National Fuel Gas Company · NYSE:NFG
National Fuel Gas — Investor Presentation (May 2020)
78 slides from National Fuel Gas's investor presentation, May 4, 2020
Slide 1: Investor Presentation May 2020 Update
Investor Presentation May 2020 Update May 4, 2020 Exhibit 99
Slide 2: Commitment to safe and environmentally conscious operations
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: Message from CEO on COVID-19 response
A message from David Bauer, President and CEO of National Fuel Gas Company, on NFG’s COVID-19 response “As we confront the challenges of the COVID-19 pandemic, I am proud to say that National Fuel has continued to safely and reliably provide natural gas service to our over 743,000 utility customers
Slide 4: Acquisition of Shell's Integrated Appalachian Upstream and Midstream Assets
Acquisition of Shell’s Integrated Appalachian Upstream and Midstream Assets
Slide 5: Strategic Rationale - Strengthens NFG's Integrated Model
Strategic Rationale - Strengthens NFG’s Integrated Model Acquisition Expected to Deliver Meaningful Free Cash Flow Generation, While Maintaining Contribution from Regulated Businesses, and Building on Integrated Model Seneca to acquire contiguous assets, with shallow declining PDP reserves, at less
Slide 6: Acquisition of Highly-Integrated Assets at Attractive Valuation
Acquisition of Highly-Integrated Assets at Attractive Valuation $500 million purchase of Royal Dutch Shell’s Appalachian assets(1) 215-230 MMcf/day of net production(2), with 70-75 Bcf of expected production in 12 months post-closing 710 Bcf of net proved developed producing reserves(2) 142 miles of
Slide 7: Significant Integrated Operations in Tioga County
~185 additional drilling locations (~150 Utica and ~35 Marcellus) with 86-87% average NRI Integrated gathering assets expected to move 255-270 MMcf/d of gross production(1) Seneca to acquire valuable pipeline capacity, with acquired gathering highly interconnected 200 MDth/d on Empire Pipeline (NFG)
Slide 8: Increased Production Base Drives Lower E&P Unit Costs
Increased Production Base Drives Lower E&P Unit Costs Immediate Unit Cost Reductions Expected from Additional Scale in Appalachia Total Exploration & Production Cash OpEx ($/Mcfe)(1) (1) A non-GAAP reconciliation of E&P Operating Costs is included at the end of this presentation.
Slide 9: Acquisition of Mature PDP Stream with Low Base Decline
Acquisition of Mature PDP Stream with Low Base Decline Shallow Decline of Acquired Production Supports Long-Term Unit Cost Synergies Annual Appalachian Production Base Decline (%) Peer Average(1) (1) Peers include AR, CNX, COG, EQT, RRC, and SWN. Source - RS Energy Group. Seneca and Shell base decli
Slide 10: Continued Commitment to Prudent Capital Allocation
Continued Commitment to Prudent Capital Allocation E&P Capital Expenditure Guidance Further Reduced, With Near-Term Activity Levels Unchanged E&P ~$100+ Million CapEx Reduction Expected Full Year at 3 rigs Exploration & Production Capital Expenditures ($ Millions)(1) Reduced Activity to 2 rigs Furth
Slide 11: Strong Hedge Position Solidifies Economics of Acquisition
Strong Hedge Position Solidifies Economics of Acquisition Based on PDP production estimate at time of closing. Hedge percentage represents percentage of fixed price natural gas firm sales and NYMEX hedges at midpoint of production guidance range. Average weighted floor and ceiling prices. Fixed pric
Slide 12: Financing Supportive of Investment Grade Credit Rating
Financing Supportive of Investment Grade Credit Rating . . . Expected to be accretive to existing credit metrics and to maintain investment grade credit ratings Post-closing, E&P and Gathering expect to generate combined free cash flow over next 12 months at NYMEX prices of $2.00/MMBtu or higher, su
Slide 13: Acquisition Provides Unique Long-Term Growth Opportunity
Acquisition Provides Unique Long-Term Growth Opportunity Attractive Valuation Integrated Assets Synergistic Operations Valuable Pipeline Capacity Increased Scale CapEx Plans Unchanged Enhances Free Cash Flow Supports Credit Ratings
Slide 14: Operations and Business Overview
Operations and Business Overview
Slide 15: 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 16: Why National Fuel?
Why National Fuel? Diversified Assets Provide Stability and Long-Term Growth Opportunities
Slide 17: Integrated Model Enhances Shareholder Value
Midstream Integrated Model Enhances Shareholder Value . . . Ability to adjust to changing commodity price environments More efficient capital investment Higher returns on investment Operational scale Lower cost of capital Lower operating costs More competitive pipeline infrastructure projects Strong
Slide 18: Near Term Strategy Leads to Growth Opportunities
Acquisition of significant, contiguous Tioga County acreage and supporting gathering facilities furthers NFG’s focus on integrated Upstream and Midstream development within Appalachia Over 1.2 million acre position in the Marcellus and Utica shales (inclusive of acquisition acreage) NFG’s gathering
Slide 19: Impressive Dividend History
Impressive Dividend History $3.1 Billion Dividend payments since 1970 $1.74 per share 49 Years Consecutive Dividend Increases $0.19 per share 117 Years Consecutive Payments 4.2% yield(1) As of April 30, 2020. 2
Slide 20: Appalachian Program Expected to Generate Free Cash Flow
Appalachian Program Expected to Generate Free Cash Flow . . . The Company defines free cash flow on page 73 of this presentation. Assumes current hedges and $25/Bbl WTI oil price in the 12 months post-closing of acquisition (August 1, 2020 – July 31, 2021). 3 . . . During the 12 months Post-Acquisit
Slide 21: 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 22: Significant Interstate Pipeline Backlog
Significant Interstate Pipeline Backlog Northern Access Delivery: Canada & NY 490,000 Dth/d Line N to Monaca Delivery: Shell ethane cracker facility (Beaver Co., Pa) 133,000 Dth/d FM100 Delivery: Transco (Leidy) 330,000 Dth/d Empire North Delivery: Canada & NY 205,000 Dth/d Significant Expected Near
Slide 23: Financial Highlights Second Quarter Fiscal 2020
Financial Highlights Second Quarter Fiscal 2020
Slide 24: Second Quarter Fiscal 2020 Results and Drivers
Net Oil and Gas Production Second Quarter Fiscal 2020 Results and Drivers Adjusted Operating results of $1.07 for Q2 FY19 and $0.97 for Q2 FY20 include operating results of Corporate & All Other Segments segment. A Reconciliation of Adjusted Operating Results to Earnings Per Share is provided at the
Slide 25: Earnings Guidance – Reduction Driven by Commodity Prices
Earnings Guidance – Reduction Driven by Commodity Prices FY2019 Adjusted Operating Results Non-regulated Businesses Exploration & Production Gathering $3.45/share(1) $2.80 to $3.00/share FY2020 Earnings Guidance Seneca Net Production: 245 to 255 Bcfe Gathering Revenues: $140-$150 million Natural Gas
Slide 26: Exploration & Production and Gathering Overview
Exploration & Production and Gathering Overview Seneca Resources Company, LLC ~ National Fuel Gas Midstream Company, LLC
Slide 27: Proved Reserves
Proved Reserves 372% Reserve Replacement Rate Seneca Drill-bit F&D = $0.67/Mcfe(2) Appalachia Drill-bit F&D = $0.62/Mcfe(2) Acquiring ~710 Bcf of natural gas reserves at less than $0.40/Mcf, substantially below current F&D cost Estimated reserves (P90) as of closing date. Seneca “Drill-bit” finding
Slide 28: Growing Production within Disciplined Capital Program
Further reduce activity to 1-rig development program in summer 2020 (moved from 3 to 2 rigs in January 2020) Development focused in WDA-Utica, with EDA activity focused on utilizing valuable firm transportation and sales contracts Gross production growth will benefit NFG’s Gathering segment Layer in
Slide 29: Significant Appalachian Acreage Position
Significant Appalachian Acreage Position Average Seneca gross production(1): ~380 MMcf/d Acquisition adds 255-270 MMcf/d gross production(1) Mostly leased (13-18% royalty) with limited near-term lease expirations Significant inventory: ~185 Utica and ~90 Marcellus locations in Tioga County (includin
Slide 30: 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 31: WDA-CRV Results and Type Curves
WDA-CRV Results and Type Curves Tested / currently producing from 35 Utica wells in WDA-CRV area Avg. CRV Utica Production: ~105 MMCf/d Avg. CRV Marcellus Production: ~227 MMcf/d Drawdown management and produced fluid blend percentage are critical to well productivity WDA-CRV Development Update E&P
Slide 32: Leveraging Existing Gathering, Water and Pad Infrastructure Enhances Returns
Leveraging Existing Gathering, Water and Pad Infrastructure Enhances Returns Limited New Infrastructure Needed to Support Utica Return Trips WDA Well Costs(1) WDA-CRV Consolidated Economics Coordination between upstream and midstream activities enhances returns, provides economies of scale and signi
Slide 33: Integrated Development – WDA Gathering System
Integrated Development – WDA Gathering System Current System In-Service Capacity: 470 MMcf per day Interconnects with TGP 300 and NFG Supply Total Investment to Date: $310 million 38,120 HP of compression (3 stations) Future Build-Out Modest gathering pipeline and compression investment required to
Slide 34: 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¢ - 20¢ better than TGP Marcellus Zone 4 Leidy South will provide additional capacity
Slide 35: Eastern Development Area
Eastern Development Area EDA – ~270,000 Acres Seneca EDA Highlights DCNR Tract 007 (Tioga Co., Pa) and Tioga Acreage Acquisition Utica Development resumed in third quarter fiscal 2018 ~185 Utica locations (includes acreage acquisition) Gathering infrastructure: NFG Midstream Wellsboro / gathering ac
Slide 36: EDA Marcellus: Lycoming County Development
EDA Marcellus: Lycoming County Development Marcellus Development in Lycoming County Fully Utilizes Firm Transportation 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 with peer-lead
Slide 37: EDA Utica: Tioga County Development
EDA Utica: Tioga County Development Acquisition Will Provide Significant Inventory and Drives Synergies with Existing Operations Assets contiguous to NFG’s existing Tioga county production and gathering operations ~185 total Utica locations, including ~150 locations within acquisition acreage footpr
Slide 38: EDA Utica: Strong Seneca Well Results in Tract 007
EDA Utica: Tioga County Development E&P and Gathering Strong Seneca Well Results in Tract 007 (Pad K) 4 well pad brought online in Q2 Fiscal 2019 Avg. Lateral Length: 7,582’ Avg. IP30 Rate: 13.8 MMcf/day Avg. IP365 Rate: 11.6 MMcf/day Early production limited to 10-15 MMcf/d by drawdown management E
Slide 39: EDA Utica: Production Underpinned by Firm Contracts
EDA Utica: Tioga County Development Production Underpinned by Firm Sales and Firm Transportation Contracts (1) Includes physical fixed price and NYMEX-based firm sales contracts that do not carry any additional transportation costs. 75 MDth/d of Dominion capacity is not initially expected to be util
Slide 40: Integrated Development – EDA Gathering Systems
Integrated Development – EDA Gathering Systems Total Investment (to date): ~$48 million Capacity: 220,000 Dth per day (Interconnect w/ TGP 300) Production Source: Seneca Resources – Tioga Co. (Covington & DCNR Tract 595) Covington Gathering System Gathering Segment Supporting Seneca and Third-Party
Slide 41: Long-term Contracts Supporting Appalachian Production
Long-term Contracts Supporting Appalachian Production E&P and Gathering 75,000 Dth/d of capacity on Dominion is not initially expected to be utilized regularly and provides optionality to fill Leidy South. Represents base firm sales contracts not tied to firm transportation capacity. Base firm sales
Slide 42: Near-term Firm Sales Provide Market & Price Certainty
Near-term Firm Sales Provide Market & Price Certainty Pro Forma Net Contracted Firm Sales Volumes (Dth per day) Contracted Index Price Differentials ($ per Dth)(1) Daily Net Production 689,300 794,200 850,400 879,500 869,800 860,300 956,200 Gross Firm Sales Volumes (Dth/d)(2) E&P and Gathering Value
Slide 43: 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 532 2 North Lost Hills Tulare & Etchegoin Primary/ Steam flood 866 3 South Lost Hills M
Slide 44: 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 Seneca West Division capital expenditures includes Seneca corporate and eliminations. E&P and Gathering Sespe Sale Closed on 5/1/18 (reduced pr
Slide 45: Fiscal 2020 Production and Price Certainty
Fiscal 2020 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 46: Hedge Positions and Prices
Hedge Positions and Prices Reflects percentage of remaining projected production for FY20 hedged at the midpoint of the production guidance range, revised to include expected acquisition production. Average weighted floor and ceiling prices. Fixed price physical sales exclude joint development partn
Slide 47: 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 48: Pipeline and Storage Overview
Pipeline and Storage Overview National Fuel Gas Supply Corporation ~ Empire Pipeline, Inc.
Slide 49: Pipeline & Storage Segment Overview
Pipeline & Storage Segment Overview As of September 30, 2019 as disclosed in the Company’s fiscal 2019 Form 10-K. As of December 31, 2019 calculated from National Fuel Gas Supply Corporation’s and Empire Pipeline, Inc.’s 2019 FERC Form-2 reports, respectively. Empire Pipeline, Inc. National Fuel Gas
Slide 50: Empire North Project
Empire North Project Target in-service: fourth quarter fiscal 2020 (construction underway) 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 D
Slide 51: 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 52: FM100 Project – Significant Investment by Supply Corp.
FM100 Project – Significant Investment by Supply Corp. Pipeline & Storage Estimated capital cost: $279 million Expansion facilities: ~$159 million Modernization facilities: ~$120 million Facilities (all in Pennsylvania) include: Approximately 30 miles of new pipeline 2 new compressor stations (total
Slide 53: Continued Expansion of the NFG Supply System: Line N to Monaca
Continued Expansion of the NFG Supply System Line N to Monaca Project Project: Firm transportation service to a new ethane cracker facility being built by Shell Chemical Appalachia, LLC In-service date: November 1, 2019 Capital cost: ~$24.5 million Contracted capacity: 133,000 Dth/day Project: New f
Slide 54: Northern Access Project
Northern Access Project Delivery points: 350,000 Dth/d to Chippawa (TCPL interconnect) 140,000 Dth/d to East Aurora (TGP 200 line) Regulatory/legal status: Feb. 2017 – FERC 7(c) certificate issued Aug. 2018 – FERC issued Order finding that NY DEC waived water quality certification (WQC) Feb. 2019 –
Slide 55: Pipeline & Storage Customer Mix
Pipeline & Storage Customer Mix 3.9 MMDth/d Contracted as of 10/31/2019. Affiliated includes Seneca acquisition capacity on Empire Pipeline. Customer Transportation by Shipper Type(1) Affiliated Customer Mix (Contracted Capacity) Firm Transport Pipeline & Storage (2)
Slide 56: Utility Overview
Utility Overview National Fuel Gas Distribution Corporation
Slide 57: New York & Pennsylvania Service Territories
New York & Pennsylvania Service Territories New York Total Customers(1): 531,400 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 58: 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 59: Utility Continues its Significant Investments in Safety Modernization
Utility Continues its Significant Investments in Safety Modernization Spending in NY Expected to Grow Gross Margin By $2 MM - $5 MM Annually (1) A reconciliation to Capital Expenditures as presented on the Consolidated Statement of Cash Flows is included at the end of this presentation. Utility Syst
Slide 60: Accelerating Pipeline Replacement & Modernization
Accelerating Pipeline Replacement & Modernization NY 9,738 miles PA* 4,843 miles * No Cast Iron Mains in Pa.* Miles of Utility Main Pipeline Replaced Utility Mains by Material(1) Utility (1) All values are reported on a calendar year basis as of December 31, 2019.
Slide 61: A Proven History of Controlling Costs
A Proven History of Controlling Costs Utility O&M Expense and Non-Service Pension Costs ($ millions) Utility (1) (1) As of October 1, 2018, Operation and Maintenance Expense does not include non-service pension costs, which were re-classified as Other Income (Deductions) on the Company’s Income Stat
Slide 62: Consolidated Financial Overview
Consolidated Financial Overview Upstream I Midstream I Downstream
Slide 63: Adjusted Operating Results: Diversified, Balanced Earnings and Cash Flows
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 64: Disciplined, Flexible Capital Allocation
Disciplined, Flexible Capital Allocation (2) Total Capital Expenditures include 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 netting of $157 mi
Slide 65: Maintaining Strong Balance Sheet & Liquidity
Maintaining Strong Balance Sheet & Liquidity Total Equity 47% $4.4 Billion Total Capitalization as of March 31, 2020 Net Debt / Adjusted EBITDA(1) Capitalization Debt Maturity Profile ($MM) Liquidity Multi-Year Committed Credit Facility 364-Day Committed Credit Facility Short-term Debt Outstanding A
Slide 66: Appendix
Appendix
Slide 67: 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 68: Consolidated Seneca and Gathering Economics
Consolidated Seneca and Gathering Economics Stand-alone Seneca breakeven economics (15% pre-tax IRR) by prospect are as follows: Tract 100 & Gamble: $1.51; Tioga County: $1.68; CRV Return Trip (Utica): $2.00; CRV Return Trip (Marcellus): $1.95. Internal Rate of Return (IRR) for stand-alone Seneca is
Slide 69: Hedge Positions and Prices
Hedge Positions and Prices Fixed price physical sales exclude joint development partner’s share of fixed price contract WDA volumes as specified under the joint development agreement. Appendix (1)
Slide 70: EDA Type Curves
EDA Type Curves Appendix Estimated Cumulative Volumes (Bcf) Year Lycoming Marcellus (5,800') Tioga Utica (8,700') 1 3.2 5.3 5 8.6 12.6 10 11.1 15.5 EUR (Bcf) 14.5-16.8 17.4-20.0 NRI 84% 82-87%
Slide 71: WDA-CRV Type Curves
WDA-CRV Type Curves Estimated Cumulative Volumes (Bcf) Year WDA-CRV Utica (9,500') WDA-CRV Marcellus (9,000') 1 2.2 1.6 5 6.2 4.4 10 8.8 6.3 EUR (Bcf) 15.2-16.2 9.0-10.8 NRI 100% 100% Appendix
Slide 72: Firm Transportation Commitments
Firm Transportation Commitments Volume (Dth/d) Production Source Delivery Market Demand Charges ($/Dth) Gas Marketing Strategy Northeast Supply Diversification Tennessee Gas Pipeline Niagara Expansion TGP & NFG - Supply Leidy South / FM100 WMB – Transco; NFG - Supply Target in-service: late 2021 50,
Slide 73: 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 74: Non-GAAP Reconciliations – Adjusted EBITDA
Non-GAAP Reconciliations – Adjusted EBITDA Appendix Total Adjusted EBITDA for FY 2018, FY 2019, 12 months ended March 31, 2020, 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 75: Non-GAAP Reconciliations – Adjusted EBITDA, by Segment
Non-GAAP Reconciliations – Adjusted EBITDA, by Segment Appendix
Slide 76: Non-GAAP Reconciliations – Adjusted Operating Results
Non-GAAP Reconciliations – Adjusted Operating Results Appendix
Slide 77: Non-GAAP Reconciliations – Capital Expenditures
Non-GAAP Reconciliations – Capital Expenditures Appendix
Slide 78: Non-GAAP Reconciliations – E&P Operating Expenses
Non-GAAP Reconciliations – E&P Operating Expenses Appendix .