Q2 2020 Earnings Call

Okay perfect. Thank you so much.

[music].

Thank you for standing by and welcome to the Twentytwenty Q2 National fuel gas Company earnings Conference call.

At this time all participants are they listen only mode. Please be advised that today's conference is being recorded.

The speakers presentation, there will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone if you require any further assistance. Please press star Zero I would now like to turn the call Overture Speaker today can Webster director of Investor Relations. Please go ahead.

Thank you Amy and good morning.

We appreciate you joining us on todays conference call for a discussion of last evening's earnings release.

With us on the call for National fuel gas company.

Dave Bauer, President and Chief Executive Officer, Karen cameo <unk>, Treasurer, and principal financial Officer, and John Mcginnis President of Seneca resources.

We ended the prepared remarks, we will open the discussion to questions.

The second quarter fiscal 2020 earnings release in April Investor presentation has been posted on our Investor Relations website, we may refer to these materials during today's call.

We would like to remind you that today's teleconference will contain forward looking statements.

National fuel expectations beliefs, and projections are made in good faith.

Believed to have a reasonable basis actual results may differ materially.

These statements speak only as of the date on which they are made and you may refer to last evening's earnings release.

Shifting of certain specific risk factors.

Yes, you don't feel will be participating in the city global energy and utilities Conference later this month.

If you plan on attending please contact me for the conference planners to schedule a meeting with the management team.

With that I'll turn it over to Dave Bauer.

Thanks, Ken good morning, everyone.

Past few months have been anything but ordinary for national fuel as we adapted our operations to address the code at 19 and Donna.

From an earnings perspective, we continue drop in commodity prices weighed on our results leading to the noncash write down of our oil and gas properties and lower realizations on our production.

Warmer weather in our Pennsylvania service territory also impacted the utilities earnings for the quarter.

On the positive side, our midstream businesses had a great quarter on the strength of supply corporations recent rate settlement.

And solid operational execution, and well results at Seneca drove record throughput on our gathering system and.

In short other than pricing in weather order was right in line with our expectations and was another great example of the benefits of our integrated diversified business model.

The cobot 19 pandemic is obviously impacted the way in which we operate each of our businesses, it's been deemed and the central service and continues to operate as such.

But we've taken considerable steps to limit the potential exposure of our workforce customers and communities in which we operate.

The safety of our employees and customers is our top priority.

Any employee who can work from home is currently doing so.

Those who cannot work from home and given the nature of our business, there's a large number who can't.

Our employing both social the social distancing and personal protective equipment to make sure they stay safe.

We're committed to our employee group and have not implemented any furloughs for workforce reductions.

Our employees it really stepped up to the challenge and because of their exceptional efforts. The business is running smoothly all things considered.

Very proud of our employee group and say, thank you to them for everything that we're doing during this crisis.

A regulated businesses haven't seen any meaningful financial impact from the pandemic.

The day to day operations to the utility business have been.

Perhaps the most impacted by the pandemic given that it's the part of the business that has the greatest interaction with customers.

So we've suspended all non emergency customer facing work, we're still making reasonable progress on our annual modernization program in both states.

Overall, we expect capital spending we will be lower by about $10 million at the utility as a result to the endemic.

At this point, we haven't seen a major change in throughput industrial volumes are down modestly due to plant shutdowns, but at this point, we're not overly concerned.

Oh, we're very focused on uncollectible expense given the economic backdrop in our service territories.

Thankfully customer bills are relatively small as a result, the warm winter in low gas prices and should get lower as we move into the spring and summer.

At this point, there isn't a discernible downward trend in customer payments.

But this is an area will continue to monitor.

Our pipeline and storage operations haven't been significantly impacted by the crisis.

Our pipeline facilities and projects are generally located in pretty remote locations and between social distancing and proper PB.

Workforce and construction crews on site are able to stay efficient.

Construction is well underway on the Empire North project and should be completed by the end of our fiscal year.

As a reminder.

That project will add $25 million an annual revenues.

You'll note last nights release that our capital spending guidance at the pipeline is down 12, and a half million hours at the midpoint.

This is largely due to delays and some smaller modernization projects that supply Corp.

Spike Corporation had a good outcome and its rate case proceeding you'll recall, we filed the case last summer to satisfy the come back requirements of our previous rate settlement.

In early February parties reached a black box settlement that provides for a two phase increase and supplies rates.

The first phase, which was effective February onest 2020.

Increases supplies annual transportation and storage rates by approximately $35 million.

This increase was driven in large part by higher plant balances from supplies modernization program and higher operating costs.

In addition supplies <unk> rates reflect higher depreciation negative salvage rates.

Which accounted for approximately 10 million of the 35 million dollar rate increase.

The second phase, which will be effective the later the in service date. The F. I'm 100 project, We're April 1st 2022.

Well increase supplies rates by another $15 million to reflect the modernization component of that project.

Under the settlement, we agreed to a four year moratorium on new rate filings and do a comeback after year five if no rate cases filed.

Overall I think this is a good settlement and that it balances.

[music].

Our need to recover the cost of system modernization with our customers desire for predictable rates.

The first settlement charges certified the rate agreement and we're now waiting on final approval from the FERC Commissioners, which should come in the next month or two.

Switching to the in P. business Senecas drilling completion crews continue to operate in Pennsylvania.

Seneca is currently at two rigs, but will drop one this summer and remain at that level through fiscal 2001.

We're reducing production guidance by five Bcf to reflect recent pricing related curtailments a capital spending is also coming in lower budget, which mitigates the impact on senecas cash flows.

Oil prices are a concern, but we're well hedged at prices above $60 a barrel for 2020.

Our drilling program in California is complete for the year and looking to fiscal 21 absent a major recovery in prices, we expect a significant Titan capital and own M. spending in California next year.

Overall, the business continues to be in good shape, our regulated businesses continue to perform well and thanks to projects like Empire, North our position for growth into fiscal 21.

Commodity prices have weighed on senecas results, but looking at the Nymex futures curve, there's cause for optimism in fiscal 21 and beyond.

That I'll turn the call over to John for more on Senecas program.

Thanks, Dave Good morning, everyone.

While pricing related curtailments put a damper on senecas results operationally, we're very pleased with our business and where gas prices appear to be heading.

Seneca produced 59.8 Bcf they during the second quarter, an increase of 23% compared to last year second quarter, and even though we voluntarily curtailed almost three bcf this quarter as a result of low natural gas prices, we still saw an increase in production quarter over quarter was solid results across all of our.

Operating areas.

We are currently operating two rigs in Pennsylvania, but as discussed last quarter in an effort to moderate capital spending given current commodity prices.

We will drop to a single read this summer.

We're currently drilling a 10 well pad in the Debbie da and will drop this rig once were complete.

In terms of our Debbie Dia Utica develop development program, we brought online or second pad located in the beach would rich valley area this quarter.

Drilled six wells off this pad and the results are outperforming the type curve by about 30% and our comparable to our first pad in this area.

It's interesting to note that as we move further south and deeper into the basin. We have brought online or two best performing Utica pads in the Debbie da.

As we move forward with our development program production from this area is expected to be utilized to fill our lady south from capacity, which is still on target for an in service date in early fiscal 22.

The next pad to be brought online in this area is a four well pads scheduled for late in our fiscal fourth quarter.

In California, we produced around 605000 barrels of oil during the second quarter, an increase of 7% over last year's second quarter.

This increase is primarily driven by our recent drilling activity at our pioneer in 17 and properties located within midway Sunset in Kern County, and Coalinga in Fresno County.

As a result from the recent collapse in oil prices. However, we have implemented measures to reduce our operating expenses without negatively impacting the long term performances of each field.

Fortunately with approximately 72% of our oil production hedged for the remainder of the year at an average price of around $62 per barrel. We're in good shape to whether this recent downturn in oil prices.

As we look out to the remainder fiscal 20, we expect oil production to be flat to modestly lower when compared to our second quarter results.

In terms of guidance, we're now lowering our production forecast to range between 230, 240 Bcf fee down around five Bcf at the midpoint.

Due entirely to our second quarter curtailments of 2.7 Bcf and additional curtailments of around two Bcf in April.

As usual, we forecast no additional curtailments for the remainder of the fiscal year.

We're also lowering our capex guidance to range between 375 million to 395 million a decrease of seven and a half million at the midpoint.

We continue to see reductions in service costs associated with the decline in industry activity as well as continued efficiency gains and the drilling of our Marcellus and Utica wells in the east.

We are well positioned for the rest of the year with approximately 76 Bcf or about 70% of our remaining fiscal 2000, <unk> East Division gas production lock in physically and financially at are realized price of $2.16 per Mcf.

We have another 25 Bcf a firm sales providing bases protection so over 90% of our remaining forecaster prude gas production is already sold.

Interestingly the recent collapse in oil prices have been a huge lift for natural gas prices moving into the next two years and as a result, we have significantly increased our hedge position over the next couple of years. The details of which are reflected on page 57 of our investor presentation.

And finally, I'm very pleased with how our Seneca team has conducted business through the impact of the Corona virus, we had been able to work effectively from home since our offices are closed and our operations team has done a great job continuing to operate successfully and safely in the field during this period and with them.

Turn it over to Karen.

Thank you John and good morning, everyone. As you read my release, we reported a GAAP loss of $1.23 per share a decrease of $2.27 per share from last year's second quarter. This was primarily driven by $1.49 cents per share charge related to a ceiling test impairment on our oil and gas properties.

As well as 66 cents per share charge tied to state deferred tax asset valuation allowance in our non regulated segments.

After adjusting for these charges and another small unrealized loss on certain benefit plan investments, we reported operating results of 97 cents for the quarter.

This was a decrease of 10 cents per share from the prior year.

The impact of lower commodity prices realized on our oil and gas production and warmer weather in our utility more than offset the impact of higher Seneca natural gas production throughput at the gathering segment and and the successful settlement of our supply Corporation rate proceeding.

The earnings release does a good job describing all the other drivers. So please refer to that for more details.

Turning to our forecast we are revising our fiscal 2020 earnings guidance to a range of $2.75 to $2, a 95 cents per share.

Presenting a 20 cent decrease at the midpoint, it's important to note that our updated guidance excludes items impacting comparability, including the valuation allowance and ceiling test impairment recorded this quarter as well as future impairments, we expect them in coming quarters. Our forecast also does not assume any impact of.

Future price related production curtailments.

In addition to incorporating results from second quarter, we've made other changes to our assumptions, we continue to assume Nymex natural gas prices averaged $2.05 per annum be to you and now project Appalachian spot pricing averages $1.65 and then b to you for the remainder of the year.

On the oil side, we've made steeper reductions to our forecast with W. T I assume to averaged $22.50 per barrel for the remaining six months.

We've also reduced our California oil differential at midway sunset from 104% to 90%.

As it relates to senecas per unit DDNA rate.

Our current guidance reflects the impact of the ceiling test impairment recorded this quarter, but does not incorporate any future ceiling test charges, we will revise this rate each quarter, if and when we recorded additional impairments.

There are two other changes related to items from this quarter that need to be extrapolated out for the remainder of the year.

First the settlement up our supply rate case is leading to higher forecasted revenues for the fiscal year.

Now some revenues will be approximately 305 million in the pipeline and storage segment.

However, this will not all flow through to the bottom line as we also agreed to higher depreciation rates as part of the settlement.

With the higher depreciation rates, we now expect or underlying depreciation expense in this segment to increase approximately $2.5 million per quarter relative to our prior forecast.

Lastly, as it relates to guidance.

The assessment of the state deferred tax assets that led to a valuation allowance. This quarter will also drive higher effective tax tax rate.

Additional state Nols and tax credits generated during the year are subject to the same evidentiary test as those that are on the balance sheet given the evidence as of today, we will not be able to record the benefit of the newly generated Nols and credits until the evidence supports utilization of these tax benefits. This.

Lead to an increase in our effective tax rate, which we now expect to be 26% for the full year.

Let me touch briefly on the impact of could 19.

Outside of the decrease in oil prices there were no major effects during the quarter.

As we look forward. However, we expect a modest impact in our utility segment as it relates to operating costs and uncollectible expense.

On the operating expense side, the principal drivers slow down and construction activity, which is typically ramping up at this point in the year as to whether breaks.

Workforce shifts from operating expense activities in the winter months to capital related work in the summer.

Given the slowdown in customer facing capital work and our commitment to not furloughing any employees, we're expecting more of our labor cost to be expensed over the next several months.

In addition, we are projecting higher uncollectible expenses as a result of larger unemployment and the temporary help and customer collections.

Well, we are forecasting higher uncollectible expense, we have not experienced any discernible trend in customer payments that might indicate significantly larger than normal write off we will continue to closely monitor customer payment trends over the coming quarters.

With respect to capital, we are reducing the midpoint of our capital guidance range, but $30 million to a new range of 600 unaided 740 million.

While the impact of coated 19 on customer facing capital work is driving the $10 million decrease at the utility segment. The other three segments are flat to lower for the year. As a result of continued focus on cost control and updated timing on certain pipeline modernization projects.

With our revised earnings projections and lower capital spending plan for the year. We continue to expect our funds from operations and capital expenditures to be roughly in line with each other.

Adding on our dividend we were we expect to financing need of approximately 150 million for the full year. We started the year with nearly $700 million available liquidity under our revolving credit facility and we plan to use that as the first source of financing with that I'll close and ask the operator to open.

Lines for questions.

Thank you at this time, we will be conducting our question and answer session in order to ask a question. Please press star one on your telephone to withdraw your question, perhaps the PL Taski. Please be advised and if you were on a cellphone you may have to go off speaker phone to effectively Q for acuity. Please standby, we'll take a pile.

Acuity roster.

Your first question comes from the line of Tim Winter with Gabelli Fun King Your line is open.

Good morning, gentlemen.

I I was wondering if you could talk a little bit about how you think about the dividend as you know we going to I think in the press release, you're talking about maybe maybe some more ah oil and gas write offs, given given prices and a lower production guidance, how that you guys think about endeavor.

Yeah.

Yeah, Hi, Tim we we generally view the dividend in light of our regulated earnings I'm. So if you look at a utility and the the pipeline. There we're not we're actually expecting an increase in a in earnings in the years to come up because of projects like Empire North.

And the the a continued modernization of our system.

So I I feel good about the dividend that the regulated earnings will or will be there today and in the future to.

Recovery.

Do you expect much of a impacts from which you can see known though in the future write offs as far as the equity ratio in the balance sheet.

Yeah, well, if we have continued impairments, which will will be dependent upon on pricing we.

Yeah, we'd expect the equity component to the drop into the <unk>.

<unk> mid low fortys potentially.

Okay, but all then it's going to Peter.

Yes, all that's going to be dependent upon oh, and commodity prices and and how big the impairments end up being.

Okay. Thank you guys.

You bet.

Your next question comes from the light quit smoking with Jefferies. Your line is open.

Good morning, everyone.

Hey, Chris.

Thanks for the update I hope, you're all staying safe in saying.

I do have a couple of questions that I think for first and I can just a pivot to John.

John I think you've talked obviously, we saw a deceleration of planned Seneca activity over the winter. It was a different pricing environment, then and you talked historically about.

Certain price point at which you'd contemplate reaccelerating activity, if I look at.

Your fiscal 21 strip I think it's now about to 75.

Then faces a backwardation in sense been following years, So I guess I'm, just wondering how you're thinking about.

Both on the completion side, and perhaps a resumption of drilling activity.

What that change in pricing dynamics between the last call in this call means what the backwardation means and what.

100 capacity means.

Yeah, Thanks, Chris Good morning.

It's funny you asked that because I've been talking a dave quite a bit about it as as I think we've said before we would certainly consider adding back and a rig another rig if we see prices get too about that $2.75 plus range, but we also have to be able to lock in acceptable.

Hedges over multiple years in order to support that increase activity level right now we don't see that in fiscal 22 or fiscal 23, but certainly and the $2 70 price range that starts to 'em, we begin to at least to have a conversation around it but right now the out years are just not there.

We have around.

Around 25 Ducs currently.

And again, if prices get to a point, where we're comfortable going into next year and in the out years, we can certainly accelerate some of those completions as well.

Okay. That's helpful.

And when you you had mentioned in the release and I think you mentioned earlier in the call Curtailments I think it was to 2.7 in the last quarter and I think you said two Bcf in April just curious is that spread across the acreage, whereas that concentrated in a particular area of your development.

Yes, most most of our curtailments actually Chris are in the EPA.

With a lycoming and in Tioga.

Typically the the CRV area has a little bit better pricing has just been less curtailments there.

Okay.

I have a couple more questions I'm going ask one more and then I'll hop back into queue and finish up or what other scale, but I was just curious Dave you mentioned.

The settlement on on supply Corp, obviously pipeline had strong results in the quarter, which you attributed to the settlement and that's not pipeline revenue expectation for the year is up for instance, your prior guidance is it sort of safe to assume based on that that the outcome was was better than you had.

Maybe thought that it would be.

Can you talk a little bit about that.

Yeah, I would say it was.

It was within the range of of expected outcomes, but maybe towards the higher end of the range the.

The increase in depreciation rates was a was likely the area that we hadn't necessarily a counted on but when you consider the overall environment in New York and and the.

The lives we had been using in the past.

Update we were able to convince.

FERC staff and the parties that an increase in <unk> and rates was was warranted.

Okay.

Alright, Thanks, a lot since I've asked you about.

And again if you. Please ask your question. Please press Star then then up a 100 telephone keypad. If you are using a cell phone you may have to go up speakerphones affecting the queue for Q in a your next question comes from line of Gordon Boys with Raymond James Your.

Your line is open.

Good morning, Thanks for taking my questions I just heard.

I just wanted to get an idea of what this does hold for the Appalachian prices would be kind of its four.

Well as I said and I know that.

Strip, obviously is more optimistic than it was some time ago, but.

I guess I see on slide 35.

Cash costs all in for Seneca.

$1.26 per Mcf, Ian I'm, assuming that's.

Appalachian won't be a little lower than that but I guess did that I'd use an assumption.

Yes, I think that Archerd, yes, absolutely.

I don't like to speak exactly to what prices weaker curtail too, but essentially we focus on a price where we'll continue to generate positive earnings on a consolidated basis.

And.

Essentially that's in the one dollar something range and beyond that I, just don't want to get into too much detail on that.

Okay. That's helpful and then my.

My follow up is.

Well backup.

You guys had mentioned that your base declines in the Marcellus where probably in the.

Upper teens range in the Utica laws.

A little higher in the mid.

20 is to upper Twentys.

And with the a decline in activity.

There is this mostly affects the Marcellus, but do you guys haven't updated.

I do you have kind of where those base declines are trending.

Yes, our base declines arch are.

When you look at last year going into this year and these are all were around 23%.

Base declines in Pennsylvania.

That's helpful. Thank you thanks for taking the questions.

Yep.

Your next question comes from the line of Holly Stewart with Scotia, Howard Weil, How your line is open.

Good morning, gentlemen, Karen.

Good morning.

Maybe John just to follow up I'm, a little bit on Christmas question, just trying to get a sense for the program and 21 is there sort of a general rule of thumb that we could use for just that you know kind of a one rig program throughout 21.

Well like I told Chris you know it to 75 definitely gets our attention, but until we see recovery in the out years fiscal 22, and beyond and and recovery in terms of volumes that we can effectively hedge I think we're going to hold to a one rig case.

It's very expensive to add and add rigs and pull rigs off the table and so I just don't.

I want to see some continuity before we we start doing before we start adding and continued drop dropping of rigs.

Yeah. So I was just trying to get a sense of if there is just the sort of a one rig kind of capital number.

Available.

Yeah.

<unk>.

It's tough for me to speak to what our Capex guidance is gonna be for next year.

But it's going to be roughly in the.

I'd say plus or minus 250 million dollar range.

I'm, sorry, that's a little bit more than what a one rig case will be because there's some other theres. Some other capital projects that will be continuing with but we're looking at that 350 plus or minus.

Okay.

That's helpful. And then maybe just thoughts around the California activity next year, just kind of given where we are on on oil prices.

Yeah, if oil prices stay where they are California activity will be very low we've we've already drilled our our portfolio our development program for this year.

If prices stay where they are we would defer that we don't have to where we're very fortunate in that or California production has very low decline rates.

And so if we push out or it can differ our capital program for a year, there's a modest increase in decline, but but it's something that we can recover overtime.

Okay. That's helpful. And then I know previously given some color on just the kind of the cadence of production through out throughout the quarters.

Fiscal 2020, given the shut ins that account happened in the second quarter and then what you're seeing right. Now for April is there any sort of update to that you know that cadence that you could provide maybe maybe the exit rate higher as a result, I'm trying to think through the next few quarters.

Yeah. The next couple of quarters away, we're looking at right now Holly are pretty flat.

To maybe modestly <unk>, a little bit lower, but but really where they should be pretty flat.

Uh huh.

Okay. That's helpful. Thank you all right. Thank you Holly.

Your next question comes from the line of Ryan Levine The city right. Your line is open.

Good morning.

Morning, <unk> can you speak can you speak to the regulatory mechanism to good recovery on bad debt expense in utility segment.

And how you're pursuing that.

We don't have a a regulatory.

Tracking mechanism per se on.

On Uncollectibles, we have.

Hey.

Somewhat of a tracker for for the the impact of gas prices in a in New York.

And their impact on on Uncollectibles, but but there isn't a a true tracking mechanism per se.

Okay, and then what are you seeing in terms of load well dynamics and utilities segment.

Since the quarter and and what are your expectations for your business.

Yeah, I mean, it's been interesting in that on the residential side. It was a pretty cold April in Western New York, and North Western Pennsylvania as far our volumes have actually been up on the residential side.

On the the large and industrial side.

We have seen a a fall off caught in the 5% to 10% range on on volumes.

Well, if you you put that in perspective.

Industrial margin is about 10% of the total margin of the company. So.

On an overall basis not a.

A dramatic impact on utility.

Leased at this point, we'll see is as we go through the.

The rest of the quarter and once that.

And then can you comment also on terms of how you're managing the expense profile in that segment and it looks like it to me personnel costs ticked up in the quarter.

Do you and your visiting any type of initiatives to reduce the expense profile.

Oh, well with the the.

You know the basic shelter in place and locked down expenses generally tend to to come in at least the discretionary ports are things like travel and other types of material purchases you know tend to naturally drift down with respect to managing personnel costs, we do.

Have a business to run right. So we've got.

All of our people are are working and obviously were worked charging and collecting rates that are covering those costs.

So were you.

We're certainly managing our costs to Oh excuse it managing our expenses.

But the business hasn't hasn't had a wholesale change right as in the Central service.

Okay and talk to me. Thank you.

Your next question comes from the line.

With Jefferies your.

Your line is open.

[noise], everyone I had mentioned that had some follow ups and I do.

John I appreciate all the thoughts on on the development activities at Seneca I had also wanted to get your your thoughts on M&A you know just given the pricing dislocations in the stress I mean, it appears might be ceiling. You sold SSP. For example couple of years ago I think.

But our like our investments in California oil of interest since the prices were right and you know if you continue or alternatively on the gas have you continue seeing backwardated curve that doesn't give you confidence to ramp up activities.

Are there any properties that might be of interest.

Side as you think about filling F 100 million.

Let's start in California.

We are definitely interested and adding to our California properties out there.

You know 17, then coalinga pioneer all examples of that sort of bolt ons that we've been able to to bring into the fold and between those are producing 800000 barrels a day. So they've been great adds to our tour.

Our production profile out there we continue to look its tough.

You know oil has only been down for a very short period of time, So I think theres going to be a.

At a hesitancy to too.

To move forward with anything very quickly that I think we could agree too, but we're certainly keeping an eye on what's going on out there, we'd love to be able to get some more assets and.

Moving to Pennsylvania.

We talked about this before we're always looking for opportunities to expand our position in the E.D.A.

And really specifically those that are near our current operations and honestly that we want both the upstream piece and the midstream piece associated with that so we continue to work that and we will continue to do that going forward.

I know that okay, very vague answer, but that's that's where we are well know it. It's it's still helpful. Just to get a sense of you know if you had no interest you'd say so so it's it's.

I know that opportunities come along and but it takes a a willing seller. So that seems like that's been done one of the struggles yeah, I guess as it pertains to that Karen if Tim asked you earlier about the capitalization structure given some of the write downs what they do the.

Okay equity position and I know there wasn't a debt covenant back on the day.

That I think pertain more to total company losses and restrictions on incremental borrowings.

After I think it was an annual period there were multiple annual periods of loss, but you had written in last nights release about Seneca, specifically, having multiple years potentially of losses and that affecting what you were doing what they were deferred tax assets I'm. Just curious if there's any ramification of on on either one of those.

Items with regard to your capacity for incremental leverage and maybe as it pertains that.

Could you remind me just where any of that if the cut I think the covenants or are predicated on.

Debt to cap can you just remind me where those inside.

Well, so I think the when you might be talking about is on the restriction on to our 74 indenture, where we have to be at.

Two times interest coverage in order to be able to in issue incremental long term debt.

So the ceiling test impairment definitely get into that calculation because it's a book up it's based on book operating income. So having said that we are expecting these ceiling test impairments.

You know there, it's certainly not going to be the magnitude that we saw back in 15 16, when we kinda were closed out of issuing incremental long term debt for a period of time, so having said that there could be some impact on.

That but we're not expecting that in the near term certainly so.

I don't know if that answers your question.

Well it answers, yes, you're right about what I was referencing I was frankly, a little confused as to what bond indenture I was I was referring to but I remember being something that was quite some time ago.

So as I guess as we roll forward on a 12 month look back on the strip and as we incorporate new prices, you're going to get ceiling test, which which reduced this down and I guess my question is if it triggers what it did in 2015, what is the stay out period of time in which should not be able to.

Raise any long term debt.

So it depends you know the magnitude of those and how long we continued to have them, but we'd expect that if there's any impact it's not in this fiscal year and if we kind of project out maybe a quarter or two next fiscal year that that that could be up.

Kevin impact, but I mean, like said prices I running up we've been able to.

Put on some incremental hedges so that could change what our forecast is on the ceiling test impairments that we're expecting so if we are out it's not for a long period. It's not provide an extended period of time, we don't have an upcoming maturity and even under that covenant, we're able to refinance any.

I'm not sure you know any any refinances refinancing needle can happen that's not true December 21, and.

I mean, if if we're anticipating to be closed out in the and a couple of quarters up next year, we do still have the remainder this fiscal year to do something if we thought we needed.

Sure Yeah for sure. Okay. I appreciate the color I was I was remembering that there were certain things that loomed out there that has crept up a couple of years ago, and I didn't want to lose sight of them. So I appreciate all the color.

As far as the way the way the Covenant works as you look back on a trailing 12 month basis and you basically have to show positive GAAP earnings. So as we as you roll through time.

If the ceiling test charges were really large like they were in 15 and 16 that can kick us out for for an extended period of time, but if they're more modest like the one we saw this quarter and may see in the future.

They roll off pretty quickly.

Okay. That's very helpful. Then.

Thanks, everyone.

You bet.

This concludes our question and answer session I'll now turn the call back over to CAD Webster for closing remarks.

Thank you Amy.

We'd like to thank everyone for taking the time to be with us today.

Replay of this call will be available at approximately three PM Eastern time on both our website and by telephone and will run through the close of business on Friday may Ace to access the replay on line. Please visit our Investor Relations website.

Investor Dot national fuel gas Dot com.

And to access by telephone call. One 800, 585, Athree six seven and enter conference I'd number 94398 Onenine.

This concludes our conference call for today, Thank you and goodbye.

Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

[music].