National Fuel Gas Company · NYSE:NFG
National Fuel Gas — Q2 FY2019 Earnings Presentation
66 slides from National Fuel Gas's earnings presentation, May 2, 2019
Slide 1: Investor Presentation Q2 Fiscal 2019 Update
Investor Presentation Q2 Fiscal 2019 Update May 2, 2019 Exhibit 99
Slide 2: Commitment to safe and environmentally conscious development
National Fuel is committed to the safe and environmentally conscious development, transportation, storage, and distribution of natural gas and oil resources. For additional information, please visit our corporate responsibility website at https://responsibility.natfuel.com
Slide 3: NFG: A Diversified, Integrated Natural Gas Company
Developing our large, high quality acreage position in Marcellus & Utica shales(1) NFG: A Diversified, Integrated Natural Gas Company Providing safe, reliable and affordable service to customers in WNY and NW Pa. Upstream Exploration & Production Midstream Gathering Pipeline & Storage 38% of NFG EBI
Slide 4: Why National Fuel? Large Appalachian Footprint Driving Continuous Growth
Why National Fuel? Large Appalachian Footprint Driving Continuous Growth
Slide 5: Integrated Model Enhances Shareholder Value
Integrated Model Enhances Shareholder Value . . . Operational scale Lower cost of capital Lower operating costs More efficient capital investment More competitive pipeline infrastructure projects Ability to adjust to changing commodity price environments Higher returns on investment Strong balance s
Slide 6: Integrated Development Drives Continuous Organic Growth Opportunities
Integrated Upstream and Midstream development of 785,000 acre Marcellus and Utica shale position Steady-state three rig drilling program NFG Gathering transports 100% of growing natural gas production NFG pipeline expansions under development create new firm takeaway capacity for NFG production Furt
Slide 7: Impressive Dividend History
Impressive Dividend History $2.9 Billion Dividend payments since 1970 $1.70 per share 48 Years Consecutive Dividend Increases $0.19 per share 116 Years Consecutive Payments 2.9% yield(1) As of April 30, 2019. 2
Slide 8: Production and Gathering Growth of 15-20% Through 2022
1 Production and Gathering Growth of 15-20% Through 2022 Production Growth Supported by Firm Transportation Portfolio (1) Production trend line represents 17.5% net growth, on average, from fiscal 2018 through fiscal 2022. 15-20% Production CAGR(1) Production Growth Drives Significant Increase in Ga
Slide 9: Utilization of Existing Infrastructure for Utica Development Amplifies Returns
Utilization of Existing Infrastructure for Ongoing Utica Development Amplifies Consolidated Returns L Leveraging Existing Infrastructure to Enhance Returns Approximate WDA Marcellus gathering facility costs for 192 wells drilled and completed as of September 30, 2018. Estimated WDA Utica gathering f
Slide 10: $1 Billion+ Backlog in Pipeline & Storage Projects
$1 Billion+ Backlog in Pipeline & Storage Projects Line N to Monaca - $24 MM (August 2019)(1) Empire North - $145 MM (second half of fiscal 2020) FM100 - $280 MM (late calendar 2021) Companion project to Seneca-anchored Leidy South project Northern Access - $500 MM(2) (as early as fiscal 2022) Suppl
Slide 11: Financial Highlights Second Quarter Fiscal 2019
Financial Highlights Second Quarter Fiscal 2019
Slide 12: Second Quarter Fiscal 2019 Results and Drivers
Net Oil and Gas Production Second Quarter Fiscal 2019 Results and Drivers Adjusted Operating Results ($/share)(1) Adjusted Operating results of $1.11 for Q2 Fiscal 2018 and $1.07 for Q2 Fiscal 2019 include operating results of Corporate & All Other segments. See slide 63 for a Reconciliation of Adju
Slide 13: Earnings Guidance
Earnings Guidance FY2018 Adjusted Operating Results Non-regulated Businesses Exploration & Production Gathering $3.34 /share(1) $3.45 to $3.65 /share FY2019 Earnings Guidance Seneca Net Production: 205 to 215 Bcfe Gathering Revenues: $125-130 million Natural Gas: ~$2.45/Mcf(2) (vs. $2.52/Mcf in FY 2
Slide 14: Exploration & Production and Gathering Overview
Exploration & Production and Gathering Overview Seneca Resources Company, LLC ~ National Fuel Gas Midstream Company, LLC
Slide 15: Proved Reserves
Proved Reserves 361% Reserve Replacement Rate Seneca Drill-bit F&D = $0.66/Mcfe(1) Appalachia Drill-bit F&D = $0.65/Mcfe(1) Seneca “Drill-bit” finding and development (“F&D”) costs exclude the impact of reserve revisions. Total Proved Reserves (Bcfe) Fiscal 2018 Proved Reserves Stats 3-Year Average
Slide 16: Growing Production within Disciplined Capital Program
3 rig development program, with second rig in WDA focused on Utica 15-20% net production growth expected through fiscal 2022 New EDA Utica development, with production online in Q2 fiscal 2019 Utilize new Atlantic Sunrise firm transportation capacity Layer-in firm sales to take advantage of attracti
Slide 17: Significant Appalachian Acreage Position
Significant Appalachian Acreage Position Average gross production: ~311 MMcf/d Mostly leased (16-18% royalty) with no significant near-term lease expirations ~84 remaining Marcellus & Utica locations economic at ~$1.82/Mcf Additional Marcellus (Tioga Co.) & Geneseo (Lycoming Co.) potential Eastern D
Slide 18: Western Development Area Marcellus Core vs. Utica Appraisal Trend
Western Development Area Marcellus Core Acreage vs. Utica Appraisal Trend(1) The Utica Shale lies approximately 5,000 feet beneath Seneca’s WDA Marcellus acreage. Appraisal program currently in progress. Additional tests are planned. Prior Marcellus delineation tests helped define the prospective li
Slide 19: WDA Utica Appraisal Results and Initial Type Curve
WDA Utica Appraisal Results and Initial Type Curve Tested / producing from 21 Utica wells in WDA-CRV Drawdown management is critical: restricted drawdown appears to significantly improve well performance and EURs Produced fluid blend %: At high produced water blend rates, both well performance and E
Slide 20: Transitioning to Utica Development in CRV
Transitioning to Utica Development in CRV WDA-CRV Marcellus (Depth ~7,000 feet) WDA-CRV Utica (Depth ~12,000 feet) Avg. CRV Marcellus Production: 238 MMcf/d Rem. Avg. EUR 1.0-1.1 Bcf / 1,000 lat ft. Rem. Avg. Well Costs = $667/lat ft. CRV Utica Transition Plan Finish Marcellus Pads in Development Dr
Slide 21: Leveraging Existing Gathering, Water and Pad Infrastructure Enhances Returns
Leveraging Existing Gathering, Water and Pad Infrastructure Enhances Returns Limited New Infrastructure Needed to Support Production Growth WDA Well Costs(1) WDA Consolidated Economics Steady activity levels and coordination between upstream and midstream activities enhance returns, provide economie
Slide 22: Integrated Development – WDA Gathering System
Integrated Development – WDA Gathering System Current System In-Service ~78 miles of pipe / 36,220 HP of compression Current Capacity: 470 MMcf per day Interconnects with TGP 300 and NFG Supply Total Investment to Date: $301 million Future Build-Out FY 2019 CapEx: $10 - $15 million Modest gathering
Slide 23: WDA Firm Transportation and Sales Capacity
WDA Firm Transportation and Sales Capacity Will continue to layer-in firm sales deals of short and longer duration on TGP 300 to reduce spot exposure WDA spot realizations track TGP Station 313 pricing, typically 10¢ - 30¢ better than TGP Marcellus Zone 4 Leidy South will provide additional capacity
Slide 24: Eastern Development Area
Eastern Development Area EDA Acreage – 70,000 Acres EDA Highlights 1 DCNR Tract 007 (Tioga Co., Pa) Utica development resumed in third quarter fiscal 2018 ~43 remaining Utica locations economic at ~$1.82 /Mcf Gathering Infrastructure: NFG Midstream Wellsboro Marcellus Shale expected to provide ~60 a
Slide 25: EDA Marcellus: Lycoming County Development
EDA Marcellus: Lycoming County Development Marcellus Development in Lycoming County has Resumed in Connection with Atlantic Sunrise Includes physical fixed price and NYMEX-based firm sales contracts that do not carry any additional transportation costs. E&P and Gathering Prolific Marcellus acreage w
Slide 26: EDA Utica: Tioga County Development
EDA Utica: Tioga County Development Utica Development In Tioga County Underpinned by Firm Sales Agreements Growing Production: Tract 007 production expected to steadily grow and exceed 100 Mdth/d in Fiscal 2022(1) Sales/Takeaway Strategy: Layer-in additional firm sales with shippers holding capacity
Slide 27: EDA Utica: Tract Utica Wells Brought Online in Q2 Fiscal 2019
EDA Utica: Tioga County Development Tract 007 Utica Wells Brought Online in Q2 Fiscal 2019 Tracking Best Industry Results to Date Production from first multi-well pad (4 wells) brought online in February/March 2019 Early results compare favorably with industry Potter/Tioga Co. wells Expected Develop
Slide 28: Integrated Development – EDA Gathering Systems
Integrated Development – EDA Gathering Systems Total Investment (to date): ~$46 million FY 2019 Estimated Capital Expenditures: $1 MM - $2 MM Capacity: 220,000 Dth per day (Interconnect w/ TGP 300) Production Source: Seneca Resources – Tioga Co. (Covington and DCNR Tract 595) Total Investment (to da
Slide 29: Long-term Contracts Supporting Appalachian Growth
Long-term Contracts Supporting Appalachian Growth Represents base firm sales contracts not tied to firm transportation capacity. Base firm sales are either fixed priced or priced at an index (e.g., NYMEX ) +/- a fixed basis and do not carry any transportation costs. Seneca continues to layer-in firm
Slide 30: Near-term Firm Sales Provide Market & Price Certainty
Near-term Firm Sales Provide Market & Price Certainty Net Contracted Firm Sales Volumes (Dth per day) Contracted Index Price Differentials ($ per Dth)(1) Values shown represent the weighted average fixed price or contracted fixed differential relative to NYMEX (netback price) less any associated tra
Slide 31: California Oil
California Oil Stable Oil Production | Minimal Capital Investment | Steady Free Cash Flow 1 2 3 4 5 Location Formation Production Method Avg. Daily Production (net Boe/d)(1) 1 East Coalinga/ Other Temblor Primary 443 2 North Lost Hills Tulare & Etchegoin Primary/ Steam flood 864 3 South Lost Hills M
Slide 32: California Capital Expenditures vs. Production
California Capital Expenditures vs. Production West Division Average Net Daily Production (Boe) West Division Annual Capital Expenditures ($ MM)(1) Estimate Estimate Seneca West Division capital expenditures includes Seneca corporate and eliminations. E&P and Gathering Sepse Sale Closed on 5/1/18 (r
Slide 33: California Development Activities
Pioneer South MWSS Acreage North MWSS Acreage Sec. 17N California Development Activities Modest near-term capital program focused on locations that earn attractive returns in current oil price environment A&D will focus on low cost, bolt-on opportunities Sec. 17, Pioneer, and East Coalinga developme
Slide 34: Fiscal 2019 Production and Price Certainty
Fiscal 2019 Production and Price Certainty Average realized price reflects uplift from financial hedges less fixed differentials under firm sales contracts and any firm transportation costs. Indicates firm sales contracts with fixed index differentials but not backed by a matching financial hedge. 7
Slide 35: Strong Hedge Book
Strong Hedge Book Natural Gas Swap & Fixed Physical Sales Contracts (Millions MMBtu) Fixed price physical sales exclude joint development partner’s share of fixed price contract WDA volumes as specified under the joint development agreement. Reflects percentage of projected production for FY19 hedge
Slide 36: Seneca Operating Costs
Seneca Operating Costs Competitive, low cost structure in Appalachia and California supports strong cash margins Gathering fee generates significant revenue stream for affiliated gathering company Seneca DD&A Rate $/Mcfe Appalachia LOE & Gathering $/Mcfe California LOE $/Boe Total Seneca Cash OpEx $
Slide 37: Pipeline and Storage Overview
Pipeline and Storage Overview National Fuel Gas Supply Corporation ~ Empire Pipeline, Inc.
Slide 38: Pipeline & Storage Segment Overview
Pipeline & Storage Segment Overview As of September 30, 2018 as disclosed in the Company’s fiscal 2018 form 10-K. As of December 31, 2018 calculated from National Fuel Gas Supply Corporation’s and Empire Pipeline, Inc.’s 2018 FERC Form-2 reports, respectively. Empire Pipeline, Inc. National Fuel Gas
Slide 39: FM100 Project - Consolidated Benefit for NFG
All Seneca volumes will flow through wholly-owned NFG gathering facilities FM100 Project - Consolidated Benefit for NFG 330,000 Dth/d of new transportation capacity from WDA and EDA acreage positions to premium markets New Transco capacity (Leidy South): 330,000 Dth/day Rate(1) : competitive with ot
Slide 40: FM100 Project – Significant Investment by Supply Corp.
FM100 Project – Significant Investment by Supply Corp. Pipeline & Storage Estimated capital cost: $280 million(1) Facilities (all in Pennsylvania) include: Approximately 30 miles of new pipeline 2 new compressor stations (totaling approximately 37,000 HP) New interconnection station and modification
Slide 41: Empire North Project
Empire North Project Target in-service: second half of fiscal 2020 Est. capital cost: $145 million Est. annual revenues: ~$25 million Receipt point: Jackson (Tioga Co., Pa. production) Design capacity and delivery points: 175,000 Dth/d to Chippawa (TCPL interconnect) 30,000 Dth/d to Hopewell (TGP 20
Slide 42: National Fuel Remains Committed to Northern Access Project
National Fuel Remains Committed to Northern Access Project In-service: as early as fiscal 2022 Total cost: ~$500 MM(1) (~$57 MM spent to date) Estimated annual revenues: ~$84 million Delivery points: 350,000 Dth/d to Chippawa (TCPL interconnect) 140,000 Dth/d to East Aurora (TGP 200 line) Regulatory
Slide 43: Continued Expansion of the NFG Supply System
Continued Expansion of the NFG Supply System Line N Expansion Opportunities Line N to Monaca Project Project: Firm transportation service to a new ethane cracker facility being built by Shell Chemical Appalachia, LLC Target in-service: August 2019 (under construction) Estimated capital cost: $24 mil
Slide 44: Pipeline & Storage Customer Mix
Pipeline & Storage Customer Mix 4.2 MMDth/d Contracted as of 10/31/2018. Customer Transportation by Shipper Type(1) Affiliated Customer Mix (Contracted Capacity) Firm Transport Pipeline & Storage
Slide 45: Utility Overview
Utility Overview National Fuel Gas Distribution Corporation
Slide 46: New York & Pennsylvania Service Territories
New York & Pennsylvania Service Territories New York Total Customers(1): 535,800 ROE: 8.7% (NY PSC Rate Case Order, April 2017) Rate Mechanisms: Revenue Decoupling Weather Normalization Low Income Rates Merchant Function Charge (Uncollectibles Adj.) 90/10 Sharing (Large Customers) System Modernizati
Slide 47: New York Rate Case Outcome
New York Rate Case Outcome Rate Order Summary: Revenue Requirement:$5.9 million Rate Base:$704 million Allowed Return on Equity (ROE):8.7% Capital Structure:42.9% equity Other notable items: New rates became effective 5/1/17 Retains rate mechanisms in place under prior order (revenue decoupling, wea
Slide 48: Utility Continues its Significant Investments in Safety
Utility Continues its Significant Investments in Safety Modernization Spending in NY Expected to Grow Gross Margin By $2 MM - $5 MM in FY 2019 (1) A reconciliation to Capital Expenditures as presented on the Consolidated Statement of Cash Flows is included at the end of this presentation. Utility Sy
Slide 49: Accelerating Pipeline Replacement & Modernization
Accelerating Pipeline Replacement & Modernization NY 9,726 miles PA* 4,830 miles * No Cast Iron Mains in Pa.* Miles of Utility Main Pipeline Replaced Utility Mains by Material(1) Utility (1) All values are reported on a calendar year basis as of December 31, 2018.
Slide 50: A Proven History of Controlling Costs
A Proven History of Controlling Costs Utility O&M Expense ($ millions) Utility (1) (1) For purposes of comparability to FY 2015, 2016 and 2017, Utility Operation and Maintenance Expense for FY 2018 and the twelve months ended March 31, 2019 was adjusted by approximately $31.4 million and $29.3 milli
Slide 51: Consolidated Financial Overview
Consolidated Financial Overview Upstream I Midstream I Downstream
Slide 52: Adjusted Operating Results and Adjusted EBITDA
Adjusted Operating Results ($ per share)(1) Diversified, Balanced Earnings and Cash Flows A reconciliation of Adjusted Operating Results to Earnings per Share, by segment, as presented on the Consolidated Statement of Income and Earnings Reinvested in the Business is included at the end of this pres
Slide 53: Disciplined, Flexible Capital Allocation
Disciplined, Flexible Capital Allocation (2) Total Capital Expenditures include Energy Marketing, Corporate and All Other. A reconciliation to Capital Expenditures as presented on the Consolidated Statement of Cash Flows is included at the end of this presentation. FY16, FY17, and FY18 reflects the
Slide 54: Maintaining Strong Balance Sheet & Liquidity
Maintaining Strong Balance Sheet & Liquidity Total Debt 50% $4.2 Billion Total Capitalization as of March 31, 2019 Net Debt / Adjusted EBITDA(1) Capitalization Debt Maturity Profile ($MM) Liquidity Committed Credit Facilities Short-term Debt Outstanding Available Short-term Credit Facilities Cash Ba
Slide 55: Appendix
Appendix
Slide 56: Safe Harbor For Forward Looking Statements
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, objectives, goals, projections, estimates of oil and gas quantities, strat
Slide 57: Hedge Positions and Prices
Hedge Positions and Prices Fixed price physical sales exclude joint development partner’s share of fixed price contract WDA volumes as specified under the joint development agreement. (1) Appendix Natural Gas Volumes in thousand MMBtu; Prices in $/MMBtu Fiscal 2019 Fiscal 2020 Fiscal 2021 Fiscal 202
Slide 58: Appalachia Drilling Program Economics
Appalachia Drilling Program Economics Net realized price reflects either (a) price received at the gathering system interconnect or (b) price received at delivery market net of firm transportation charges. Internal Rate of Return (IRR) is pre-tax and includes estimated well costs under current cost
Slide 59: Firm Transportation Commitments
Firm Transportation Commitments Volume (Dth/d) Production Source Delivery Market Demand Charges ($/Dth) Gas Marketing Strategy Northeast Supply Diversification Tennessee Gas Pipeline Niagara Expansion TGP & NFG Northern Access NFG – Supply & Empire In-service: as early as FY 2022 50,000 158,000 350,
Slide 60: Comparable GAAP Financial Measure Slides & Reconciliations
Comparable GAAP Financial Measure Slides & 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 reconciliations are provided in the slides that fol
Slide 61: Non-GAAP Reconciliations – Adjusted EBITDA
Non-GAAP Reconciliations – Adjusted EBITDA Appendix Total Adjusted EBITDA for FY 2018 and the twelve months ended March 31, 2019 include the reclassification of non-service pension costs from Operating and Maintenance Expense to Other Income (Deductions) as of October 1, 2018 on the Company’s Income
Slide 62: Non-GAAP Reconciliations – Adjusted EBITDA, by Segment
Non-GAAP Reconciliations – Adjusted EBITDA, by Segment Appendix
Slide 63: Non-GAAP Reconciliations – Adjusted Operating Results
Non-GAAP Reconciliations – Adjusted Operating Results Appendix
Slide 64: Non-GAAP Reconciliations – Capital Expenditures
Non-GAAP Reconciliations – Capital Expenditures Appendix
Slide 65: Non-GAAP Reconciliations – E&P Operating Expenses
Non-GAAP Reconciliations – E&P Operating Expenses Appendix
Slide 66: Non-GAAP Reconciliations – Adjusted Operation & Maintenance Expense
Non-GAAP Reconciliations – Adjusted Operation & Maintenance Expense Appendix