NATIONAL FUEL GAS CO Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Future Growth: Strong return on capital, visibility to earnings and free cash flow growth, and commitment to returning capital to shareholders.
• Regulated Business: Expect 7%-10% average annual EPS growth over the next three years, with growth from the Supply Corp rate case and expected New York rate case settlement.
• Non-regulated Business: Seneca's 1-2 rig program to grow production/gathering throughput low to mid-single-digit, natural gas price improvement expected, and hedging approach to lock in price realizations.
• Dividend and Buyback: Board approved 4% dividend increase, $200 million share buyback program with ~$45 million repurchased so far.
• Operational Execution: Transition to Eastern Development Area improving capital efficiency, Tioga Pathway project progress, and NFG Midstream's infrastructure investments.

Segment Performance

• Regulated Segments: In the utility, Pennsylvania margin increased from the 2023 rate settlement, and New York systems modernization trackers contributed to revenue growth. The Pipeline & Storage segment saw the full benefit of the Supply Corp rate case, which is expected to increase annual revenues by approximately $56 million.
• Non-regulated Segments: Natural gas pricing was a headwind, but the hedging book delivered a $75 million gain during the quarter. Seneca's production was 97 Bcf, a 2% increase year-over-year despite ~6 Bcf of production curtailment due to pricing, and gathering segment revenues grew.

Guidance

• Fiscal 2024: Earnings range $5-$5.10 per share, production guidance adjusted due to price curtailments, NYMEX price assumption $2.40 per MMBtu.
• Fiscal 2025: Preliminary guidance $5.75-$6.25 per share (midpoint ~20% increase from 2024), regulated businesses expected to grow, non-regulated production expected 400-420 Bcf, capital expenditures $885-$970 million.

Risks

• Natural Gas Price Volatility: Impact on earnings, unhedged volumes pose upside potential but also risk.
• Regulatory Uncertainty: New York rate case settlement progress and potential impacts.
• Operational Curtailments: Production curtailments due to low natural gas prices affecting results.

Question and Answer

Q: Zach Parham from JPMorgan on efficiency gains, D&C costs, well productivity A: Justin Loweth discussed operational efficiencies from EDA focus, D&C costs in Tioga Utica ($1,300/ft) and Marcellus ($1,000/ft), and well productivity trends despite some data nuances.

Q: Greta Drefke from Goldman Sachs on M&A, hedging A: Dave Bauer mentioned interest in M&A for regulated assets and bolt-on E&P acquisitions, hedging framework with 60% hedge position balancing downside protection and upside participation.

Q: John Daniel from Daniel Energy Partners on LNG and AI demand impact A: Justin Loweth talked about favorable positioning with deep inventory, investment-grade credit, and active dialogues on demand opportunities, emphasizing ability to accelerate activity if needed.