National Fuel Gas Company · NYSE:NFG
National Fuel Gas — Q4 2011 Earnings Presentation
63 slides from National Fuel Gas's earnings presentation, Nov 7, 2011
Slide 1: Investor Presentation 2011 – Fourth Quarter Update
Investor Presentation 2011 – Fourth Quarter Update November 7, 2011 Exhibit 99
Slide 2: Safe Harbor For Forward Looking Statements
November 7, 2011 2 National Fuel Gas Company Safe Harbor For Forward Looking Statements This presentation may contain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995, including statements regarding future prospects, plans, performance and capital struc
Slide 3: Core Businesses: Integrated Business Structure
November 7, 2011 3 Utility Exploration & Production Pipeline & Storage Energy Marketing Core Businesses Midstream Integrated Business Structure Empire Pipeline & NFG Supply Corp. Create Flexible System Seneca Resources Corporation Significant Appalachian Growth Leading Marcellus Shale Position Evalu
Slide 4: Significant Growth Related to the Marcellus Shale
November 7, 2011 4 Marcellus Shale National Fuel Gas Company Significant Growth Related to the Marcellus Shale Exploration & Production Pipeline & Storage Midstream
Slide 5: 2014 – Where We Are Headed
November 7, 2011 5 National Fuel Gas Company 2014 – Where We Are Headed Significant Ramp Up in Capital Expenditures to Fuel Marcellus Expansion 2011 to 2014: Growing E&P Capital Expenditures at an 18% CAGR 2014 Forecasted Consolidated Capital Spending: $1.3 to $1.6 Billion Rapidly Growing Production
Slide 6: Exploration & Production
November 7, 2011 6 Exploration & Production
Slide 7: Seneca Resources: Our Growth Story
November 7, 2011 7 Seneca Resources Our Growth Story Not the same company we were just a few years ago Will continue to grow dramatically Production and reserves expected to triple or quadruple from 2010 to 2014 Held over 700,000 Marcellus acres before the play received any attention Have since adde
Slide 8: Top Tier Acreage and Resource Position
November 7, 2011 8 Prospective Net Acres Resource Potential Proved Reserves (at Sept. 30, 2011) Seneca Resources Top Tier Acreage and Resource Position Marcellus Shale 745,000 8-15 TCFE Geneseo Shale 300,000 TBD Utica Shale TBD TBD California 54.5 MMBoe Shallow Devonian 117 Bcfe Marcellus 491 Bcfe T
Slide 9: Continued Improvement in Finding & Development Costs
November 7, 2011 9 Seneca Resources Continued Improvement in Finding & Development Costs $0.00 $2.00 $4.00 $6.00 $8.00 2005-2007 2006-2008 2007-2009 Fiscal Years 2008-2010 $7.38 $7.63 $5.35 $2.37 Three Year Average U.S. Finding & Development Cost
Slide 10: Ramping Up Production Growth
November 7, 2011 10 19.2 19-21 19-21 19-21 7.9 6-8 5-7 5-7 Seneca Resources Ramping Up Production Growth 35.3 62-72 101- 135- 47.0 40.8 42.5 49.6 67.6 87-101 125-155 160-200 2007 2008 2009 2010 2011 2012 Forecast 2013 Forecast 2014 Forecast Fiscal Year California Upper Devonian Marcellus Gulf of Mex
Slide 11: Capital Spending Shifting to the Marcellus
November 7, 2011 11 $47 $45 - 55 $40 - 50 $35 - 45 Seneca Resources Capital Spending Shifting to the Marcellus $78 $332 $585 740- $800- 1,000 $900- 1,100 $176 $192 $188 $398 $649 $785 - $840- 1,050 $935- 1,145 $0 $250 $500 $750 $1,000 $1,250 2007 2008 2009 2010 2011 2012 Forecast 2013 Forecast 2014
Slide 12: Seneca's Development Areas
November 7, 2011 12 Marcellus Shale Seneca’s Development Areas SRC Lease Acreage SRC Fee Acreage Eastern Development Area (Mostly Leased) Western Development Area (Mostly Fee and HBP) EOG Acreage
Slide 13: Eastern Development Area – Results & Plan Forward
November 7, 2011 13 Covington – Developed 47 Wells Drilled – 47 Producing Gross Production: ~110+ MMcf/d Estimated Avg. EUR: 5.5 Bcf/Well Marcellus Shale Eastern Development Area (EDA) – Results & Plan Forward DCNR Tract – Delineating Marcellus Well – IP: 3.7 MMcf/d Geneseo Well – IP: 4.5 MMcf/d Acq
Slide 14: EDA Typecurve – 6.7 Bcfe EUR
November 7, 2011 Current: 1 Segment Current: Compression Segment Original 6.0 Bcf Typecurve 14 st IP Rate 5,400 MMcf/d Hyp. Coeff. 1.25 Decline 65.5% Limit 6 Mo. IP Rate 3,800 MMcf/d Hyp. Coeff. 1.25 Decline 48% Exp. Tail 6% IP Rate 7,250 MMcf/d Hyp. Coeff. 1.4 Decline 72% Exp. Tail 6% Marcellus Sha
Slide 15: Western Development Area – Results & Plan Forward
November 7, 2011 15 Marcellus Shale Western Development Area (WDA) – Results & Plan Forward SRC Lease Acreage SRC Fee Acreage EOG Contributed JV Acreage SRC Contributed JV Acreage Seneca Operated EOG Operated Punxy – Full Development EOG Operated: 45 Wells Drilled; 25 Producing FY 2012: 2 Rigs, Dril
Slide 16: Marcellus Acreage Position Provides Superior Economics
November 7, 2011 16 Seneca Resources Marcellus Acreage Position Provides Superior Economics (1) Pre-Tax IRR determined using the NYMEX forward strip as of October 7, 2011 15% 43% 100+% 10% 29% 78% 0% 25% 50% 75% 100% 125% 3.0 5.0 8.0 Gross EUR per Well Marcellus Economics for a $6.2 Million Well No
Slide 17: Marcellus Shale Strategic Development Plan
November 7, 2011 17 78 113 129 156 6.5 7 3 3 3 1.5 4.5 5.5 Seneca Resources Marcellus Shale Strategic Development Plan Aggressively Develop our excellent Tioga and Lycoming County leasehold Systematically evaluate western acreage Begin development of western acres that are “de-risked” Continue parti
Slide 18: Breaking Down Our Acreage Position
November 7, 2011 18 Area Net Acres Possible Locations Wells Drilled Wells Completed EUR (Bcfe) Status Developed Marcellus Shale Breaking Down Our Acreage Position Eastern Development Area (EDA) Covington 7,000 5.5 6,000 7.0 Full Development 10,000 8.0 Full Development 15,000 3.0 - 5.0 Delineating 13
Slide 19: Strategic Plan Moving Forward
November 7, 2011 19 Marcellus Shale Strategic Plan Moving Forward Fiscal Year 2012 Eastern Development Area Move forward with full development of DCNR 100 (Lycoming) and DCNR 595 (Tioga) Drill several additional delineation wells in DCNR 007 (Tioga) and DCNR 001 (Potter) with recently acquired 3D se
Slide 20: Geneseo Shale – Area Summary
November 7, 2011 20 New Plays Geneseo Shale – Area Summary DCNR 001 Horizontal (Seneca) Depth: 5,830’; Thickness: 77’ Avg. Reservoir TOC: 3.33 Peak Rate: 4.5 MMcf/d East Resources Drilled & Completed April 2010 East Resources 3 Wells Permitted November 2010 East Resources 1 Well Permitted December 2
Slide 21: Utica Shale – Activity Summary
21 November 7, 2011 New Plays Utica Shale – Activity Summary Vertical Well Permit Horizontal Well Permit Vertical Well Permit Horizontal Well Permit Seneca Resources Tionesta Area Spud Date: 2012 Seneca Resources Henderson Area Currently Drilling Seneca Resources Mt. Jewett Area Drilled: June 2011 S
Slide 22: Utica Program Update
November 7, 2011 22 New Plays Utica Program Update Seneca Resources recently drilled a vertical Utica/Pt. Pleasant strat test in McKean County, PA. Preliminary results are encouraging. 400 feet of gross reservoir at a depth of 10,000’ Potential pay spans the Utica, Pt. Pleasant and portions of the T
Slide 23: Operational Efficiencies Drive Cost Savings
November 7, 2011 23 Long-Term Frac Contract Increased Wells per Pad Proppant & Chemical Sourcing Equipment Ownership (Frac Tanks, etc…) Concentrated Regional Development Pad Cost Reductions (Rig Mats, Concrete Pads, etc…) Natural Gas Powered Rigs External Casing Packers Well Length Drilling Cost Tot
Slide 24: Cost Savings from Multi-Well Pad Drilling
November 7, 2011 24 Marcellus Shale Cost Savings from Multi-Well Pad Drilling Location & Road Costs $600,000 per well Rig Mobilization $600,000 per well Ancillary Drilling Costs (Trucking, etc..) $150,000 per well Frac Mobilization $7,000 per well Water Hauling vs. Infrastructure $200,000 per well 1
Slide 25: Water Management Program
November 7, 2011 25 Marcellus Shale Water Management Program Water Sourcing: Coal mine runoff Permitted freshwater sources Recycled water Water Management: Instituted a “Zero Surface Discharge” policy Recycle Marcellus flowback and produced water Centralized water handing in development areas Tioga
Slide 26: California: Stable Production Fields
North Lost Hills ~1,150 BOEPD Tulare & Etchegoin Formation Primary & Steamflood 181 Active Wells North Midway Sunset ~4,350 BOEPD Potter & Tulare Formation Steamflood 703 Active Wells South Midway Sunset ~800 BOEPD Antelope Formation Steamflood 100 Active Wells South Lost Hills ~1,700 BOEPD Monterey
Slide 27: Strong Margins Support Significant Free Cash Flow
November 7, 2011 27 Net Income $31.88 Cash Expenses $35.50 DD&A $10.21 California Strong Margins Support Significant Free Cash Flow Average Price ($/BOE) = $77.59 21% 13% 12% 6% 4% 3% 41% Income tax DDA Non-Steam Fuel LOE Other Steam Fuel G&A Net Income Fiscal Year 2011 Net Income and Expenses per B
Slide 28: Pipeline & Storage / Midstream
28 November 7, 2011 Pipeline & Storage / Midstream
Slide 29: Positioned to Move Growing Marcellus Production
November 7, 2011 29 Pipeline & Storage Positioned to Move Growing Marcellus Production
Slide 30: Marcellus Producers Increase Utilization of NFGSC
November 7, 2011 30 Pipeline & Storage Marcellus Producers Increase Utilization of NFGSC The number of producers moving Marcellus gas on NFGSC has increased exponentially since January 2009 Marcellus Producers Transporting Gas on National Fuel's System
Slide 31: Positioned to Move Growing Marcellus Production
November 7, 2011 31 LAMONT COMPRESSOR STATION PHASE I & II NORTHERN ACCESS EXPANSION TIOGA COUNTY EXTENSION CENTRAL TIOGA COUNTY EXTENSION LINE “N” 2012 EXPANSION WEST TO EAST OVERBECK TO LEIDY COVINGTON GATHERING SYSTEM TROUT RUN GATHERING SYSTEM LINE “N” EXPANSION Pipeline & Storage Positioned to
Slide 32: Pipeline & Storage Expansion Initiatives
November 7, 2011 32 Project Name Capacity (Dth/D) Est. CapEx In-Service Date Market Status Pipeline & Storage Expansion Initiatives Lamont Compressor Station 40,000 $6 MM 6/15/10 Fully Subscribed Completed – Flowing into TGP 300 Line Lamont Phase II Project 50,000 $7.6 MM 7/1/11 Fully Subscribed Com
Slide 33: Deploying Significant Growth Capital
November 7, 2011 33 33 Pipeline & Storage Growth Deploying Significant Growth Capital Capital spending is ramping up significantly to fund system expansion and assuming recently allowed industry average ROE and capital structure targets, this segment can achieve significant growth with a rapid incre
Slide 34: Midstream: Critical To Boosting Returns in the Marcellus
November 7, 2011 34 Midstream Critical To Boosting Returns in the Marcellus Midstream’s gathering systems are critical to unlock remote, but highly productive Marcellus acreage Goal is to first work to assist Seneca and then gather 3 rd party producer volumes History of operational success and effic
Slide 35: Midstream Corporation Expansion Initiatives
November 7, 2011 35 Project Name Capacity (Dth/D) Est. CapEx In-Service Date Market Status Midstream Corporation Expansion Initiatives Covington Gathering System 100,000 $16 MM 11/17/09 Fully Subscribed Completed – Flowing into TGP 300 Line Covington Gathering System Expansion 140 40,000 $1.7 MM 3/7
Slide 36: Future Opportunities for Expansion
November 7, 2011 36 Midstream Future Opportunities for Expansion The Covington and Trout Run gathering systems allow Seneca to achieve significant production growth over the next three years. Midstream is continually looking to build additional gathering systems. Will continue to evaluate new gather
Slide 37: Significant Throughput Growth
November 7, 2011 37 301 320 449 563 575 30 55 108 152 Pipeline, Storage & Midstream Significant Throughput Growth 1,000 2010 2011 2012 Forecast 2013 Forecast 2014 Forecast Fiscal Year Pipeline & Storage Midstream
Slide 38: Utility
November 7, 2011 38 Utility National Fuel Gas Distribution Corporation
Slide 39: Strong Commitment to Safety
November 7, 2011 39 Utility Strong Commitment to Safety Capital spending from 2011 to 2014 is expected to be between $55 and $60 million per year $0 $20 $60 $80 2007 2008 2009 2010 2011 2012 Forecast 2013 Forecast 2014 Forecast Fiscal Year Capital Expenditures for Safety Total Capital Expenditures $
Slide 40: Continued Cost Control
November 7, 2011 40 $176 $178 $164 $167 $168 Utility Continued Cost Control $27 $25 $27 $14 $11 $203 $203 $191 $181 $179 $0 $50 $100 $150 $200 $250 $300 $350 2007 2008 2009 2010 2011 Fiscal Year All Other O&M Expenses O&M Expense - Uncollectibles
Slide 41: Financial Stability
November 7, 2011 41 Utility Financial Stability Rate Mechanisms Low Income Rates Choice Program/POR Merchant Function Charge Revenue Decoupling 90/10 Sharing Weather Normalization 10.9% 9.8% 10.6% 10.5% 14.0% 13.2% 14.7% 18.8% 0.0% 10.0% 20.0% 30.0% 2008 2009 2010 2011 Fiscal Year Return on Equity N
Slide 42: Corporate & Financial Overview
November 7, 2011 42 National Fuel Gas Company Corporate & Financial Overview
Slide 43: Consolidated Capital Expenditures
November 7, 2011 43 $398 $649 $785-875 $840-1,050 $935-1,145 National Fuel Gas Company Consolidated Capital Expenditures Note: A reconciliation to Capital Expenditures as presented on the Consolidated Statement of Cash Flows is included at the end of this presentation. $129 $100-135 $100-150 $300-35
Slide 44: Cash Flow Forecasts
November 7, 2011 44 $120- 130 $115- 125 $115- 120 $55- 60 $55- 60 $55- 60 $95- 105 $105- 115 $110- 125 $100- 135 $100- 150 $300- 350 $450- 500 $650- 800 $900- 1,100 $785- 875 $840- 1,050 $935- 1,145 $20- 30 $40- 50 $55 - 70 $40- 60 $20- 30 $55- $5-15 National Fuel Gas Company Cash Flow Forecasts $0
Slide 45: Financing Needs – A Consolidated View of Cash Flows
November 7, 2011 45 $150 $119 $1,055 $250 $123 $1,153 $128 $1,433 National Fuel Gas Company Financing Needs – A Consolidated View of Cash Flows 2013E 2014E 2012E $550-575 $725 $500-525 $1,000 $225-250 $1,300 $0 $500 $1,000 $1,500 $2,000 Cash from Ops Asset Sales & Other CapEx Dividend Debt Repayment
Slide 46: Manageable Debt Maturity Schedule
November 7, 2011 46 National Fuel Gas Company Manageable Debt Maturity Schedule Fiscal Year $150 $250 $300 $250 $50 $49 $0 $50 $100 $150 $200 $250 $300 $350
Slide 47: Strong Dividend Track Record
November 7, 2011 47 National Fuel Gas Company Strong Dividend Track Record Compound Annual Growth Rate 5.0% National Fuel has had 109 uninterrupted years of dividend payments and has increased its dividend for 41 consecutive years $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 Annual Rate at
Slide 48: Hedge Positions and Strategy
November 7, 2011 48 Natural Gas Swaps Volume (Bcf) Average Hedge Price Oil Swaps Volume (MMBbl) Average Hedge Price National Fuel Gas Company Hedge Positions and Strategy Fiscal 2012 35.0 $5.89 / Mcf Fiscal 2013 23.9 $5.67 / Mcf Fiscal 2014 4.6 $5.89 / Mcf Fiscal 2012 1.6 $77.03 / Bbl Fiscal 2013 0.
Slide 49: Targeted Capital Structure
November 7, 2011 49 Debt 35% - 45% Equity 55% - 65% 40% 30% 50% 50% 60% 70% 50% 50% National Fuel Gas Company Targeted Capital Structure Long-Term Consolidated Capital Structure Target Capital Structure Targets by Segment All Other E&P P&S Utility Debt Equity
Slide 50: Investment Grade Credit Rating
November 7, 2011 50 Rating Agency Rating Capital Resources Total Short-Term Capacity: $685 Million Commercial Paper Program: $300 Million Uncommitted Lines of Credit: $385 Million $300.0 MM Committed Credit Facility through September 2013 – backs Commercial Paper Program National Fuel Gas Company In
Slide 51: Appendix
November 7, 2011 51 National Fuel Gas Company Appendix
Slide 52: Fiscal Year 2012 Earnings Guidance Drivers
November 7, 2011 52 2012 Forecast National Fuel Gas Company Fiscal Year 2012 Earnings Guidance Drivers GAAP Earnings per Share $2.85 - $3.15 Operating Earnings per Share $2.85 - $3.15 11% EPS Growth Exploration & Production Drivers Total Production (Bcfe) 87 - 39% Production Growth DD&A Expense $2.2
Slide 53: Ensuring Gas Reaches the Market
November 7, 2011 53 Marcellus Shale Ensuring Gas Reaches the Market Firm sales agreements continue to be layered on as the future production profile becomes more predictable - Tioga County Production and Future Firm Sales Firm Sales Tioga County Production
Slide 54: Geotechnical Keys to Success
November 7, 2011 54 Marcellus Shale Geotechnical Keys to Success 1. 3D Seismic Data Impacts surface location, lateral length and target zone by imaging faults and structure Attribute and fracture analyses being conducted to determine if natural fractures and stress regime can be identified 2. Natura
Slide 55: Expanding 3D Seismic Coverage
November 7, 2011 55 Punxy DCNR 100 DCNR 595 Covington DCNR 007 DCNR 001 West Branch Mt. Jewett Owl’s Nest Marcellus Shale Expanding 3D Seismic Coverage Completed – 190,000 ac In Progress – 128,000 ac
Slide 56: Importance of 3D Seismic in Identifying Fractures
November 7, 2011 56 TGP 300 Marcellus Shale Importance of 3D Seismic in Identifying Fractures DCNR 007 5H Well Drilled prior to 3D Seismic acquisition Well Test: 2 MMcf/d DCNR 007 Tioga County
Slide 57: 3D Seismic Analysis: Fracture Patterns?
November 7, 2011 57 Marcellus Shale 3D Seismic Analysis: Fracture Patterns? Remainder of DCNR Tract 007 Evidence for significant natural fractures DCNR 007 Tioga County Fault DCNR 007 5H Well In a localized area with minimal fractures 5H Major Fractures
Slide 58: Importance of Closure Stress & Target Zone
November 7, 2011 58 Marcellus Shale Importance of Closure Stress & Target Zone Higher Closure Stress “pinch point” Closure Stress & Target Zone High Closure Stress Impacts frac initiation & limits frac width. Avoid high closure stress “pinch points”. Currently optimizing Target Zones in each area. B
Slide 59: Owl's Nest – Improved IP's by Optimizing The Target Zone
November 7, 2011 59 Cherry Valley Marcellus Shale Owl’s Nest – Improved IP’s by Optimizing The Target Zone Moving into Full Development Frac Stages 11 of 20 Stages in Union Springs Target Onondaga Carb “Narrowed” Union Springs Target Zone: 15’ 5,750’ 5,800’ 3H Production Results Treated Lateral: 4,3
Slide 60: Understanding Multi-Well Pad Drilling
November 7, 2011 60 Marcellus Shale Understanding Multi-Well Pad Drilling Drill Vertical Section 8 Days/Well Kickoff Point to TD 14 Days/Well Prep for Completion 3.5 Days/Well Completion 4.2 Days/Well Post-Completion 2.7 Days/Well A typical 6-well pad can take between six and seven months from spud
Slide 61: Zero Liquid Discharge Operation
November 7, 2011 61 Marcellus Shale “Zero Liquid Discharge Operation” Utilizing a state-of-the-art evaporative technology to ensure no liquid is discharged at the surface Building centrally located units in the Western Development Area (WDA) and the Eastern Development Area (EDA) Removes all liquids
Slide 62: Leading Environmental Commitment
November 7, 2011 62 Seneca Resources Leading Environmental Commitment www.FracFocus.org Seneca discloses its hydraulic fracturing data Testing “Green Fluids” Refueling Standards Evaluate shallow geology and shallow water systems Developed Best Practices for design and cementing of production casing
Slide 63: Comparable GAAP Financial Measure Slides and Reconciliations
November 7, 2011 63 National Fuel Gas Company Comparable GAAP Financial Measure Slides and Reconciliations This presentation contains certain non-GAAP financial measures. For pages that contain non-GAAP financial measures, pages containing the most directly comparable GAAP financial measures and rec