NFG - Earnings call transcript Q3 2019 | National Fuel Gas Company

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Operator

Good morning. My name is Suzanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2019 National Fuel Gas Company Earnings Conference Call. [Operator Instructions].

Mr. Investor may of your Director Webster, Relations, begin you conference. Ken

Kenneth Webster

questions. evening's We Suzanne, for joining last Company us are and Fuel you, from appreciate the a and the prepared release. of Bauer, call on good At Seneca President of Treasurer Dave call the and discussion remarks, and Officer; end Officer; Thank Executive Financial Gas Chief conference morning. the we you Resources. National open will With John to Camiolo, of today's us Karen discussion earnings Principal McGinnis, President on

and The our investor third quarter may during fiscal XXXX website. Relations have earnings refer on release posted call. these materials August today's been We to presentation Investor

to would teleconference that We like statements. remind you forward-looking today's will contain

are projections last refer made a which statements date listing of and beliefs they in certain to faith speak the made, are differ expectations, may release Fuel's basis, only and National risk reasonable to materially. and for factors. have in specific a evening's are results earnings believed actual may These of good as While you

the National Energy will in Barclays participating be Conference in Fuel September.

team. If contact on attending, management the or planners schedule plan a with the me to meeting you conference please

With over Dave that, to I'll Bauer. turn it

David Bauer

everyone. morning, Thanks, Ken. Good

great Before the us best lasting great very I a to team, we we take and National future. him impression and great career culture, company, to on the path the year wish the and today. and like his in XX-plus has a very I'd guide helped left on much are assets recognize He's to start a with quarter, minute Ron the outstanding Tanski company. Ron with Fuel a the

Camiolo welcome new into to role. like her also Karen I'd

National previously role haven't her and Officer. of Fuel, new in met Chief joined role. she with her Karen, For Accounting that since a you fit is held I the great she I've worked of those

of our was face natural another system, gas example In the model. integrated keep In prices Fuel. and year benefits Pipeline the utility our in earnings quarter Empire of particular, gathering projections. diversified and one helped with consistent internal of good strength generally great and continued third it line last was in lower revenues the on business The a with our lower our for National businesses

track. things very are Operationally, much on

During new the the to online quarter, the brought were completed County. in X on in two schedule in The Seneca Lycoming Seneca's WDA, growth pads, XX% all contributed production. and sequential other wells

increasing peers. us low our We that operations, and help our recoverable driving continued maintain to our among advantage optimize efficiencies our resources cost

works our coordinate to basis same our returns. level our closely team to maximize In At on of with activity the capital the Seneca gathering increase. continues just-in-time time, buildout deploying California, system, to a

steaming Following commenced a drilling our Midway. at multi-month recently operations South program, in development Pioneer we

call. next results We quarter's initial on expect discuss production to

addition, In our see we development program. to XXN from strong production continue

to next Seneca's given reduce weakness drilling natural activity. year, we in to Looking the plan gas prices,

quarter of Our we next Tioga year. rig drilling in be the on expect the this finishes we it in fiscal that will some once second rig and XXX tract intend expires pad County, release contract a time which December,

program While I'm return CRV as focus balance Utica as acceptable return activity strong. We'll optimistic producer per sheet supply-demand levels wells. our we'll on activity, prices the to preserve the will which and reduced normalizes slows, our keep balance and economics

to to investments lateral in N Line well, swing on activities pipelines. businesses, connecting distribution and transition full regulated we incremental year, next project, $X in Shell expand the new which the revenues Beaver Construction million will to our approximately and of year. County, our which for are be Pennsylvania. modernize our petrochemical continue is This In make should in Monaca system expansion, end around in fiscal service facility with significant a right the our add

Line from of N our to We further come. producers and capacity years line optimistic end that continue users, and expansion the to see system I'm see in interest both in additional we'll in

its received from May. project proceed North Empire notice FERC to Our in

have We ordered been the at in-service have The since is and track half point, this second kicked off everything an on construction fiscal items long those for compressor activities all XXXX. date at sites. in of lead

a more is fully this subscribed annual As revenues. reminder, $XX and project in million add will than

Our Leidy last on the Transco filed We South FMXXX progressing. application project project. for Wednesday, our application is certificate companion filed its FERC also with And month.

about keep for approval in-service track for the East both transportation path will XXXX Assuming the expect annual on will add a which FERC's great which XX It pipeline business, $XX months, normal project late in our calendar project gain million will in our we process, and Seneca, for Coast to markets. date. certificate a which is revenues a

Supply this will week, a income rate their proceeding filed pipelines federal with case FERC. rates. Corporation requirement FERC's that reflect Earlier tax in address That corporate change the

In our hopeful pipeline considers the overall in effect and subject rates into February straightforward, reach can refund. issues go filing addition, The we the expenses and increased of the These settlement in operations. are pretty I'm we've to that. so investments rate a the numerous will made case X base before

on At achieve mileage its is year. modernization for targets system pace Utility, replacement to the our program

provide for jurisdiction, past the service provides our of modernization these our years, that In recovery our expect. investments rate business. and in taken a growth of approach timely York to system the tracker New a upgrading safe we've modest and level For our methodical provides customers to several infrastructure reliable

of National one were benefits evident. diversification In quarter closing, good the a was Fuel, which for in particularly integration and it

are and businesses, We execute continue the grow the expansion our on to schedule. to modernization according plans our regulated to projects all proceeding At company.

at our come. solid right expect two thing in the the back in do, in a to but On program, scaling keeping side, Appalachia gas the we even drilling is production prices, growth still years rig gathering drop the to and nonregulated a

positions Overall, for I'm future for that value us will business growth our confident add well and model shareholders.

John. that, call turn over the With I'll to

John McGinnis

with net third by the increase during the addition from XX% quarter, increase This produced or had Seneca everyone. line good and solid Marcellus our We a in pad results year WDA, full between a an X morning, quarter came Bcfe of of was midpoint. Bcfe primarily the the XX.X quarter. pads driven well with Dave, and X pad expectation. last almost as around in a pads, online from Production Lycoming Marcellus year-over-year last quarter late as to guidance XXX X at for production XXX a remains growth the quarter. in XX% Bcf, Thanks,

of largely production in Marcellus two has Lycoming. quarter be the just and pad pad Our pads, and begun fourth the new timing WDA, the performance in flowback; by Utica the the driven will which

we into market. X encouraged Once now shape Bcf Approximately or XX% of Utica perspective our for with WDA at is XX updated optimization. have at fiscal design from been provide to midpoint these producing, continue the and spot additional For our we realized the expected XX year, the about the XX pricing by the physically and in months, remainder type overall we results. our of will at completion remaining and tied price least in the $X.XX. volumes half to protection our online of wells drill Bcf related financially an With half production other to with a of and be all are of wells good insight curve basis locked

months. wells continue Utica wells for or new have over And been X at finally, perform online County in All four now above Tioga our our four to expectations.

investor production flat can these million essentially has our As at Slide of in see over you XX.X per an on presentation, from wells day updated period. time XX average remained this

obtaining XX quarter. a recently In On in increase third drilled the Pioneer California, our Coalinga. injection and barrels Pioneer XX have both wells, quarter, of XXX,XXX over and slight Coalinga, we've in produced last oil X permits in during we

We accelerated ramp we Pioneer some our have facility activity as also level. at buildouts up

expenditures around of we $X $XX million XXXX California our capital result, a million. to total by increased As expected have a

mentioned economic. is expect and currently our XXXX. current the in a prices XXX begun currently a response our quarter, see is projects As Pioneer, Midway remain and very we the scheduled fiscal have and oil in WTI, day, of considering per wells pricing producing next At to barrels to last Sunset weeks. early development steaming coming completed phase XXN premium gross is these at production At over

guidance we $XXX XXXX and have With activity tightened CapEx million $XXX up between in the California, to additional million. our fiscal

to Moving gas to natural quarter. to during guidance. Due the drop fiscal sustained to plan a second prices, low we now rig 'XX our

forecasted As the of XX year to approximately midpoint We a result of range Utica of between and a our are WDA. million these wells to Marcellus XX levels, X/X 'XX to the with $XXX $XX next around to guidance wells to our plan $XXX million, expenditures between expected bring capital reduced production from activity wells decrease our in XX million range. fiscal

in production a but growth, significantly Bcfe, our XX% Our XXXX. reduced impact of between forecasted impact Net year-over-year. activity beyond around to production to 'XX not fiscal XXX is range growth to increase expected midpoint certainly is expected profile will 'XX fiscal at the XXX

average the that our X-rig our sales high the able investor program, to commitments. be Seneca production see mid- to XX That in with and you on single of over presentation, expect production Slide said, years. firm next the Thereafter, as few transportation digits still expect to generate we fully growth can annual utilizes

to remaining in of price protected physically. The portfolio. Bcf Mcf continue Bcf XX% and XX% completely another XX into locked sales for opportunities, around the is avoid XXX production XX XX% we And of will additional locked in we is sales amount, over with per sale XX% an a this see firm effort gas as Bcf expected firm or or basis approximately transportation, more firm $X.XX just layer have price-related realized by production when risk our spot curtailments. always, Of of a we 'XX, in available market. in in lock that to fiscal In from is and almost or

over it And to I'll with that, Karen. turn

Karen Camiolo

impacting to Thank and the GAAP last $X.XX good a had investments earnings nonqualified plan. the the and marking-to-market related in of John, Similar were effectiveness third Fuel's share. and you, few everyone. quarter comparability per quarter, items benefit to National we morning, hedging

operating our items, results those $X.XX per Excluding were share.

evening's well gas detailed impact operations, are recent variances, and drop Last of a the on In our provides modest there oil a few prices had hedged for the being for E&P quarter. worth year-over-year both discussing. our larger the year, items overview a the natural in but release results despite

expires gas at of remainder also some accelerated tax take credit, With Seneca in for activities trend We being mind, year. with at the and commodity the result lower $X.XX $XX.XX in to prices, fiscal half XXXX range end per natural share, earnings $X.XX being for X to the of recovery end the assumes continue LOE likely our $X.XX now year. midpoint. the months guidance We've for XXXX. down is oil our which the the the to enhanced $X.XX barrel toward this California in which This of range $X.XX a fiscal associated for remaining the advantage of Mcfe per of per oil per expect will Roughly high revised at is decrease our of of guidance MMBtu this will to $X.XX for that year. guidance fiscal

the our gathering The activities, a can acceleration and decrease of energy Seneca's business of facility interest nonoperated related attributed a in in rest marketing processing ownership segment. to in EOR-related impairment our lower our be small margin the to

and All unchanged detailed earnings relatively of our other last release. night's of Page fiscal XXXX on X guidance are assumptions are

decrease the price fiscal natural The to to a driver preliminary initiating year-over-year lower biggest gas are at slight is we XXXX. $X.XX the realization. earnings which, per midpoint, range Looking share, of in guidance is $X.XX XXXX, from

$X.XX prices for average with We in the $X.XX spot winter in prices and are currently gas to assuming summer. $X MMBtu the per

to price sales the saw firm during months. hedges we some rolling favorable and off during also addition winter some XXXX, pricing spot In fixed favorable significant

fiscal XXXX, the has deteriorated strip forward Looking recently. to

to prices, change about Hub, Henry and spot So for per $X.XX gas reference, by $X.XX impacts both earnings a share.

a For are will our XXX% of and $XX index, of project largely of assuming barrel, priced oil, NYMEX. at the Midway per premium California oil, Sunset that pricing off we trade

As we're then guidance volatility our strip considerable there's forward to finalize the all When current in strip. prices. in update aware, XXXX forward reflect been November, we the will we

place prices This credit With to credit credit oil not the remained available relates been in out recovery oil fiscal in fiscal next for low. driver year-over-year increasing as completely spaces XXXX since this has significant XXXX. be That credit. prices enhanced year, year. Another the will

that Gathering our our similar G&A expected This be production. revenues impact Mcfe impacts million to and be We expect tax effective cost on we higher to increase will in $XXX by XX% also Seneca's approximately $X.XX are unit and Gathering drive per to assumptions or offset As and XXXX the Seneca's other positive significant XX%. should from help higher XXXX These between a XXXX. total costs guidance. about production price result, rate fiscal with to lower be has midpoint range a to of unit down to higher earnings. tax ranges a to increase partially $X.XX our segment's anticipate of production fiscal $XXX million to expected

expenses, increase fall the in modest increase line. should most expected With of revenue bottom operating straight the this to

regulated we our anticipating are modest are to offset at operations, the pricing at projecting we challenges Looking growth some Seneca.

to mechanism investments. in modernization service distribution in we York to see over New reliability invest by fiscal is supported factors: an At X% expect This a continue to first, by the driven our continue increase system, improving to in and the tracking small of second, of utility, recovery economy provides X safety usage these amount of our customer our territories; industrial and growth we X% and margin we XXXX. timely

offset operating inflation be We will expect margin costs. growth modest by our that in this

our be to which second has drivers the related to XXXX; in of target to $XXX project, service expect a to $XXX and in of to a Line to main our revenues revenues date for proceeding expected to range half rate the which we to XXXX; Empire revenues the Supply X% increase expansion related of revenues estimated million. fiscal at FERC-regulated increase project, X all fiscal filed a is million pipelines, N associated North week. X% in Switching The Corporation are: earlier to with the of in-service Monaca

original loss the the in anchor impact Going Connector. is of year Empire opposite direction of the on shipper full the the

cyclically operating costs of high our the As year for XXXX business. was discussed, pipeline previously

lower below-the-line expect we increase XXXX a XXXX, in expense we to than expect O&M costs to percent While largely offset few benefit an savings. be retirement those

offset pieces fiscal nature moving Altogether, XXXX. providing there from challenging measure our with predictability the businesses regulated stability environment a The provides commodity growth business of and diversified our the modest are we lot to and nice between of XXXX a price a see. of

Turning to capital spending.

to with to segment range XXXX individual our $XXX million in million no tightening to $XXX the are We change relatively small ranges.

At Looking $XXX million. towards CapEx is preliminary range the is XXXX, XXXX. midpoint, $XXX to compared this our to million flat

Within of the the $XXX ongoing Seneca & activity spending million based of to range the is is the some movement upon there North the primarily segment Empire This with second is Storage of $XXX construction project. increasing million. a year-over-year, to reduced at in Pipeline offset driven This segments, increase our lower by by half year.

perspective. financing Lastly, from a

capital modest We a leave expect September. funds the amount fiscal short-term This minor to range. lower operations our of exceed will from resulting a our capital in us the end from by prices at XXXX, a expenditures commodity at of and borrowings with likely slight change of in amount midpoint

we year, to be reduction operations. substantially expenditures capital covered with all our expect in Looking Seneca funds spending, next the from by of

operator for the With line that, open ask the we will question. to

Operator

[Operator question Instructions]. Holly first the from of And of our Howard. line with comes Scotia Stewart

Holly Stewart

a high has talk that kind single digits activity a in just area? remarks prepared how that. mentioned the you changed? you your minutes And mid- about we rig Maybe, of Can the about is could beyond spend John, set each then And few XXXX in guide. X talking to

John McGinnis

area, continued really in both activity were sold we that the to The firm is couple Holly. our market layer additional years. have now in Lycoming the spot next to months, volumes firm activity to the to our rig would be and this sales. With not of drop No, will that EDA EDA. commitments this generate the next and able allow planning sales in fulfill we're in us And few transportation planned in if over Tioga in would over the

So WDA. the the be rigs will two in

Holly Stewart

one to keep then is Or two there that the WDA? plan in those crews? release crews a And Okay. of working does

John McGinnis

to you crews? frac the Are referring

Holly Stewart

sorry. Yes,

John McGinnis

in handle obviously, WDA. Yes. crew rigs one Yes. No, can two the

a will we spot not So going be using crew forward.

Holly Stewart

of Okay. And mid- longer-term then X-rig kind program numbers? the is is driving what that growth to high

John McGinnis

is. it Yes,

Holly Stewart

Okay.

Okay. sense can of Any us capital give that? for you

John McGinnis

depending But on a next drop we to into going XXX all as little could Well, related going said, it much in, as we're $XX as million. about drop $XXX over year, million. bit to the that, -- completion just

Holly Stewart

provided I great. process. then just Northern last but update, Dave, kind we the maybe quarter That's stood guess, Access probably And where of you with an for Okay. on

North of application. then, stages, projects enhancement you of I us very regulators here? we the maybe an go supply can at very the Realizing since just East give X these on kind where think different different have but And are denied kind where we update are? from

David Bauer

clear you that proceed. position is today XXX, go. quarter a had in of Yes. waiver We, much had going to project in pretty We're But victories as on the notice know, this at a could New really for apply project oppose on spot pretty it's step where FERC a the And very that York a aren't courts. to any we're our different we with in way. finding versus

really in time given thinking Seneca's world. worst not is a XXXX we're that thing So the longer-term reduced this activity, likely project, in the is the XXXX, level frame. delay of And

Operator

comes Raymond of And of James. question next Loy from line the Gordon your

Gordon Loy

So you $X.XX just could see, see get is quick, guidance some color assumes which I -- considered -- real on guess, dynamics guess, that price rig? to have guys third provide adding see a I I would you and gas, XXXX that to kind you what NYMEX of

John McGinnis

not we forward so XX, is the we'd would sure, plus, look the at reconsider. strip guess little forward be we'd would to there. the Obviously, begin -- I But longer driver going XX bit looking And strip. a Yes. to months I'm term, $X.XX

Gordon Loy

assuming you looking off Bcfe at decline XXXX year. production have then XXX makes I the That that of similarly base get guess And is, to guide, sense. guidance? you what to production are my for to follow-up Got XXX it. kind at of

David Bauer

that understand didn't Could you I question? it. repeat

Gordon Loy

Yes.

that when an what you're to guidance? the XXXX you're decline So production assuming kind looking get the is idea of I at wanted base of just

David Bauer

our It Marcellus Yes. varies But is typically base XX%, across area. XX% our decline.

much because Our wells. bit new XX% That's base a I would a it's -- little many Utica probably, -- decline. been drilling more is higher to we've XX% say,

Operator

Our next from question from Ryan comes line Citi. Levine of of

Ryan Levine

potential you to rig speak in in that? the Regarding rig can your the dropping implications dropping the next year, or Midstream of

John McGinnis

from Well, reduced the the level guidance that of we standpoint capital a put out activity. reflects

in I trip on for going projects, had my that remarks, previously developed been pads focus drilling the Marcellus. wells we're return to said Utica As the

should that of pretty low. So our keep level spending relative gathering

Ryan Levine

exposure you next of alter the different about basis Okay. drilling gas exposure basis is the Or this exposed? And then that change still it in in terms year, is X/X gas three different your to your between plan basis?

David Bauer

is Really Yes. to be probably is from market. historically higher from And we've XXX WDA rigs spot to going be since most X and than spot see has to $X.XX the the exposure X of in it'll anywhere But in exposure the with begin Leidy increasing on the what the within continue increased increased run we'll have the And points. where there. TGP really receipt to run we'll WDA. that's seen activity, $X.XX

Ryan Levine

Okay.

So X-X-X.

Operator

Instructions]. [Operator

of Our of next Jefferies. Chris question comes the Sighinolfi line from

Christopher Sighinolfi

touch few wanted I to I Seneca on first John, items. on, guess, a

point you the sort that Is the better can the the production year? there prepared at detailed I But curious production pad growth help for had of throughout if wells the completion correctly, would I'm curve you XX XX in Utica year. the refine heard the I remarks, of us of to think year. anything in You XX next and Marcellus shape cadence this share

John McGinnis

to down those out cadence not calculate sit be that. per WDA. of I I'd And and have in X/X the quarter. wells Yes. have done will the

something we'll to get So back for you. that's and up have

Christopher Sighinolfi

is about half front at total? at a thinking anything guess as the say mean think generically I in you growth Okay. could back to you be point, there Or I in that meaningful this year going point you versus this half? are

John McGinnis

Yes.

pads the quarter, consistent for end second come early quarter the First on of few towards then, first remainder in of the and the the fairly its' year.

Christopher Sighinolfi

consistent Fairly adds?

John McGinnis

Yes. Yes.

Christopher Sighinolfi

you're but running of end Or as fairly with we -- completion 'XX, and are drilling with forecast of the crew, uncompleted shape fiscal that DUC Okay. inventory similar that high drilled giving is to plan at I being guess year digits, year? to the be X that single rigs to And going mid- this you think about next X I that inventory the is to the beyond but guess change? up adding with

John McGinnis

will quarter No. And We'll at XXXX into point, of begin our have spot actually eat the crew -- count. to disappear. and going through second least DUC at we'll it'll then a that we

Christopher Sighinolfi

Okay.

Okay. keep on about can so question up just reduced following to XXXX. And two going, rigs, predicated drilling if profile Holly's growth completion wanted I I on crew? verify, beyond outlook's one that the

John McGinnis

single we're Right forecasting XXXX. going beyond Yes. a two forward and now, crew rigs

Christopher Sighinolfi

the pullback meaningful look And crew, entire the been E&Ps. activity I guess I a of there's as on at all pretty regional

know the are cost mean in how but aggregate just I teams these have contracted, reduction I opportunities there service to don't So long -- you other regional activity? given push lower

John McGinnis

Yes.

move we'll like once we or Chris, layer see first that a into then we'll continue certainly to take in try step forward. where what looking the As activity drop back reassess looks we to But to months, be is, additional and we going certainly winter pricing sales. and rig

Christopher Sighinolfi

Okay. I if two And could. I have more, then

Just Slide the the this risen change the quarters. that X. would CapEx presentation, you Utica or telling latest projected couple well, without just gathering last that steadily footnotes any anything, the of over it's noticed be per is John,

the driven is intend, use But by? cost is that creep curious Marcellus of that which the you slide just I has have in you point to the been earlier. same mentioned that what still Dave hold what very the that think program pads efficient it's about

David Bauer

to had in bit this deck this updated took at week. an get scrub had a $XXX. out be last another of numbers it Yes. closer further number Chris, night, Dave. -- questions bust and next and on it. We're number out took turns this going the a should We The some really and to look we

Christopher Sighinolfi

Okay.

fairly quarter's I $XXX, spend. be with So last consistent would guess, that

David Bauer

Yes.

Christopher Sighinolfi

to luck on Karen, question. And and best congrats to first, let I then you your new question, a didn't final promotion want of I asking the guess, Okay. my the in role, opportunity

Karen Camiolo

have to answer X any for and least didn't Dave at well, check teleconference. Oh, I'll back questions

it. for go let's So

Christopher Sighinolfi

lower Dave had front about last on does limit I'm if across gas the cash your this investment was and businesses. from your under yet prices, them. for think to the you of agencies a ratings? as unhedged their he flows wondering current with with chance debt-to-EBITDA not we the production if conversation or leverage impact in just meet I'm plans you've credit had time Where them sure exist the But

Karen Camiolo

EBITDA. X.Xx

Christopher Sighinolfi

X.X? Okay, great.

Karen Camiolo

Yes.

David Bauer

Yes. That the really would would be generally we'll on to towards with look that even S&P forecast lower up in more range. of Moody's. look -- limits. our at these being kind at XX% FFO And these don't of push prices, either we

Operator

don't any the queue back have in to this the call the I'll questioners presenters at I And closing time. further remarks. turn the over for

Kenneth Webster

conference be p.m. by thank approximately at Suzanne. close visit both everyone website business Relations by This to and #XXXXXXX. like X-XXX-XXX-XXXX call X will Investor Eastern concludes access We'd the Thank of website conference for call will X. replay investor.nationalfuelgas.com, through enter of please with available and us access call a on you, the you, today. and Thank Time run at goodbye. to and replay time Friday, telephone this online, for taking To our be A on telephone, ID and today. to our the August our

Operator

conclude very much. call. conference you today's does Thank This

You may now disconnect.

National Fuel Gas (NFG) 2 Aug 192019 Q3 Earnings call transcript