National Fuel Gas Company · NYSE:NFG
National Fuel Gas — Q1 FY2012 Earnings Presentation
47 slides from National Fuel Gas's earnings presentation, Feb 8, 2012
Slide 1: Investor Presentation: Fiscal 2012 First Quarter Financial & Operational Update
Exhibit 99 Investor Presentation Fiscal 2012 First Quarter Financial & Operational Update February 8, 2012
Slide 2: Safe Harbor For Forward Looking Statements
National Fuel Gas Company February 8, 2012 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 structu
Slide 3: Core Businesses
Core Businesses February 8, 2012 Integrated Business Structure Seneca Resources Corporation Empire Pipeline & NFG Supply Corp. Significant Appalachian Growth Appalachian Pipeline Growth Leading Marcellus Shale Position Delivery to Growth Markets Evaluate Utica/Geneseo Shales Create Flexible System S
Slide 4: Integrated Business Structure
National Fuel Gas Company February 8, 2012 Integrated Business Structure 4
Slide 5: Our Business Mix Leads to Long-Term Value Creation
National Fuel Gas Company February 8, 2012 Our Business Mix Leads to Long-Term Value Creation Seneca Utility Resources Pipeline & Storage Midstream Energy Gathering Marketing The strategic and financial benefits created by the integrated mix of businesses has continued to generate significant long-t
Slide 6: Exploration & Production
Exploration & Production February 8, 2012 6
Slide 7: Uniquely Positioned in Pennsylvania
Seneca Resources February 8, 2012 Uniquely Positioned in Pennsylvania Held over 700,000 Marcellus acres before the play received any attention Have since added another 45,000 acres in the core of the play 80% of acreage is held in fee No royalty No lease expirations In addition to Marcellus, Seneca
Slide 8: Capital Spending Shifting to the Marcellus
Seneca Resources February 8, 2012 Capital Spending Shifting to the Marcellus $1,250 California Upper Devonian Marcellus Gulf of Mexico $1,000 $720-$800 $750 $649 $500 $398 $675-$745 $585 $250 $192 $188 $332 $64 $71 $61 $68 $0 $63 $31(1) $47 $45-55 2008 2009 2010 2011 2012 Forecast Fiscal Year (1) Do
Slide 9: Ramping Up Production Growth
Seneca Resources February 8, 2012 Ramping Up Production Growth 125 California Upper Devonian Marcellus Gulf of Mexico 100 Annual production 85-95 growth of ~25% to ~40% is expected 75 from 2011 to 2012 67.6 5.2 49.7 60-66 50 40.8 42.5 13.4 35.3 14.1 13.7 7.2 25 7.9 8.7 9.3 7.9 6-8 18.8 20.1 19.8 19.
Slide 10: Continued Improvement in Finding & Development Costs
Seneca Resources February 8, 2012 Continued Improvement in Finding & Development Costs Three Year Average U.S Finding & Development Cost $8.00 $7.63 $7.38 $6.00 $5.35 $4.00 $2.37 $2.09 $2.00 $0.00 2005-2007 2006-2008 2007-2009 2008-2010 2009-2011 Fiscal Years 10
Slide 11: Seneca's Development Areas
Marcellus Shale February 8, 2012 Seneca’s Development Areas Eastern Development Area (Mostly Leased) Western Development Area (Mostly Fee and HBP) SRC Fee Acreage SRC Lease Acreage EOG Acreage 11
Slide 12: Strategic Development Plan
Seneca Resources February 8, 2012 Strategic Development Plan Develop our excellent Tioga and Lycoming County leasehold Gross Rig Count 16 Systematically evaluate both the Seneca EOG Marcellus and Utica in the western 12 acreage 7.5 8 6 Evaluate development plans for 3 4.5 1.5 western acreage 4 2 1.5
Slide 13: Step Development Strategy
Marcellus Shale February 8, 2012 3 –Step Development Strategy 1. Area evaluation Vertical wells and cores 3-well horizontal “test”pads 2D and 3D seismic 2. Optimization Landing depth Frac design Lateral length Locations 3. Development Economies - of Scale Multi-well pads Crawling rigs Batch drill to
Slide 14: Eastern Development Area (EDA) Results & Plan Forward
Marcellus Shale February 8, 2012 Eastern Development Area (EDA) Results – & Plan Forward Covington– Developed 47 Wells Drilled 4 –7 Producing Gross Production: ~100 MMcf/d DCNRTract595– FullDevelopment 24 Wells Drilled 4 – Producing Gross Production: ~10 MMcf/d FY 2012: 1 Rig DCNRTract100– FullDevel
Slide 15: Western Development Area (WDA) Results & Plan Forward
Marcellus Shale February 8, 2012 Western Development Area (WDA)Results – & Plan Forward Approx. Outline of JV Acreage SRC Fee Acreage 200,000 Gross Acres Seneca 50% W.I. (Avg. 58% NRI) SRC Lease Acreage SRC Contributed JV Acreage Mt. Jewett –Delineating Rich ValleyDelineating - EOG Contributed JV Ac
Slide 16: Breaking Down Our Acreage Position
Marcellus Shale February 8, 2012 Breaking Down Our Acreage Position Possible Wells Area Net Acres Locations Wells Drilled Completed EUR (Bcfe) Status Eastern Development Area (EDA) Covington 7,000 47 47 47 5.5 Developed 595 6,000 55 24 4 7.0 Full Development 100 10,000 70 6 1 8.0 Full Development 00
Slide 17: Economics of an Average DCNR Well in Tioga County, Pa.
Seneca Resources February 8, 2012 Economics of an Average DCNR 595 Well in Tioga County, Pa. Marcellus Economics for a Typical DCNR 595 Well 50% 40% Estimated Pre-Tax Economic Assumptions IRR at Current NYMEX Strip (1) Well Cost $6.5 -$7.5 Million 30% EUR 6.0 -7.0 Bcf Net Revenue Interest (NRI) 84%
Slide 18: Utica Shale Activity Summary
Utica Shale February 8, 2012 Activity Summary Seneca Resources Seneca Resources Dry Gas Vertical Well Permit Vertical Completed Vertical Completed: December 2011 Currently Testing Currently Drilling 1stHorizontal Horizontal Well Permit Drilled Well Chesapeake 3.1 MMcf/d 1,015 Bbl/d Wet Seneca Resour
Slide 19: Upper Devonian Geneseo Shale Activity Summary
Upper Devonian Geneseo Shale February 8, 2012 Activity Summary East Resources East Resources 3 Wells Permitted Drilled & Completed November 2010 April 2010 Mt. Jewett Vertical (Seneca) Depth: 5,095’; Thickness: 110’ DCNR 001 Horizontal (Seneca) Depth: 5,830’; Thickness: 77’ Peak Rate: 4.5 MMcf/d Eas
Slide 20: California: Stable Production Fields
California February 8, 2012 Stable Production Fields North Lost Hills ~1,150 BOEPD Tulare & Etchegoin Formation South Lost Hills Primary & Steamflood ~1,700 BOEPD 181 Active Wells Monterey Shale Primary 215 Active Wells North Midway Sunset ~4,400 BOEPD Potter & Tulare Formation Steamflood Sespe 728
Slide 21: Strong Margins Support Significant Free Cash Flow
California February 8, 2012 Strong Margins Support Significant Free Cash Flow Fiscal Year 2011 Net Income and Expenses per BOE Income tax 21% DDA 13% Cash Non-Steam Fuel LOE 12% Net Income Expenses $31.88 $35.50 Other 6% DD&A Steam Fuel 4% $10.21 G&A 3% Average Price ($/BOE) = $77.59 Net Income 41%
Slide 22: Hedge Positions and Strategy
National Fuel Gas Company February 8, 2012 Hedge Positions (1) and Strategy Asof February2nd, 2012,Senecahashedgedapproximately47% of itsremainingforecastedproductionfor Fiscal2012 Natural Gas Volume Average Volume Average Swaps (Bcf) Hedge Price Oil Swaps (MMBbl) Hedge Price (2) Fiscal 2012 26.2 $5
Slide 23: Pipeline & Storage / Midstream
Pipeline & Storage / Midstream February 8, 2012 23
Slide 24: Positioned to Move Growing Marcellus Production
Pipeline & Storage February 8, 2012 Positioned to Move Growing Marcellus Production NORTHERN ACCESS EXPANSION TIOGA LAMONT COUNTY COMPRESSOR EXTENSION STATION PHASE I & II (In-Service) CENTRAL (In-Service) TIOGA COUNTY EXTENSION MERCER EXPANSION PROJECT COVINGTON GATHERING SYSTEM (In-Service) LINE “
Slide 25: Pipeline & Storage Expansion Initiatives
Pipeline & Storage February 8, 2012 Expansion Initiatives Capacity Est. In-Service Project Name Market Status (Dth/D) CapEx Date Lamont Compressor Station 40,000 $6 MM 6/2010 Fully Subscribed Completed Lamont Phase II Project 50,000 $7.6 MM 7/2011 Fully Subscribed Completed Line “N”Expansion 160,000
Slide 26: Midstream: Critical To Boosting Returns in the Marcellus
Midstream February 8, 2012 Critical To Boosting Returns in the Marcellus Midstream’s gathering systems are critical to unlock remote, but highly TGP 300 productive Marcellus acreage Tioga County Goal is to first work to assist Seneca rd and then gather 3 party producer volumes History of operational
Slide 27: Midstream Corporation Expansion Initiatives
Midstream Corporation February 8, 2012 Expansion Initiatives Capacity Est. In-Service Project Name Market Status (Dth/D) CapEx Date Completed– Flowing into TGP 300 Covington Gathering System 100,000 $16 MM 11/17/09 Fully Subscribed Line Covington Gathering System Completed- Increased total system 40
Slide 28: Deploying Significant Growth Capital
Pipeline & Storage Growth February 8, 2012 Deploying Significant Growth Capital Capital spending is increasing to fund system expansion and assuming recently allowed industry average ROE and capital structure targets, segment this can achieve significant growth with a rapid increase in contracted vo
Slide 29: Utility: National Fuel Gas Distribution Corporation
Utility February 8, 2012 National Fuel Gas Distribution Corporation 29
Slide 30: Continued Cost Control
Utility February 8, 2012 Continued Cost Control $350 All Other O&M Expenses O&M ExpenseUncollectibles - $300 $250 $203 $203 $200 $191 $179 $27 $25 $181 $27 $14 $11 $150 $100 $178 $176 $164 $167 $168 $50 $0 2007 2008 2009 2010 2011 Fiscal Year 30
Slide 31: Financial Stability: Return on Equity
Utility February 8, 2012 Financial Stability Return on Equity 30.0% NY PA Allowed ROENY Approx. Settled ROEPA 20.0% 18.8% 14.0% 14.7% 13.2% 10.9% 10.6% 10.5% 9.8% 10.0% 0.0% 2008 2009 2010 2011 Fiscal Year Rate Mechanisms New York & Pennsylvania Low Income Rates Choice Program/POR Merchant Function
Slide 32: Financial Summary
National Fuel Gas Company February 8, 2012 Financial Summary 32
Slide 33: Consolidated Capital Expenditures
National Fuel Gas Company February 8, 2012 Consolidated Capital Expenditures $1,500 Utility Pipeline & Storage Exploration & Production Midstream & Other $1,250 $950 - $1,085 $1,000 $40-$60 $854 $750 $501 $720-$800 $500 $417 $649 $307 $192 $398 $250 $188 $166 $129 $135-$165 $53 $57 $56 $58 $58 $55-6
Slide 34: Manageable Debt Maturity Schedule
National Fuel Gas Company February 8, 2012 Manageable Debt Maturity Schedule $600 Paidat Maturityon November 21, 2011 $500 $500 $400 $300 $300 $250 $250 $200 $150 $100 7.395% $49 $50 7.375% $0 Fiscal Year 34
Slide 35: Strong Dividend Track Record
National Fuel Gas Company February 8, 2012 Strong Dividend Track Record $1.60 National Fuel has had 109 uninterrupted $1.40 years of dividend payments and has increased its dividend for 41 consecutive years $1.20 $1.00 $0.80 $0.60 Compound Annual $0.40 Growth Rate $0.20 5.0% $0.00 Annual Rate at Fis
Slide 36: Capitalization & Liquidity
National Fuel Gas Company February 8, 2012 Capitalization & Liquidity Short-Term Debt Capital Resources 0.6% Total Short-Term Capacity: $1,085 Million Committed Credit Facility: $750 Million Long-Term Five-year syndicated facility entered into Shareholders’ January 6, 2012 Debt Equity Uncommitted Li
Slide 37: Targeted Capital Structure
National Fuel Gas Company February 8, 2012 Targeted Capital Structure Debt Equity Utility 50% 50% Equity P&S 50% 50% 55% -65% Debt 35% -45% E&P 30% 70% All Other 40% 60% Capital Structure Long-Term Consolidated Targets by Segment Capital Structure Target 37
Slide 38: Appendix
National Fuel Gas Company February 8, 2012 Appendix 38
Slide 39: Fiscal Year 2012 Major Earnings Guidance Drivers
National Fuel Gas Company February 8, 2012 Fiscal Year 2012 Major Earnings Guidance Drivers 2012 Forecast GAAP Earnings per Share $2.40 -$2.65 Flat NYMEX Natural Gas Pricing ($/MMBtu) $3.00(1) Flat NYMEX Crude Oil Pricing ($/Bbl) $100(1) Exploration & Production Drivers Total Production (Bcfe) 85 -9
Slide 40: Expanding 3D Seismic Coverage
Marcellus Shale February 8, 2012 Expanding 3D Seismic Coverage DCNR 007 DCNR 001 Mt. Jewett West Branch Covington DCNR 595 Owl’s Nest DCNR 100 Punxy Completed – 190,000 ac In Progress 128,000 – ac 40
Slide 41: Owl's Nest: Improved IPs by Optimizing The Target Zone
Marcellus Shale February 8, 2012 Owl’s Nest –Improved IP’s by Optimizing The Target Zone Moving into Full Development 3H Production Results Treated Lateral: 4,396’ Peak Rate: 4.47 MMcf/d 3-Day Avg.: 4.25 MMcf/d “Narrowed”Union Springs Target Zone: 15’ Cherry 5,750’ Valley 5,800’ Onondaga Carb Frac S
Slide 42: Covington Type Curve – 6.7 Bcfe EUR
Marcellus Shale February 8, 2012 CovingtonTypecurve– 6.7 BcfeEUR(GreaterThan3,500’Lateral) 12.0 Original 6.0 Bcf Typecurve EDA Average Daily Production Rate IP Rate 7,250 MMcf/d 6.7 Bcf Typecurve (40 Year Life) Hyp.Coeff. 1.4 10.0 6.0 Bcf Typecurve (40 Year Life) Decline 72% Exp.Tail 6% Current: st1
Slide 43: Cost Savings from Multi-Well Pad Drilling
Marcellus Shale February 8, 2012 Cost Savings from Multi-Well Pad Drilling 1 Well per Pad 6 Wells per Pad Location & Road Costs Location & Road Costs $600,000 per well $100,000 per well Rig Mobilization Rig Mobilization $600,000 per well $100,000 per well Ancillary Drilling Costs (Trucking, etc.) An
Slide 44: Water Management Program
Marcellus Shale February 8, 2012 Water Management Program Water Sourcing: Coal mine runoff Permitted freshwater sources Recycled water Water Management: Instituted a “Zero Surface Discharge” policy Recycle Marcellus flowback and produced water Centralized water handing in development areas Tioga Cou
Slide 45: Zero Liquid Discharge Operation
Marcellus Shale February 8, 2012 “Zero Liquid Discharge Operation” Utilizing a state-of-the-art evaporative technology to ensure no liquid is discharged at the surface Building centrally located units in the Western Development (WDA) Area and the Eastern Development Area (EDA) Removes all liquids fr
Slide 46: Comparable GAAP Financial Measure Slides and Reconciliations
National Fuel Gas Company February 8, 2012 Comparable GAAP Financial Measure Slides and Reconciliations This presentation contains certain non-GAAP financial measures. For pages that contain non-GAAP financial measures, pages containing the most directly comparable GAAP financial measures and reconc
Slide 47: Reconciliation of Segment Capital Expenditures to Consolidated Capital Expenditures
Reconciliation of Segment Capital Expenditures to Consolidated Capital Expenditures ($Thousands) FY 2012 FY 2008 FY 2009 FY 2010 FY 2011 Forecast Capital Expenditures from Continuing Operations Exploration & Production Capital Expenditures $ 192,187 $ 188,290 $ 398,174 $ 648,815 $ 720,000-800,000 Pi