NFG - Earnings call transcript Q1 2020 | National Fuel Gas Company

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020, National Fuel Gas Company Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions].

I would now like to hand the conference over to your speaker today Ken Webster, Director of Investor Relations. ahead. go Please

Ken Webster

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

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

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

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

Conference be National Energy Howard Weil March. the Scotia will participating in Fuel in

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

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

Dave Bauer

in Overall Thank to execute with on good were you, right quarters. operations we continue and our an prior perspective out the good in expectations National the Fuel, first everyone. we’ve Ken, quarter a line for was morning one earnings and laid from plans

production excellent quarters. last Utica from and Seneca, in Seneca At the quarter the see on up it over production for results recent brought wells, year. XX% was continues to nearly the Marcellus

on XXX both the done County. in a WDA great and code our development Utica program, Track has in Our Tioga EDA job cracking team the

highlighting of recent was our oil at It's strength and last over about up year, also Midway Pioneer XXN Sunset. our on programs the which developing X% production, worth California

Western Development obviously a currently two Area. dropped our prices rig a this Earlier gas operating natural rigs and are are in Lower concern. month we

the release, activity we make said in Seneca to John Given night's in as Seneca's in on challenging level coming more last on to quarters. intend say reductions later have program we the environment, the call. pricing further will

party activity spending Our guidance capital Seneca System will our driven you increase of expenditures Run This gathering by to the NFG we're last of to Trout County. vicinity new said year night's million. a at gathering Having third $XX Midstream. by can for producer in a the related our raising as capital the reduction related that, agreement see with is E&P lower in Lycoming lead gathering level in a in also release, capital mid-point

our to generate that optimize in This in fiscal assets is can to million example roughly third a of XXXX. nice great new year how little $X add we party million opportunities. growth revenues $XX expected a project starting is It's to per existing

the wrapped first last The and perform was up fall, Segment continue allocate capital several utility the for to we for earnings we quarter In the businesses. over year. for successful routine years, a modernization to continues as well, past of a fairly share our penny up our season, Utility have construction system. regulated another the with we

at New provides us miles our investment. miles that XXX timely mechanism we this were XXX For over tracking base program York, distribution regulatory pipeline, calendar of older rate a including modernization the placed have in with year recovery where

on clause, Northeast quarter the we've to our in lead experienced a weather impact lower shouldn’t a we overly earnings the normalization jurisdiction likely but where weather will be basis consolidated don't have in significant. warmer Pennsylvania The second

prices. gas see from should benefit customer a real Our natural low

last more be winter than We year. XX% than will lower expect heating bills

this next year business segment, lingering few is of expiration, $XX outlook according for Both effects the were the Empire a in at FMXXX the looking to beyond to years. proceeding thought revenue combined incremental KeySpan In contract annual The earnings are million projects the plan. over excellent. due next North to and pipeline the storage were down and projects

and late this year. project under track we summer to construction for Empire on fall the a expected North of early service in be or stays its fiscal the expect certificate on If is in later timeline, FMXXX FERC year.

multiple to with meetings we’ll settlement. case reach and its a optimistic Supply rate continues FERC Corp. through and settlement I'm work for parties we’ve held

at ensure spending Our way. balance it and that great reduction sheet in help stays our is shape Seneca in will

Just cash we FMXXX modest flow. projects, credit maintained be generating a near rating Empire and free that the but our term significant spend stable In recently S&P we grade the investment as we beyond build our out credit. expect affirmed a outlook and on North should

is looking year but is challenging Natural National positioned. Producers, be for Gas well XXXX a Fuel to

financially and to earnings strong flows. diversified are yet integrated large our stability We cash provides model a measure and business of

remain reality segments Looking regulated to track gas meaningful the to of the the future, see of our though are program prices, our growth. match we pace to on natural E&P slowing

that, for I'll turn call With over John update Seneca’s on to operations. the an

John McGinnis

had of to morning last first quarter year's a produce XX% quarter. XX.X and a around Thanks We quarter. solid Bcfe, decrease compared everyone. Seneca first and slight Dave good quarter-over- an increase

schedule, activity of our our are in price gas While coming to the strong we level with ahead capital. reducing and natural see completion activity recent drilling operational results ‘XX continue given current associated we on fiscal environment, and pads

As operating well now Dave one last Tioga of mentioned, of We which in after dropped are County. this the Utica basin, rigs the drilling four two pad our both week in have in a rigs we WDA.

reduction rebound of the have not not obviously and have prices we call prices winter, last during fact rebounded discussed and in continued to in decline. during possibility Additionally, quarter's further the a should activity earnings

are until and the to now of planning a second a activity result, we our summer fiscal this As some rig EDA year. next completion drop differ

will Because reduction a in and fiscal level. This activity million impact ‘XX expenditures to we fiscal late our $XX ‘XX. midpoint, $XXX ’XX guidance approximately $XXX fiscal see production between versus occur our not or significant physical expected year, or a to million at reflects the in do XX% relatively expect range capital to lowering this around million further XX% We're CapEx now XXXX reduction $XXX million. Seneca’s

production I increases to in to still expect quarter timing, six see wells production see XX wells As our We second late line we next that and our expected line to quarters. in during as and later in turned increased month. had last January turn fourth second we another quarter in expect to mentioned

some our EDA lower quarter strong production activities QX. offsetting expectations our first quarters. production flat, largely for deferring year, results next Overall guidance production expect to and with unchanged we declining into by our fourth However our remains fiscal third slightly now see completion in during XXXX

Moving remainder to remain well our positioned year. marketing for and the the hedging portfolio, we of

our ‘XX have physically East remaining approximately Division Mcf. and locked at realized a per in or XXX production of Gas We $X.XX Bcfe price financially fiscal XX% of

XX% basis Bcf forecasted sold. to We firm our over of sells providing production of to gas that’s already production XX have another remaining

first increase within over activity a In year's California around located both we have This last first Sunset produced both was X% during increase due quarter. around quarter, and XXN, XXX,XXX field. drill our recent Midway oil Pioneer an to barrels in of the of primarily

price over out of around for year These average QX the for be we modestly around the to our day barrels QX XX% as remainder is XXX our from down oil production properties now a oil of expect production producing level, $XX And and look we fiscal the production ‘XX at are thereafter. remainder of finally, per relatively an of hedged flat barrel. and

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

Karen Camiolo

were $X.XX were good National Lower first a and per share, largest results the the quarter operating Fuel’s John, price of you, per realizations share decrease. quarter-over-quarter. gas driver everyone. morning down $X.XX Thank natural

In rate an in earnings. contributed a significant year's to addition, effective the tax on expiration late our last Empire the drop of in quarter first our contract and increase pipeline in

effective higher factors. was by driven Our two rate tax

the to a expensing As impact current year this, is large impact lead the Oil was Recovery in and in mentioned compensation not no can did from available difference on tax which second, the favorable based placed And year crude tax they calls, resulting the previous rules to grants this of rate effective longer due tax Last year. stock that had prices. book credit oil Enhanced we accounting recur and between settle. the last on which periods

the appalachian year. This reflects a guidance to are remainder a our year, mid-point. which to downward our is price of primarily The production This share, the offset our to $X.XX per for unchanged. now by range quarter in remainder a natural outlook, $X.XX pricing earnings is guidance /MMBtu $X.XX price of the and to of decrease has related at reduction the assumptions of been assumptions partially major our revised the stronger $X.XX for to Looking $X.XX price and gas the of first relative remainder NYMEX /MMBtu expectations. spot

range at volatility our reference. I'll given and recent that commodity and the your a Given date, for forward upon earnings based some provide guidance strip prices, the earnings sensitivities is

$X.XX change per earnings by A WTI would a spot pricing oil would would change by pricing share pricing impact $X.XX change impact share. change in also $X.XX by per per $X share, NYMEX in a in earnings and earnings $X.XX $X.XX

our level, of to of a is side, $XXX range in $XXX capital the On million the million, mid-point. new reduced taking approximately into the million decrease at activity $XX account our guidance consolidated

financing Adding roughly for funds each now earnings lower in and our capital plan from financing. revised our $XXX and for we projections operations full our the we year, with the the credit nearly we of with be expect our and expect We that use facility to approximately million as dividend, spending source With other. a capital the year of expenditures revolving liquidity year. of $XXX to under available need started million first plan line

to financing nearer capital conditions favorable remain it term needs opportunistic the as Given maturity. relates we term and markets, in the will long

line things are with along and As moving said, Dave John in expectations. operationally

advantage when gas are good commodity whether are flexible remain spot opportunities natural of to available. in are period prices While to financially a of this prices take low we and challenged, they

to like that, the turn I'd operator to call questions. for over the With

Operator

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

Your is open. line

Holly Stewart

Good morning all.

Dave Bauer

Hi Holly.

Holly Stewart

those and the You quarter maybe know and I us two declining just third approach XXXX? know I the decent balance John of you could give reduction rig you or little color program of us things production one volumes. – given probably just flat Can we through, we sort mentioned maybe to rig that fiscal remarks with I but think fourth between help in about end inventory, prepared fiscal hold of have guys don't think as start maybe DUC quarter rig bit amount your that a of on believe flat. the the a one

John McGinnis

No, two we of a It view But right takes our how DUC built you're Holly, have rigs is terms maintenance you're in up we mode. one right. to count.

will – that of – XX appropriately, we’ll I the what our deferring we which and be will we will so gas that over time activity think pace is DUCs into we do, by next yeah, just we're we why at XX and completion prices on currently next rate, drop year. we're depending some the so above or fiscal year second just

Holly Stewart

Okay, that you program so it to know just appropriate assume, be wouldn't in one extrapolate rig I ‘XX. guess fiscal then

John McGinnis

and decent keep rig, up prices ��XX we’ll into we built fairly we’ll we've DUC yeah No, do, one look account look what gas certainly obviously so how begin going fiscal forward. we'll depending that reconsider to

Holly Stewart

know okay – Yep, have is shut-ins. quickly guys have for then super have significantly fallen just and shut shut-ins, I generally prices And gas perfect, when pivoted production in about that the yep, anything XXXX there that's maybe volumes. guide in certainly production helpful. production you

how think you that to through thinking guidance the trying then currently. and just are So about

John McGinnis

know I had X.Xbs we think Yep, net. curtailment it bit you October, of in first was little a our quarter,

not terms curtailment. In of other any forecasting do guidance are we – our we not

Holly Stewart

John. given I picture. maybe target your Maybe guys. that Okay, Northeast just – talked I John and your the and a more market today, have know big potential and then in PAs M&A about here for sorry, just interest you assuming for one

commitments area you about very would know free and is you? NFG market think now of knowing there that integrated positions interest As that in story, mid-stream are a right you that are that

John McGinnis

are the talked there we hasn't perspective attachments in a change EDA. lot since Holly many we've of that looking we quarter, historical. But we from see opportunities seen that for always the last times, – would the but still been same as mid-stream I

Holly Stewart

guys. okay. you Okay, That’s had. all I Thank

Operator

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

is Your line open.

Gordon Loy

Hey, all my questions. thanks taking good and morning for

Dave Bauer

Good morning.

Gordon Loy

level one had on like following was first of kind the like I Holly maintenance of of have I of given guys that's kind the so was, rig mentioned spending, kind but guess seems So up – it to this two as that you buffer initially DUCs. activity of a currently question

in a to going maintenance trying to what will as that be with far as of guess of closer spending So kind going forward? just think forward right program translate trend I'm two that I level terms of to about and

Dave Bauer

to be rigs, you know inventory. allowed a ’XX, it’s to having a not until been but DUC going maintenance recently bit at three this fiscal se. year we've Yeah, as that, early next said discussing build view I has do just us which mode per into

keep to prepared that to production CapEx minus. make we sure that able flat, when range, gas we'll be plus insure I want prices But $XXX looking react quickly. We’re are million maybe rebound, that generally or to or

pull So maintenance we prices wouldn't and I a wait mode but just really it's till back see call to this se, improve. per gas more

Gordon Loy

where two see previous of program. of this two guys was over to Got guess go assuming to rigs? recover it, kind I you to guidance XXX but and rig may a the that back to to, just makes gas sense. that of want of, Is in And kind maybe kind be your would simplistic, NYMEX kind

Dave Bauer

No.

be I would think XXX. have better a to it than bit

have would that XXX if hedge. saw we I to could think we begin conversation that we range to were those volumes that that and and XXX

think bit I light. still would be XXX a

Gordon Loy

figure one sorry – trying Got question. guiding revenue. guess we’re like mentioned a guys to had just XX% CAGR previously I you more the of out, it, and for then terms in so

trying So shift that guys figure in any what – forward. level. if have that of just I activity going of any know your you to to assessment are mean given terms we will there's kind the out

Dave Bauer

that of party that third opportunity then should is annual cadence, million that million it in $X but top it Seneca’s production on call we the, had to the Well, again $XX layer follow generally range.

Gordon Loy

Okay, have. sense That’s all that then. makes I

Operator

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

open. is line Your

Chris Sighinolfi

good Hey, guys. morning

Dave Bauer

Hey Chris.

Chris Sighinolfi

on with that published elements on slide follow-up eight, and and in guys away also look your at slide the trend I – last physical to then you hand you built guess asking, I take if right previous the it what forecast wanted inform questions. maybe flow. I of side I'm sort portfolio of I If of your of look presentation of night, up have production gross of the security terms to

flattish much John, of DUCs the curious, think program right ‘XX is the the inventory And that and sort I’m line we then, throughout of one hold idea we completing calendar those and about so just using to DUC just of that keeping of if production. that see maybe sort that

John McGinnis

wouldn't didn't right rig exactly be the to that's flat If Yeah, have count, our able production we Chris. a hold we DUC at one pace.

Chris Sighinolfi

DUCs sort be Right were having and then I talking Holly, guess drop rig there is the with anticipated to one you a to by in program. that you down of XX place about time

I'm completion curiosity, around Just on how you'd pad broken across, a make assuming is out pads because that a decision many basis. of

Dave Bauer

answer. to how pads talk Chris, and let I me honestly sure we’ll that that many don't Yeah, that I back can get know I'm to not includes. – Ken you.

Chris Sighinolfi

not now lower only different you is lower wedge things some The exposure. prices it opportunities idea contracts maybe your you've maybe sales. the sort here sort de-risk firm further Obviously let's are but are location fill of and this wedge the had in you try know then is And with bit. is future in-basin profile, as production a a there if appropriate, profile there in What do and can obviously those was and John but for I at Okay. – pull of production at and look is a as forward lowered, anything the other points of the are – that shifted to our while.

Dave Bauer

depending going those be see on, to we but within deals least that. – on Yeah, guess certainly I doing at this pulling price year. into what need pipe future's pricing don't not us of can we some you we're I know forward around fiscal them our push fixed just

Chris Sighinolfi

Into fiscal ’XX?

Dave Bauer

exactly. Yeah, yeah Yup, yup, exactly.

Chris Sighinolfi

that where ‘XX, that's on to an option what's perhaps. look But exists available perhaps wedge you’ll depending in

Dave Bauer

Absolutely, yup.

Chris Sighinolfi

if on previous and the you’ve XXXX sort program, guess Okay, the had two just I the an comments and we've know a the back side region you at it. I of just we year, costs slide fiscal eight the the but there Are half budget should basis, producers reduction. scaled following from the what on includes the benefits about I'm completion has in slide, the at obviously staying rig curious, be. up prior there left of completion rig guidance look or of side question, what a The and on noted lot of annual seeing look or of cost sort and you this extrapolate might

Dave Bauer

and side. Yeah, our saw significant in we're completion reduction, actually the what in both rates December on paying rig we

reduction, saw but already. our we into upto side are lot a almost completion those of XX% guidance the On baked

see another to lot down and So and we want drive a make already that basin, I crew further, a crew don't this said I'm year. but remainder out having keep reduction I head they that the us want will busy of don't that being able I we rig we've rig to. sure seen this through to busy sure keep of not to that

Chris Sighinolfi

all Okay, one just Dave. right I then could, final and question if

or a opportunity seen the you just that You amount I know within ground in EDA which mentioned implies while. curious, steel you third capital, had I'm ground you leveraging maybe this sort gathering iron hadn’t the already. the from and of in some party are the of in guys modest

opportunity the the just there to located is opportunities? Just can a you of capacity that these be what's set of can given sense your operator Are where Is commercial for sort installed or operating sort how set of that like? us opportunity came might teams and be. to across give that close hunting basin out something what you this it

Dave Bauer

existing right, and around acreage our keep relationship with try our in both a we it’s to try and and leverage producers investment. Yeah, really where

dealing – this lands forest. just on system and state in our we the we’re with than far were efficient know case to build cut cheaper and to it through was to You

Chris Sighinolfi

capital well? pick arrangement modest this spending ’XX, an on extension up for capital fiscal guess modestly And pickup, into as expect then I that some have the ’XX. Should does we

Dave Bauer

Yeah, it'll be modest. – really it's

Chris Sighinolfi

for a the lot appreciate thanks well time Alright, guys. Okay. morning this I it.

Dave Bauer

You bet.

Operator

from Our Gabelli. Tim next question with line the of Winter comes

is open. line Your

Tim Winter

to branching guys political picture, of my what toward the Good you gas in York taking challenges and considered sort some states, maybe out surrounding business state with for or the you back know view into business or you the you New states Mark, natural the into question. morning some the of political know the development into evolving know going other challenges. less guys now renewable thanks and and business and big getting

Dave Bauer

gas Yes. Certainly most side, know if in opposed we’re different always at other spending calls, looking New we’re you you is you on spending at look York of we’ve capital pipeline it on on our and said the our way the as Pennsylvania businesses. side be whether opportunity know or other future the to sets, as

know You anything don't we're at on always I really opportunities. to beyond guess I point have of but mindful this other comment that,

Tim Winter

change of northern the economics the or impacted sort activity of the ongoing drilling pipeline? building gas in the Has access the and low okay. prices interest your Okay,

Dave Bauer

Yeah, term well the biggest northern on litigation challenge near we face front. the in the access on is

going play wait we're itself out. to to know You that for

going you of court has right know middle half out in now to the FERC call to play into XXXX. You it the proceeding know and – sued U.S. is DEC that second

the know, then the term the Senecas that near I know the you program. a not in they are but thing you're prices in reduction certainly is biggest So with the challenge, worst that's world. project in Having and you delay where right mean in

Tim Winter

thank Okay, you.

Dave Bauer

You bet.

Operator

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

Your open. line is

Ryan Levine

morning. Good

Dave Bauer

Good morning.

Ryan Levine

out your to your targets two years go refinancing of your What current plans in around around three and this thoughts leverage the what's you years. as a in couple are environment

Dave Bauer

is investment Yes, so intent remain grade our to credit.

yard the well what ratios within analogy to laid for or you agencies use want have leverage are out sticks goalpost, Our whatever the of us.

that flow it'll projects You the up be linked and that sort should sized and business free in to – know our be modestly of to side and any the it this have two good so pipeline even spending leverage so over is generating business year going generating growth its not mostly cause tick our next built meaningful with time to year in, is outspend, cash that’ll be Seneca’s be bringing leverage to going we of really thereafter. after then re-pricing, we then be should

Ryan Levine

would prioritizing or you to prices to investment If be gas grade? achieve further, production were deteriorate that what levers

Dave Bauer

would E&P back it on scaling think side, the I mostly capital our Well, further activity. be

Ryan Levine

or Okay, dividend and dividend with and growing then in and whether on side know read you stable your is outlook reiterate presentation, in there term continue how anything release that I terms guess can it distribution press that? you one to longer and the last of the shouldn’t we into policy,

Dave Bauer

so you dividend we’ve as in generally our and said in if modest the our the modernization over time so the we businesses, customer we'd programs view an the earnings projects of in past, between Yeah, look those growth pipeline of the light regulated utility side on the earnings dividend. see grow to increase and in jurisdictions, FERC and continue our on bigger regulated to continue fund and businesses

Ryan Levine

me. last then and for question Okay,

of could terms that gathering build with a In multiple on you CapEx the comment spend? increase, associated

Dave Bauer

reasons guidance. prefer to. the competitive It's can from not the amount for and see not you I a as of release you Yeah, we capital revenue gave really guess I large

Ryan Levine

you. Okay, understand. I Thank

Dave Bauer

bet. you Yeah,

Operator

Ken for now the Q&A hand I to This will for Webster concludes closing call back session today. the comments.

Ken Webster

us be Thank taking business time everyone telephone enter for you, call relations the available will today. visit A through by call website telephone and X. run the on thank approximately XXXX-XXX-XXXX replay investor.nationalfuelgas.com website please Friday, February will and at and the investor by conference number to To both and of PM replay close online, XXXXXXX. like of X:XX ID be on access this our access at Kenzey. our with We to to time eastern

conference you Thank bye. today. concludes and for This good call our

Operator

conference for Thank you This concludes today’s call. participation. your

disconnect. now may You

National Fuel Gas (NFG) 31 Jan 202020 Q1 Earnings call transcript