities was reduced by $1.9 million and the change in Other Assets was increased by $1.9 million.

The Company also reclassified $26.6 million from Other Regulatory Assets to Other Current Assets and $13.8 million from Other Regulatory Liabilities to Other Accruals and Current LiabilitiesAccounts Payable on the Consolidated Balance SheetSheets at December 31, 2011 and September 30, 2011.  The reclassification was madeThese revisions increased the operating cash flows related to distinguish long-term regulatory assetsthe change in Accounts Payable for the quarter ended December 31, 2011 by $16.4 million and liabilities from current regulatory assets and liabilities. Current regulatory assets are defined as assets recoverable from ratepayers over a twelve-month period. Current regulatory liabilities are defined as liabilities whichdecreased investing cash flows related to Capital Expenditures by the same amounts. 

In subsequent periods, revisions will be passed back to ratepayers over a twelve-month period. These reclassifications did not impact the Consolidated Statement of Income. However, the reclassifications did impactmade on the Consolidated Statement of Cash Flows for the six months ended March 31, 2012, the nine months ended June 30, 2011. On that statement,2012 and the line item labeled Prepaymentsfiscal years ended September 30, 2012 and Other Current Assets was increasedSeptember 30, 2011 to reflect non-cash investing activities embedded in Accounts Payable on the Consolidated Balance Sheets for the respective periods.  These revisions will increase the operating cash flows related to the six months ended March 31, 2012 and the nine months ended June 30, 2012 by $13.6$17.7 million and $32.8 million, respectively, and decrease investing cash flows related to Capital Expenditures by the line item labeled Other Assets was reducedsame amount.  The revision for the fiscal years ended September 30, 2012 and September 30, 2011 will decrease operating cash flows by $13.6 million. Additionally, the line item labeled Other Accruals and Current Liabilities was reduced by $0.3$1.8 million and $6.6 million, respectively, and increase investing cash flows related to Capital Expenditures by the line item labeled Other Liabilities was increased by $0.3 million.same amounts.  The revisions in the Consolidated Statement of Cash Flows noted above represent errors that are not deemed material, individually or in the aggregate, to the prior period consolidated financial statements.

Earnings for Interim Periods.  The Company, in its opinion, has included all adjustments that are necessary for a fair statement of the results of operations for the reported periods. The consolidated financial statements and notes thereto, included herein, should be read in conjunction with the financial statements and notes for the years ended September 30, 2012, 2011 2010 and 20092010 that are included in the Company’s 2011Company's 2012 Form 10-K.  The consolidated financial statements for the year ended September 30, 20122013 will be audited by the Company’sCompany's independent registered public accounting firm after the end of the fiscal year.

The earnings for the ninethree months ended June 30,December 31, 2012 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2012.2013.  Most of the business of the Utility and Energy Marketing segments is seasonal in nature and is influenced by weather conditions.  Due to the seasonal nature of the heating business in the Utility and Energy Marketing segments, earnings during the winter months normally represent a substantial part of the earnings that those segments are expected to achieve for the entire fiscal year.  The Company’s business segments are discussed more fully in Note 7—7 – Business Segment Information.

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Consolidated Statement of Cash Flows.  For purposes of the Consolidated Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of generally three months or less to be cash equivalents.

At June 30, 2012, the

The Company has accounts payable and accrued $98.4 million ofliabilities recorded on its Consolidated Balance Sheets that are related to capital expenditures.  This amount wasThese amounts represent non-cash investing activities at the

balance sheet date.  Accordingly, they are excluded from the Consolidated Statement of Cash Flows at June 30, 2012 since it represents awhen they are recorded as liabilities and included in the Consolidated Statement of Cash Flows when they are paid in the subsequent period.  The following table summarizes the Company’s non-cash investing activity at that date. Accrued capital expenditures at June 30, 2012 are included inrecorded as Accounts Payable and Other Accruals and Current Liabilities on the Consolidated Balance Sheet.Sheet:

At September 30, 2011, the Company accrued $72.2 million of capital expenditures. This amount was excluded from the Consolidated Statement of Cash Flows at September 30, 2011 since it represented a non-cash investing activity at that date. These capital expenditures were paid during the quarter ended December 31, 2011 and have been included in the Consolidated Statement of Cash Flows for the nine months ended June 30, 2012. Accrued capital expenditures at September 30, 2011 are included in Other Accruals and Current Liabilities on the Consolidated Balance Sheet.

At June 30, 2011, the Company accrued $66.6 million of capital expenditures. This amount was excluded from the Consolidated Statement of Cash Flows at June 30, 2011 since it represented a non-cash investing activity at that date.

At September 30, 2010, the Company accrued $55.5 million of capital expenditures. This amount was excluded from the Consolidated Statement of Cash Flows at September 30, 2010 since it represented a non-cash investing activity at that date. These capital expenditures were paid during the quarter ended December 31, 2010 and have been included in the Consolidated Statement of Cash Flows for the nine months ended June 30, 2011.

Hedging Collateral Deposits.Deposits.  This is an account title for cash held in margin accounts funded by the Company to serve as collateral for hedging positions.  At JuneDecember 31, 2012 the Company did not have any hedging collateral deposits, but at September 30, 2012, the Companyit had hedging collateral deposits of $3.4$0.4 million related to its exchange-traded futures contracts. At September 30, 2011, the Company had hedging collateral deposits of $5.5 million related to its exchange-traded futures contracts and $14.2 million related to its over-the-counter crude oil swap agreements.  In accordance with its accounting policy, the Company does not offset hedging collateral deposits paid or received against related derivative financial instruments liability or asset balances.

Gas Stored Underground—Underground - Current.  In the Utility segment, gas stored underground – current is carried at lower of cost or market, on a LIFO method.  Gas stored underground – current normally declines during the first and second quarters of the year and is replenished during the third and fourth quarters.  In the Utility segment, the current cost of replacing gas withdrawn from storage is recorded in the Consolidated Statements of Income and a reserve for gas replacement is recorded in the Consolidated Balance Sheets under the caption “Other Accruals and Current Liabilities.”  Such reserve, which amounted to $30.5$6.7 million at June 30,December 31, 2012, is reduced to zero by September 30 of each year as the inventory is replenished.

Property, Plant and Equipment.In the Company’s Exploration and Production segment, oil and gas property acquisition, exploration and development costs are capitalized under the full cost method of accounting. Under this methodology, all costs associated with property acquisition, exploration and development activities are capitalized, including internal costs directly identified with acquisition, exploration and development activities. The internal costs that are capitalized do not include any costs related to production, general corporate overhead, or similar activities. The Company does not recognize any gain or loss on the sale or other disposition of oil and gas properties unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center.

Capitalized costs include costs related to unproved properties, which are excluded from amortization until proved reserves are found or it is determined that the unproved properties are impaired.  Such costs amounted to $147.8$155.6 million and $226.3$146.1 million at June 30,December 31, 2012 and September 30, 2011,2012, respectively.  All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred. The amount of any impairment is transferred to the pool of capitalized costs being amortized.

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In April 2011, the Company completed the sale of its offshore oil and natural gas properties in the Gulf of Mexico. Initial proceeds received through June 30, 2011 totaled $61.8 million. Price adjustments subsequent to June 30, 2011 reduced the final net proceeds to $55.4 million.

Capitalized costs are subject to the SEC full cost ceiling test. The ceiling test, which is performed each quarter, determines a limit, or ceiling, on the amount of property acquisition, exploration and development costs that can be capitalized. The ceiling under this test represents (a) the present value of estimated future net cash flows, excluding future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, using a discount factor of 10%, which is computed by applying prices of oil and gas (as adjusted for hedging) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet, less estimated future expenditures, plus (b) the cost of unevaluated properties not being depleted, less (c) income tax effects related to the differences between the book and tax basis of the properties. The natural gas and oil prices used to calculate the full cost ceiling are based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the twelve-month period prior to the end of the reporting period. If capitalized costs, net of accumulated depreciation, depletion and amortization and related deferred income taxes, exceed the ceiling at the end of any quarter, a permanent impairment is required to be charged to earnings in that quarter.  At June 30,December 31, 2012, the ceiling exceeded the book value of the oil and gas properties by approximately $107.0$7.3 million.

Accumulated Other Comprehensive Loss.  The components of Accumulated Other Comprehensive Loss, net of related tax effect, are as follows (in thousands):

Other Current Assets.  The components of the Company’s Other Current Assets are as follows (in thousands):

Other Accruals and Current Liabilities.  The components of the Company’s Other Accruals and Current Liabilities are as follows (in thousands):

Earnings Per Common Share.  Basic earnings per common share is computed by dividing net income available for common stock by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.  For purposes of determining earnings per common share, the only potentially dilutive securities the Company has outstanding are stock options, SARs and restricted stock units.  The diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these securities as determined using the Treasury Stock Method.  Stock options, SARs and restricted stock units that are antidilutive are excluded from the calculation of diluted earnings per common share.  There were 976,870422,681 and 833,170191,285 securities excluded as being antidilutive for the quarterquarters ended December 31, 2012 and nine months ended June 30, 2012,2011, respectively. There were 6,512 securities excluded as being antidilutive for

Stock-Based Compensation.  During the quarter ended June 30, 2011. There were no antidilutive securities for the nine months ended June 30, 2011.

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Stock-Based Compensation.During the nine months ended June 30,December 31, 2012, the Company granted 166,000412,970 non-performance based SARs having a weighted average exercise price of $55.09$53.05 per share.  The weighted average grant date fair value of these SARs was $11.20$10.66 per share.  These SARs willmay be settled in cash, in shares of common stock of the Company, or in a combination of cash and shares of common stock of the Company, as determined by the Company.  These SARs are considered equity awards under the current authoritative guidance for stock-based compensation.  The accounting for those SARs is the same as the accounting for stock options.  The non-performance based SARs granted during the nine monthsquarter ended June 30,December 31, 2012 vest and become exercisable annually in one-third increments and become exercisable on the third anniversary of the date of grant.increments.  The weighted average grant date fair value of these non-performance based SARs granted during the nine monthsquarter ended June 30, December 31,

2012 was estimated on the date of grant using the same accounting treatment that is applied for stock options.  There were no stock options granted during the nine monthsquarter ended June 30,December 31, 2012.

The Company granted 41,525210,206 performance based restricted share awards (non-vested stock as defined by the current accounting literature)units during the nine monthsquarter ended June 30,December 31, 2012. The weighted average fair value of such performance based restricted sharesstock units was $55.09$48.49 per share. In addition,share for the quarter ended December 31, 2012. The performance based restricted stock units granted during the quarter ended December 31, 2012 must meet a performance condition over the performance cycle of October 1, 2012 to September 30, 2015.  The performance condition over the performance cycle, generally stated, is the Company’s total return on capital as compared to the same metric for companies in the Natural Gas Distribution and Integrated Natural Gas Companies group as calculated and reported in the Monthly Utility Reports of AUS, Inc., a leading industry consultant.  The number of performance based restricted stock units that will vest will depend upon the Company’s performance relative to the report group and not upon the absolute level of return achieved by the Company.  The Company also granted 68,45026,100 non-performance based restricted stock units during the nine monthsquarter ended June 30,December 31, 2012.  The weighted average fair value of such non-performance based restricted stock units was $47.10$47.20 per share for the nine monthsquarter ended June 30,December 31, 2012.  Restricted stock units, both performance based and non-performance based, represent the right to receive shares of common stock of the Company (or the equivalent value in cash or a combination of cash and shares of common stock of the Company, as determined by the Company) at the end of a specified time period. TheseThe performance based and non-performance based restricted stock units do not entitle the participant to receive dividends during the vesting period. The accounting for theseperformance based and non-performance based restricted stock units is the same as the accounting for restricted share awards, except that the fair value at the date of grant of the restricted stock units must be reduced by the present value of forgone dividends over the vesting term of the award. There were no restricted share awards granted during the quarter ended December 31, 2012. 

The Company did not fully recognize a tax benefit from excess tax deductions related to stock-based compensation for calendar years 2009 through 2011 due to tax loss carryforwards. The Company expects to recognize additional tax benefits of $32.2 million as an adjustment to Paid in Capital in future years as the tax loss carryforwards are utilized.

New Authoritative Accounting and Financial Reporting Guidance.In May 2011, the FASB issued authoritative guidance regarding fair value measurement as a joint project with the IASB. The objective of the guidance was to bring together as closely as possible the fair value measurement and disclosure guidance issued by the two boards. The guidance includes a few updates to measurement guidance and some enhanced disclosure requirements. For all Level 3 fair value measurements, the guidance requires quantitative information about significant unobservable inputs used and a description of the valuation processes in place. The guidance also requires a qualitative discussion about the sensitivity of recurring Level 3 fair value measurements and information about any transfers between Level 1 and Level 2 of the fair value hierarchy. The new guidance also contains a requirement that all fair value measurements, whether they are recorded on the balance sheet or disclosed in the footnotes, be classified as Level 1, Level 2 or Level 3 within the fair value hierarchy. This authoritative guidance became effective for the quarter ended March 31, 2012. The Company has updated its disclosures to reflect the new requirements in Note 2 – Fair Value Measurements.

In June 2011, the FASB issued authoritative guidance regarding the presentation of comprehensive income.  The new guidance allows companies only two choices for presenting net income and other comprehensive income: in a single continuous statement, or in two separate, but consecutive, statements.  The guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity.  This authoritative guidance will be effective as of the Company’s first quarter of fiscal 2013 and is not expected to have a significant impact on the Company’s results of operations.

In September 2011, the FASB issued revised authoritative guidance that simplifies the testing of goodwill for impairment. The revised guidance allows companies the option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. The revised authoritative guidance is required to bebecame effective for the Company’s annual impairment test performed in fiscal 2013. While early adoption is permitted, thequarter ended December 31, 2012.  The Company has not adoptedupdated its financial statements to reflect the new provisions to date.

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In December 2011, the FASB issued authoritative guidance requiring enhanced disclosures regarding offsetting assets and liabilities.  Companies are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement.  This authoritative guidance will be effective as of the Company’s first quarter of fiscal 2014 and is not expected to have a significant impact on the Company’s financial statements.

Note 2—2 – Fair Value Measurements

The FASB authoritative guidance regarding fair value measurements establishes a fair-value hierarchy and prioritizes the inputs used in valuation techniques that measure fair value. Those inputs are prioritized into three levels. Level 1 inputs are unadjusted quoted prices in active markets for assets or liabilities that the Company can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly at the measurement date. Level 3 inputs are unobservable inputs for the asset or liability at the measurement date. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

The following table sets forth, by level within the fair value hierarchy, the Company’sCompany's financial assets and liabilities (as applicable) that were accounted for at fair value on a recurring basis as of June 30,December 31, 2012 and September 30, 2011.2012.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.