National Fuel Gas Company · NYSE:NFG
National Fuel Gas — Proxy Contest (November 2007)
56 slides from National Fuel Gas's proxy contest presentation, Nov 6, 2007
Slide 1: Building the Value of National Fuel Gas
Building the Value of National Fuel Gas New Mountain Vantage Advisers November 2007 www.buildNFGvalue.com
Slide 2: Disclaimer
Disclaimer New Mountain Vantage, L.P., a Delaware limited partnership ("NMV"), New Mountain Vantage (California), L.P., a Delaware limited partnership ("NMVC"), New Mountain Vantage (Texas), L.P., a Delaware limited partnership ("NMVT"), and New Mountain Vantage HoldCo Ltd., a Cayman Islands exempt
Slide 3: Introduction to New Mountain Vantage
Introduction to New Mountain Vantage New Mountain Vantage Focused on concentrated positions with opportunities to build significant shareholder value through improvement in operations, capital allocation, and governance Leverages the experience, strength and skills of New Mountain Capital's leading
Slide 4: Situation Overview
Situation Overview Vantage purchased its first shares of NFG in February 2006 Represents over 8.1 million shares (over 9.5% of shares outstanding), including CalPERS position Believes itself to be NFG's largest shareholder Vantage has performed extensive due diligence and proprietary research based
Slide 5: Vantage Recommendations to NFG
Vantage Recommendations to NFG Develop, communicate and execute a plan to maximize value of NFG's Appalachian exploration and production ("E&P") assets Explore Master Limited Partnership ("MLP") structure for NFG's pipeline and storage assets, California E&P assets, and its Appalachian E&P assets Ex
Slide 6: A Potential Sum Of Parts Reference Range For NFG
A Potential Sum Of Parts Reference Range For NFG May Be Useful To Set A Strategic Course For NFG In addition, NFG's Marcellus Shale opportunity could over time be worth ~$3.0 billion if valued as an analogue to Range Resource's potential value on a per acre basis per Wall Street estimates(11) 1 2 3
Slide 7: Footnotes To The Potential Sum Of Parts Reference Range For NFG
Footnotes To The Potential Sum Of Parts Reference Range For NFG (1) NFG 8-K dated October 11, 2007 (2) Based on ranges from selected companies analysis - refer to slides 47 - 51 in Appendix for supporting documentation (3) Schlumberger Data and Consulting Services - refer to slides 42 - 46 in Append
Slide 8: NFG Is An Undervalued Holding Company
NFG Is An Undervalued Holding Company, Even Assuming Appalachia Acreage Has No Value 8.70000000000099 14.8000000000017 9.30000000000106 9.40000000000107 12.8000000000015 NFG(1) Pipeline MLPs(2) E&P MLPs(3) Pure Play Gas Utilities(2) Premium Diversified Energy(4) EBITDA Multiples Pure Play Selected C
Slide 9: Key is to Get the Board to Act
Key is to Get the Board to Act Vantage believes major opportunities require a NFG effort to: Examine all options to maximize shareholder value Hire top-tier investment bankers Hold open discussions with strategic partners Drive forward the tough decisions Vantage believes shareholders need fresh Boa
Slide 10: I. The Appalachia Opportunity
I. The Appalachia Opportunity
Slide 11: Overview of Appalachia Opportunity
Overview of Appalachia Opportunity Appalachia is the oldest producing basin in the United States Appalachia has several attractive characteristics Long-lived gas reserves Proximity to markets NFG is one of the largest landowners in the basin Controls 939,000 acres (roughly the size of Rhode Island)
Slide 12: Appalachia Basin is Area of Accelerating Interest for Several Peers
Appalachia Basin is Area of Accelerating Interest for Several Peers 46 2003 2004 2006 Talisman Energy starts drilling the Trenton Black River formation in New York 2005 2007 Range Resources purchases Great Lakes Energy Equitable Resources begins E&P transformation Chesapeake Energy buys Columbia Nat
Slide 13: NFG Had Been Underinvesting in Appalachia
Vantage Believes That, Before Vantage Became Involved In NFG, NFG Had Been Underinvesting in Appalachia Historically, in Vantage's view, NFG underinvested in Appalachia Did not show a map of acreage to shareholders Had not disclosed Proved Undeveloped, Probable, and Possible ("3-P") reserves Average
Slide 14: NFG Has A History of E&P Impairments
NFG Has A History of E&P Impairments Year Impairment ($m) Cause 1998 $129 Significant declines in oil prices 2001 181 Canadian properties; low oil and gas prices 2003 43 Downward revisions to crude oil reserves related to sold Canadian properties; overall decline in crude oil prices 2006 105 Canadia
Slide 15: Vantage Commissioned Schlumberger To Help Set New Strategic Direction
Vantage Commissioned Schlumberger To Help Set New Strategic Direction For NFG's Appalachian Acreage As explained above, in early 2006 when Vantage began its NFG investment, NFG had issued no public map of its Appalachian acreage, had no 3-P reserves for Appalachia, and was drilling only 61 wells per
Slide 16: Vantage Work With Schlumberger Indicates Major Untapped Opportunities
Vantage Work With Schlumberger Indicates Major Untapped Opportunities Work Summary Schlumberger reviewed publicly available production data for a large sample set (approximately 40,000 wells) located in all counties where NFG owns acreage The data are from many operators, not just NFG Schlumberger d
Slide 17: Actions Of Other Appalachian E&P Operators Make Opportunity Clear
Even If Schlumberger Analysis Did Not Exist, Vantage Believes The Actions Of Other Appalachian E&P Operators Also Make Opportunity Clear Competitors have been actively investing in their Appalachia acreage... Cumulative Wells Drilled, 2005-2006 Cumulative Development Capex, 2005-2006 $m 198.00000000
Slide 18: Other Operators Are Active In NFG's Counties
Other Operators Are Active In NFG's Counties Pennsylvania Counties NFG Atlas Range Resources EOG Equitable Linn Energy Armstrong Cameron Clarion Clearfield Crawford Elk Erie Forest Indiana Jefferson McKean Mercer Potter Tioga Venango Warren Over 5,500 wells were drilled by other operators in the las
Slide 19: Marcellus Shale May Be Another Major Potential Opportunity
Marcellus Shale May Be Another Major Potential Opportunity NFG controls approximately 860,000 acres in the Marcellus Shale(1) Recent preliminary indicators from competitors operating in the Marcellus Shale are encouraging Range Resources and Atlas Energy have both indicated that vertical test wells
Slide 20: Netherland, Sewell Report to NFG Reviewed Only Small Part of Big Picture
Netherland, Sewell Report to NFG Reviewed Only Small Part of Big Picture Vantage believes that the Netherland, Sewell report to NFG did not address the key strategic question that Vantage has asked regarding the full resource potential of NFG's acreage Only evaluated ~200,000 out of 939,000 acres(1)
Slide 21: Best Path May Be Sale or Partnering of Assets
Best Path May Be Sale or Partnering of Assets E&P operators have expressed interest to Vantage in NFG's assets Vantage believes these operators could apply the technical skills to NFG's assets needed for full value creation All strategic alternatives to maximize shareholder value should be carefully
Slide 22: Key is to Get the Board to Act
Key is to Get the Board to Act Vantage believes major opportunities require a NFG effort to: Examine all options to maximize shareholder value Hire top-tier investment bankers Hold open discussions with strategic partners Drive forward the tough decisions Vantage believes shareholders need fresh Boa
Slide 23: II. The MLP Opportunity
II. The MLP Opportunity
Slide 24: NFG Has Assets Appropriate For MLPs
NFG Has Assets Appropriate For MLPs Vantage believes NFG's pipeline assets are appropriate to hold in an MLP structure Lower cost of capital enables acquisition growth strategy Opportunity for incentive distribution rights at the General Partner level Vantage's advisers have not identified any regul
Slide 25: Premium MLP Trading Multiples Support Vantage Recommendations
Premium MLP Trading Multiples Support Vantage Recommendations (1) Refer to slides 47 - 51 in Appendix for complete selected company analysis Linn Energy 9.4x 9.6x Breitburn Energy Partners 8.9x Average 9.3x Atlas Energy Resources E&P MLP Operators 2008E EBITDA Multiples(1) 2007E EBITDA Multiples(1)
Slide 26: Key is to Get the Board to Act
Key is to Get the Board to Act Vantage believes major opportunities require a NFG effort to: Examine all options to maximize shareholder value Hire top-tier investment bankers Hold open discussions with strategic partners Drive forward the tough decisions Vantage believes shareholders need fresh Boa
Slide 27: III. Sale of Non-Core Assets
III. Sale of Non-Core Assets
Slide 28: Vantage Believes NFG Has Several Non-Core Businesses to Divest
Vantage Believes NFG Has Several Non-Core Businesses to Divest Gulf of Mexico E&P Assets. In Vantage's view: High risk exploration portfolio High finding and development costs High cost operating environment No competitive advantage or strategic purpose Timber and Saw Mill Assets. In Vantage's view:
Slide 29: Key is to Get the Board to Act
Key is to Get the Board to Act Vantage believes major opportunities require a NFG effort to: Examine all options to maximize shareholder value Hire top-tier investment bankers Hold open discussions with strategic partners Drive forward the tough decisions Vantage believes shareholders need fresh Boa
Slide 30: IV. Corporate Governance
IV. Corporate Governance
Slide 31: NFG's Corporate Governance Structure Falls Short of Best Practice
NFG's Corporate Governance Structure Falls Short of Best Practice Shareholders have not been afforded the opportunity to approve NFG's poison pill, which is triggered at a very low threshold of 10% Directors are not elected annually
Slide 32: Key is to Get the Board to Act
Key is to Get the Board to Act Vantage believes shareholders need fresh Board representatives who: Act like owners focused on increasing shareholder value Will advocate fair and full process Will advocate timely Board action with clear deadlines and deliverables Vantage believes shareholders need a
Slide 33: V. Vantage Slate
V. Vantage Slate
Slide 34: The Vantage Slate
The Vantage Slate F. Fox Benton Significant E&P operations and transaction experience Former CFO, Ultra Petroleum (1999 - 2005) Key member of an Ultra Petroleum leadership team that created ~$10 billion of shareholder value David DiDomenico Significant capital markets expertise New Mountain Vantage
Slide 35: Reasons to Support the Vantage Slate
Reasons to Support the Vantage Slate New voices on the Board to pursue opportunities to maximize shareholder value Provide NFG with knowledgeable, owner-oriented directors Seek to build NFG to its maximum possible value
Slide 36: Appendix
Appendix Appalachia Overview Operating Performance Statistics of Publicly Traded Appalachian E&P Companies Schlumberger Analysis Selected Companies Analysis Support for Sum of Parts Reference Range
Slide 37: I. Appalachia Overview
I. Appalachia Overview
Slide 38: Multiple Opportunities in Pennsylvania
Multiple Opportunities in Pennsylvania NFG Opportunity(1) Comment(2) Shallow Sands Lowest risk development opportunity that Vantage has evaluated with help of Schlumberger Data and Consulting Marcellus Shale Emerging play with break out potential being pioneered by Range Resources and Atlas Energy O
Slide 39: NFG's Counties Believed To Contain Half the Estimated Undiscovered Reserves
NFG's Counties Believed To Contain Half the Estimated Undiscovered Recoverable Reserves in the State of Pennsylvania Source: The Geology of Pennsylvania, Charles Shultz, Editor NFG Counties Probable (Bcfe) Probable (Bcfe) Possible (Bcfe) Possible (Bcfe) Speculative (Bcfe) Speculative (Bcfe) Sub-Tota
Slide 40: Significant Industry Activity in NFG's Counties
Significant Industry Activity in NFG's Counties Source: IHS Energy Database Counties where NFG has Acreage in Pennsylvania Cumulative Wells Drilled Last 36 Months as of Sept. 2007 (all operators) Armstrong 689 Cameron 2 Crawford 443 Elk 182 Erie 52 Forest 474 Indiana 768 Jefferson 431 McKean 1,370 M
Slide 41: II. Operating Performance Statistics of Publicly Traded Appalachian E&P Companies
II. Operating Performance Statistics of Publicly Traded Appalachian E&P Companies
Slide 42: Summary Data for Publicly Traded Appalachian Operators
Summary Data for Publicly Traded Appalachian Operators ATN EQT RRC COG CHK LINE Avg. NFG Net Acreage (000s) 657 3,099 1,900 962 3,737 174 1,755 939 Total Proved Reserves (Bcfe) 181 2,497 915 704 1,491 199 998 110 Wells Operated 6,700 12,000 6,421 2,719 NA 1,785 5,925 2,077 Spacing Implied by Current
Slide 43: III. Schlumberger Analysis
III. Schlumberger Analysis Note: Based solely on publicly available data obtained from The State of New York, The Commonwealth of Pennsylvania, and other public sources
Slide 44: Schlumberger Resource Assessment Key Assumptions
Schlumberger Resource Assessment Key Assumptions Input Metrics Assumptions Sources Drill well program Wells drilled / year Accelerating from 200 to 600, with 80% / 20% split between Upper Devonian and Medina Year Upper Devonian Medina 1 160 40 2 320 80 3 400 100 4 - 10 480 120 Vantage / Schlumberger
Slide 45: Average Type Curves and NFG 2007 Shallow Gas Program Results
Average Type Curves (Schlumberger Analysis) and NFG 2007 Shallow Gas Program Results Gas Equivalent, Mmcfe/Yr (1) Source: Schlumberger Data and Consulting Analysis (2) Source: NFG 8-K dated October 11, 2007 0 1.00000000000011 2.00000000000023 3.00000000000034 4.00000000000045 5.00000000000057 6.0000
Slide 46: Output of Schlumberger Resource Assessment
Output of Schlumberger Resource Assessment Development Drilling Upper Devonian and Clinton Medina Wells Only Oil = $70 Gas Price PV 10 ($ million)(1) Year 5 EBITDA ($ million) Year 5 Production (Bcfe) $6.00 868 188.2 26.6 $6.50 957 198.0 26.6 $7.00 1,046 207.8 26.6 $7.50 1,136 217.6 26.6 $8.00 1,225
Slide 47: Elk County Overview
Possible Probable 140 PUD 646 NFG's Risked Reserves, Upper Devonian Resource 438 Bcfe Elk County Overview Overview After receiving initial Schlumberger report on all acreage, Vantage engaged a land man to work with Schlumberger team to provide greater detail in a specific county Objective was to app
Slide 48: IV. Selected Companies Analysis
IV. Selected Companies Analysis
Slide 49: Pure Play Utilities Selected Companies
Pure Play Utilities Selected Companies Pure Play Utility Selected Companies (1) 2007E EBITDA estimate from Robert W. Baird Source: 2007E EBITDA estimates from I/B/E/S unless noted; estimates and prices as of October 30, 2007
Slide 50: Pipeline & Midstream MLP Selected Companies
Pipeline & Midstream MLP Selected Companies (1) 2007E EBITDA from Factset consensus estimate; adjusted for Anadarko Assets acquisition (2) EBITDA estimate adjusted for Cantera Natural Gas Private Placement and Cimmeron Gatherin acquisition (3) EBITDA estimate adjusted for MWP acquisition (4) EBITDA
Slide 51: E&P MLP Selected Companies
E&P MLP Selected Companies E&P MLP Selected Companies Source: 2008E EBITDA estimates from I/B/E/S; estimates and prices as of October 30, 2007
Slide 52: Diversified Energy Selected Companies
Diversified Energy Selected Companies Source: 2008E EBITDA estimate from I/B/E/S; estimates and prices as of October 30, 2007 Diversified Energy Selected Companies
Slide 53: V. Support for Sum of Parts Reference Range
V. Support for Sum of Parts Reference Range
Slide 54: Supporting Calculations For E&P - California EBITDA Estimate
Supporting Calculations For E&P - California EBITDA Estimate
Slide 55: Supporting Data for Gulf of Mexico Asset Sale Price
Supporting Data for Gulf of Mexico Asset Sale Price - Historical Transaction Multiples Source: J.S. Herold
Slide 56: New Mountain Vantage Advisers
New Mountain Vantage Advisers 787 Seventh Avenue, 49th Floor New York, NY 10019 (212) 720-0300 www.buildNFGvalue.com