National Fuel Gas Company's CEO Discusses F1Q13 Results - Earnings Call Transcript
February 8, 2013 4:16 PM ET
National Fuel Gas Company (NFG)
F1Q13 Earnings Call
February 8, 2013 11:00 AM ET
Dave Smith – Chairman and CEO
Ron Tanski – President and COO
Matt Cabell – SVP; President of Seneca Resources Corporation
Dave Bauer – Principal Financial Officer and Treasurer
Andrea Sharkey – Gabelli
Kevin Smith – Raymond James
Mark Barnett – Morningstar
Timm Schneider – Citigroup
Good day, ladies and gentlemen, and welcome to the First Quarter 2013 National Fuel Gas Company Earnings Conference Call. My name is Shequanna and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference.
I would now like to turn the presentation over to your host for today’s call, Mr. Tim Silverstein, Director of Investor Relations. Please proceed, sir.
Thank you, Shequanna, and good morning, everyone. Thank you for joining us on today’s conference call for a discussion of last evening’s earnings release.
With us on the call from National Fuel Gas Company are Dave Smith, Chairman and Chief Executive Officer; Ron Tanski, President and Chief Operating Officer; and Dave Bauer, Treasurer and Principal Financial Officer. Joining us from Seneca Resources Corporation is Matt Cabell, President. At the end of the prepared remarks, we will open the discussion to questions.
We would like to remind you that today’s teleconference will contain forward-looking statements. While National Fuel’s expectations, beliefs and projections are made in good faith and are believed to have a reasonable basis, actual results may differ materially. These statements speak only as of the date on which they are made and you may refer to last evening’s earnings release for a listing of certain specific risk factors.
With that, we will begin with Dave Smith.
Thank you, Tim, and good morning to everyone. First quarter was an excellent quarter for National Fuel. Earnings were $0.81, an increase of $0.08 per share or 11% over the prior year’s first quarter. Excluding the one-time charge at Seneca, earnings would have been 15% above last year and that’s in spite of a $0.69 per Mcf drop in after-hedging natural gas prices.
The Pipeline And Storage segment had a particularly strong quarter. Both the Line N 2012 and Northern Access Projects were placed in service this past fall. Those projects combined with a full quarter revenues from the Tioga Extension project that was placed in service in the fall of 2011 caused earnings in this segment to increase by about 70% over the prior year. As you know, this is a business that we’ve been excited about for a long time, and given the central location of our pipeline, gathering and storage assets in and around the prolific Marcellus and in between the Marcellus and growing markets in Canada and the Northeastern United States, and given our proven track record of bringing projects in on time and on budget, we expect continuing significant growth from these midsteam businesses.
In fact, I’m happy to report that we’ve recently received the customer commitments necessary to move forward on three different projects that combined our design to add another 230 million cubic feet per day of capacity to our system. Ron will provide more detailed information regarding these projects in the midsteam segment in his remarks.
In our Utility business, earnings rebounded nicely from the prior year thanks in large part to weather in our Pennsylvania service territory that was 10% colder than last year. While it was colder than last year, it was still warmer than normal, which is what our rates are based on. Thus, our employees continue to do a great job of focusing on efficiencies and on controlling O&M cost, which not only contributes to improved earnings, but rebounds to the benefit of our retail customers as well.
In the E&P segment, Seneca’s production continues to grow at an impressive rate. Consolidated production for the quarter increased by 6.3 Bcfe, or by more than a third, largely on the strength of Seneca’s successful drilling program in our Eastern Development Area. It’s important to note that that increase does not include any production at all from the exceptional wells we announced last month on PAD-M and Lycoming County. Those wells were tied into sales in late January and obviously will have a big impact on second quarter volumes.
Seneca’s GAAP earnings were down $0.04 per share, largely due to lower natural gas prices and a $3.7 million, what I’ll call termination charge, which was related to a rig that we idled last summer when we reduced operations to a three rig program. However, on a cash flow basis, excluding the termination charge, Seneca’s EBITDA was up $11 million or 11% over the prior year, even after the significant drop in after-hedging natural gas prices. This, of course, was due primarily to our success in the field.
Our Lycoming County acreage in the Eastern Development Area continues to produce some of the best results in the Marcellus. The PAD-M wells, which as I noted will impact the second quarter, contain six of the best wells Seneca has drilled today. Thanks to the coordinated efforts of Seneca and our midsteam subsidiary, all seven wells at PAD-M were producing into sales within days of being completed. The strong results from these wells let us to raise our production guidance for the year to a range of 102 Bcfe to 112 Bcfe, which at the midpoint is a nearly 30% increase over last year. And remember that’s on the heels of last year’s 23% increase in production.
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