National Fuel Gas Company · NYSE:NFG
National Fuel Gas — Proxy Contest (December 2007)
36 slides from National Fuel Gas's proxy contest presentation, Dec 12, 2007
Slide 1: National Fuel Gas, December 2007
December 2007 National Fuel Gas
Slide 2: Important Information and Where to Find It
IMPORTANT INFORMATION AND WHERE TO FIND IT In connection with its 2008 Annual Meeting, National Fuel Gas Company will be filing a proxy statement, WHITE proxy card and other materials with the U.S. Securities and Exchange Commission ("SEC"). We urge investors to read the proxy statement and these ot
Slide 3: Topics
Topics Introduction Shareholder Return Considerations Appalachian E&P Strategy MLP Assessment Additional Asset Review Summary
Slide 4: Situation Overview
Situation Overview National Fuel is currently the target of hedge fund shareholder New Mountain Vantage (NMV) NMV is a hedge fund only and has no prior oil and gas operational experience, E&P, pipeline, storage, or gas LDC expertise First invested in National Fuel in February 2006 Currently, NMV is
Slide 5: NMV Operational Proposals
NMV Operational Proposals NMV's campaign is based on three operational recommendations to National Fuel: Develop a plan to maximize value of National Fuel's Appalachian exploration and production ("E&P") assets Explore Master Limited Partnership ("MLP") structure for National Fuel's E&P (California,
Slide 6: National Fuel Conclusions
National Fuel Conclusions Appalachian E&P National Fuel has an aggressive and well thought-out long-term strategy for developing its Appalachian properties that relies on our experience and proprietary knowledge of our acreage A significant modification to that plan, as suggested by NMV, would provi
Slide 7: National Fuel: A Track Record Of Outstanding Returns
National Fuel: A Track Record Of Outstanding Returns National Fuel's corporate objective is to grow shareholder value through timely investment in the energy industry, as an integrated company with complementary business segments that over the long run result in more consistent earnings and returns
Slide 8: Appalachian E&P Strategy: Aggressive, Knowledge-Based Approach
Appalachian E&P Strategy: Aggressive, Knowledge-Based Approach National Fuel employs an aggressive, knowledge-based approach Maximize well performance by pursuing development opportunities at an informed pace and in a manner consistent with more than 125 years of experience in its acreage in general
Slide 9: Development plan designed to maximize shareholder value
National Fuel's development plan is designed to maximize shareholder value for all shareholders The plan increases drilling pace while controlling: Well quality (maximize reserves per well) Capital expenditures per producing well Time to first production for each new well National Fuel anticipates d
Slide 10: Appalachian E&P Strategy: Marcellus Shale
Appalachian E&P Strategy: Aggressive, Knowledge-Based Approach National Fuel plans to continue its exploration of the deeper Marcellus Shale through its joint venture with EOG Resources The Company expects to drill 18 wells, including 10 horizontal wells, in the Marcellus Shale formation in fiscal y
Slide 11: Appalachian Wells Drilled by Year
Appalachian E&P Strategy: Aggressive, Knowledge-Based Approach 2004 2005 2006 2007 2008* 51 83 152 233 280 National Fuel has significantly increased its Appalachian drilling activity to capitalize on high natural gas prices National Fuel remains focused on maximizing returns by drilling at a pace th
Slide 12: Appalachia Drilling Activity, Wells per 100,000 Acres
Range Cabot Seneca (NFG) Equitable Dominion Chesapeake Well Drilled 30 28 25 20 12 10 Operator Wells Drilled per 100,000 acres Seneca is one of the most active drillers in Appalachia *National Fuel actual, others from individual company disclosures and analysts' estimates Appalachia Drilling Activit
Slide 13: 2007 drilling results demonstrate aggressive, knowledge-based approach
2007 drilling results demonstrate the effectiveness of management's aggressive, knowledge-based approach Drilled 233 wells (53% increase over '06), while improving EUR per well Replaced 530% of 2007 Appalachian production Increased Proved Developed reserves by approximately 20% Increased total Prove
Slide 14: Average EUR per Well and Wells Drilled
2005 2006 2007 Avg EUR/Well 57 70 97 Wells Drilled 83 152 233 National Fuel has been able to improve the average reserves per well while significantly increasing well count This has been accomplished through additional staffing, a prudent rate of drilling and the continuous integration of new well d
Slide 15: 2007 Reserve Growth Versus Industry Averages
National Fuel ATN EQT RRC National Fuel 2007 Reserve Growth '04-'06 0.02 0.08 0.09 0.11 0.2 0 0 0 0 0.13 2004-2006 CAGR as Presented by NMV National Fuel 2007 Reserve Growth was far superior to industry averages presented by NMV Proved Undeveloped Reserves PDP Reserve Growth Appalachian E&P Strategy
Slide 16: Appalachian E&P Strategy: Upper Devonian Stratigraphy
Appalachian E&P Strategy: Upper Devonian Stratigraphy 16 Significant geologic complexity: conform Sands dramatically thin & thicken across the area Wide variability in terms of reserves / well Detailed mapping necessary to maximize EUR/well Maps must be continually updated to reflect well results Ma
Slide 17: Appalachian Well Economics
National Fuel is focused on maximizing returns on its investment with the drilling program Increasing drilling too rapidly can cause average well recoveries to decline and will cause a delay in first production Base Case assumptions: In 2007 National Fuel experienced: Well cost $200,350 EUR: 97 MMCF
Slide 18: MLP Assessment
MLP Assessment Historically, most publicly-traded companies that form captive Master Limited Partnerships (MLP) have done so for one or more of the following reasons: To achieve a more attractive valuation than they are currently being given in the public market To capture tax advantages To obtain a
Slide 19: MLP Assessment: Advisors and Process
MLP Assessment National Fuel has considered the MLP structure for more than ten years and engaged Morgan Stanley and Andrews Kurth several months ago to explore the specific implications of an MLP for its California E&P assets and its Pipeline & Storage (P&S) business National Fuel provided its advi
Slide 20: MLP Analysis
MLP Analysis National Fuel used accurate and current projections that are the basis for its internal long-term forecast E&P projections used internal estimates of production profile, capital expenditures and operating expenses over the full life of the assets P&S projections used internal estimates
Slide 21: Current MLP Conclusions
Current MLP Conclusions After a thorough analysis and with the concurrence of its advisors, National Fuel has concluded that forming an MLP of either the California E&P assets or the P&S business would not create additional shareholder value, and would in fact entail significant cost and risk No ben
Slide 22: Current MLP Conclusions: Appalachian E&P Assets
Current MLP Conclusions In addition to considering an MLP of its California E&P assets, National Fuel also has reviewed the possibility of forming an MLP with its Appalachian E&P assets National Fuel's analysis suggests an MLP of its Appalachian E&P assets does not present a compelling opportunity a
Slide 23: Additional Asset Review
Additional Asset Review National Fuel has assessed the strategic and financial importance of several assets deemed "non-core" by NMV: Energy Marketing Strategically aligned with National Fuel's commitment to participate in all segments of the natural gas business Timber Assets Integrated into the Na
Slide 24: Energy Marketing (NFR)
Energy Marketing (NFR) Energy Marketing is carried out by National Fuel Resources, Inc. ("NFR") Markets natural gas to industrial, commercial, public authority and residential customers Offers competitively priced energy and energy management services NFR is strategically aligned with National Fuel'
Slide 25: Timber Assets
Timber Assets Timber activities carried out by Highland Forest Resources, Inc. and the Northeast Division of Seneca Resources Corporation Markets include veneer logs, export logs, sawlogs and green and kiln dry lumber Located in the heart of the world's best source of black cherry hardwood National
Slide 26: Landfill Gas
Landfill Gas Landfill Gas business is carried out by Horizon LFG, Inc. Owns and operates short-distance landfill gas pipeline companies that purchase, process, transport and resell landfill gas to customers in six states As with timber, the kind of greenhouse gas legislation that becomes law will de
Slide 27: Summary
Summary Building on the Company's track record of delivering superior returns to shareholders, the Board and management of National Fuel continually look to improve the Company's performance and further drive growth for shareholders National Fuel maintains an active investor relations function, incl
Slide 28: Appendix
Appendix & National Fuel Py
Slide 29: Seneca is the Most Active Driller in Its Part of the Appalachian Basin
National Fuel (Seneca) is the Most Active Driller in Its Part of the Appalachian Basin Seneca East Catalyst PGE Pc Expl Atlas Well Drilled 240 124 69 68 51 45 National Fuel (Seneca) was the leading driller in 2007 in the 4 county area where the company is active: Wells Spud 1/1/07 - 11/20/07* Seneca
Slide 30: Seneca Marcellus Shale Activity
Seneca Marcellus Shale Activity Seneca/EOG joint venture drilled 3 vertical wells and one horizontal in 2007 (locations shown as red stars) 18 Marcellus wells (10 horizontal) planned for fiscal 2008 Additional upside potential in other deep horizons, including Onondaga, where Seneca is producing 500
Slide 31: Appalachian Reserve Statistics
2004 2005 2006 2007 BCFE 3.7 5.6 11.2 20.8 Wells 51 83 152 233 Fiscal Year Reserves Added by Drilling Wells Drilled per Year Appalachian Reserve Statistics (Reserves Added by Drilling - excludes PUDS) Appalachian E&P Strategy:
Slide 32: Valuation Arbitrage: Aggregate Value / 08E EBITDA
(1) EBITDA per IBES-published composites of Wall Street equity research analyses, including $639 million for the Company which is more than the Company's projected 2008 net income range of $214 - $232 million - see slide 32 (2) MLPs Include LINE, ATN, BBEP, CEP, LGCY, EVEP, ENP, VNR; C-Corps Include
Slide 33: EBITDA
EBITDA EBITDA is earnings before interest, taxes, depreciation and amortization For fiscal 2008, National Fuel's EBITDA is estimated by IBES to be $639 million, which is more than National Fuel's projected 2008 net income range of $214 million to $232 million National Fuel believes that the use of E
Slide 34: Ingredients for a Successful MLP
Ingredients for a Successful MLP High quality parent company / financial sponsor committed to growing MLP Requires third-party acquisitions where embedded / organic growth are insufficient Quarterly cash distributions should never decrease Any depreciation / depletion of underlying assets should be
Slide 35: Risks Inherent to MLPs
Risks Inherent to MLPs Sensitivity to Interest Rates Investors have historically weighed MLP yields relative to other available rates of return Macro economists are predicting ongoing volatility in rate environment Lack of Liquidity MLP units are primarily a retail security Lack of trading volume ma
Slide 36: Forward-looking Statements
Forward-looking Statements Certain statements contained herein, including statements regarding future financial and operating performance and condition, as well as statements that are identified by the use of the words "anticipates," "estimates," "expects," "forecasts," "intends," "plans," "predicts