Q2 2024 National Fuel Gas Co Earnings Call
Charlie: Hello everyone, and welcome to the National Fuel Gas Company Q2 Fiscal 2024 Earnings Conference Call. My name is Charlie, and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to submit a question, please press star followed by one on your telephone keypad. I'll now hand over to our host, Natalie Fischer, Director of Investment Relations. Natalie, please go ahead.
Hello, everyone and welcome to the National fuel gas Company Q2 fiscal 2024 earnings Conference call. My name is Charlie and I will be coordinating the call today you.
Natalie M. Fischer: You will have the opportunity to ask your questions at the end of the presentation, where you show a question. Please press star followed by one on your telephone keypads.
Natalie M. Fischer: <unk>, not least Asia, alright, so investor relations.
Natalie M. Fischer: Natalie Please go ahead.
Natalie M. Fischer: Thank you Charlie and good morning.
Natalie M. Fischer: Thank you, Charlie. Good morning. We appreciate you joining us on today's conference call for discussion of last evening's earnings release. With us on the call from National Fuel Gas Company are Dave Bauer, President and Chief Executive Officer; Tim Silverstein, Treasurer and Principal Financial Officer; and Justin Loweth, President of Seneca Resources and National Fuel Midtown.
Natalie M. Fischer: We appreciate you joining us on today's conference call for a discussion of last evening's earnings release with us on the call from National fuel gas company are Dave Bauer, President and Chief Executive Officer, Tim Silverstein, Treasurer, and principal financial Officer, and Justin will Lewis President of Seneca resources and National fuel midstream.
Natalie M. Fischer: At the end of the prepared remarks, we will open the discussion to questions. The second quarter fiscal 2024 earnings release and May investor presentation have 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. While National Fuel's expectations, beliefs, and projections are made in good faith and are 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 for a listing of certain specific risk factors.
Natalie M. Fischer: At the end of the prepared remarks, we will open the discussion to questions.
Natalie M. Fischer: The second quarter of fiscal 2024 earnings release and May Investor presentation have been posted on our Investor Relations website.
Natalie M. Fischer: You may refer to these materials during today's call.
Natalie M. Fischer: We would like to remind you that today's teleconference will contain forward looking.
Natalie M. Fischer: While national Fuel's expectations beliefs, and projections are made in good faith and are believed to have a reasonable basis.
Natalie M. Fischer: Actual results may differ materially these.
Natalie M. Fischer: These statements speak only as of the date on which they are made and you may refer to last evening's earnings release for a listing of certain specific risk factors.
Natalie M. Fischer: With that, I'll turn it over to Dave Bauer. Thank you, Natalie. Good morning.
Natalie M. Fischer: With that I'll turn it over to Dave Bauer, Thank you Natalie and good morning, everyone.
David P. Bauer: Thank you, Natalie. Good morning, everyone.
David P. Bauer: Last night, National Fuel reported solid second-quarter results that are yet another great indicator of the strong long-term outlook for the company. Adjusted operating results were $1.79 per share, an increase of 16% from the prior year's second quarter. The combination of significant growth in our regulated businesses, which delivered a 36% increase in revenue and Earnings Per Share, along with double-digit growth in Seneca's production and the gathering segment's throughput, drove the increase. While natural gas prices were a headwind during the quarter, our longstanding hedging program helped mitigate this impact.
David P. Bauer: Last night National fuel reported solid second quarter results that are yet another great indicator of the strong long term outlook for the company.
David P. Bauer: Adjusted operating results were $1 79 per share an increase of 16% from the prior year second quarter.
David P. Bauer: The combination of significant growth in our regulated businesses, which delivered a 36% increase in.
David P. Bauer: And earnings per share along with double digit growth in senecas production and the gathering segment's throughput drove the increase.
David P. Bauer: While natural gas prices were a headwind during the quarter, our longstanding hedging program help mitigate this impact.
Speaker Change: Tim and just and I'll hit on the details of the quarter in the near term outlook, but I want to take a few minutes to highlight the long term opportunity set for national fuel.
David P. Bauer: Tim and Justin will hit on the details of the quarter and the near-term outlook, but I want to take a few minutes to highlight the long-term opportunity set for National Fuel. Last night, we published a major refresh of our investor relations slide deck. The goal of this update is to highlight what we think is a very compelling value proposition, one that delivers strong investment returns relative to both our peers and the broader market, generates significant expected long-term growth in earnings and free cash flow, and returns capital to shareholders through both our longstanding dividend and opportunistically through our recently announced share buyback program. The foundation for this is our integrated model, with each of our businesses contributing to this simple value proposition.
David P. Bauer: Last night, we published a major refresh of our Investor Relations slide deck.
David P. Bauer: The goal of this update is to highlight what we think is a very compelling value proposition one that delivers strong investment returns relative to both our peers and the broader market.
David P. Bauer: <unk> generated significant expected long term growth in earnings and free cash flow.
David P. Bauer: And returns capital to shareholders through both our long standing dividend and Opportunistically through our recently announced share buyback program.
David P. Bauer: The foundation for this is our integrated model with each of our businesses contributing to this simple value proposition.
David P. Bauer: As we saw this past quarter, much of our near-term growth will occur in our regulated utility and pipeline business, where ratemaking activity is expected to drive tangible increases in both earnings and free cash flow. In February, our FERC-regulated supply corporation subsidiary reached a settlement with its shippers to resolve the rate case we filed last summer. New rates designed to increase annual revenues by $56 million, or about 15% of last year's total revenue in the pipeline and storage segment went into effect February 1st. No parties oppose the settlement, so we expect FERC will grant final approval of it in the coming months. There is no required stay-out period, so we can file for another rate increase at any time.
David P. Bauer: As we saw this past quarter much of our near term growth will occur in our regulated utility and pipeline businesses, where ratemaking activity is expected to drive tangible increases in both earnings and free cash flow.
David P. Bauer: This past February our FERC regulated supply Corporation subsidiary reached a settlement with its shippers to resolve the rate case, we filed last summer.
David P. Bauer: New rates designed to increase annual revenues by $56 million.
David P. Bauer: Or about 15% of last year's total revenue in the pipeline and storage segment.
David P. Bauer: Went into effect February one.
David P. Bauer: No party as oppose the settlement.
David P. Bauer: We expect FERC granted final approval of it in the coming months.
David P. Bauer: There is no required stay out period. So we can file for another rate increase at any time.
David P. Bauer: Given the level of modernization investment we expect at Supply Corp., along with the increasing cost of complying with new regulations, I expect we'll likely file another rate case within the next year. At the utility, as you know, we settled our Pennsylvania rate case last summer, and higher rates went into effect in August. We realize the bulk of the expected $23 million increase in the first half of the fiscal year, which corresponds to winter heating. Importantly, our rate structure now includes a weather normalization clause, which, like the mechanism we have in New York, should lessen the margin volatility we've experienced in recent years in Pennsylvania due to temperature fluctuations. Switching to New York, last fall, we filed a rate case that requests an $89 million increase in annual revenue. Confidential settlement discussions have commenced and are progressing.
David P. Bauer: Given the level of modernization investment we expected supply Corp, along with the increase in cost of complying with new regulations.
David P. Bauer: I expect we'll likely file another rate case within the next year.
David P. Bauer: At the utility as you know we settled our Pennsylvania rate case last summer and higher rates went into effect in August.
David P. Bauer: We realize the bulk of the expected $23 million increase in the first half of the fiscal year, which corresponds to the winter heating season.
David P. Bauer: Importantly, our rate structure now includes a weather normalization clause, which like the mechanism. We have in New York should lessen the margin volatility we've experienced in recent years in Pennsylvania due to temperature fluctuations.
David P. Bauer: Switching to New York last fall, we filed a rate case that request and $89 million increase in annual revenue.
David P. Bauer: Confidential settlement discussions have commenced and are progressing.
David P. Bauer: While there isn't much we can say at this point, we are working diligently through the process with staff and the party. Rates are expected to go into effect on October 1st of this year, and by our next call, I hope to have a more fulsome update, including the impact on fiscal 2025 and beyond. Added together, these three rate proceedings will have a significant impact on the near-term financial performance of our regulated businesses.
David P. Bauer: While there isn't much we can say at this point, we are working diligently through the process with staff and the parties.
David P. Bauer: Rates are expected to go into effect October one of this year and by our next call I hope to have a more fulsome update including the impact on fiscal 2025 and beyond.
David P. Bauer: Added together these three rate proceedings will have a significant impact on our near term financial performance of our regulated businesses.
David P. Bauer: Longer term, we have no shortage of investments to make. At the Utility and Supply Corp., we have well over a decade of modernization investments in front of us. These investments have the potential to deliver mid to high single-digit growth and rate base, which in turn drives higher earnings and cash flow. In addition, we continue to develop potential expansions of our FERC-regulated assets, which provides additional upside. The Tioga Pathway Project is a great example of this, and I'm optimistic we'll have additional opportunities over time.
David P. Bauer: Longer term, we have no shortage of investments to make.
David P. Bauer: At the utility and supply Corp, we have well over a decade of modernization investments in front of us.
David P. Bauer: These investments have to deliver the potential to deliver mid to high single digit growth in rate base, which in turn drives higher earnings and cash flows.
David P. Bauer: In addition, we continue to develop potential expansions of our FERC regulated assets, which provides additional upside.
David P. Bauer: <unk> pathway project is a great example of this and I'm optimistic we will have additional opportunities over time.
Speaker Change: One quick note on the status of the Tioga project, we're making good progress with it and expect to file our FERC application. This summer for a late calendar, 2026% in service date.
David P. Bauer: One quick note on the status of the Tioga project; we're making good progress with it and expect to file our FERC application this summer for a late calendar 2026 in service. Moving to our non-regulated operations, I'm very happy with the progress Seneca has made with its ongoing transition to an eastern development area focused program. We started this process about a year ago and have since put in line more than 20 wells in the EDA.
David P. Bauer: Moving to our nonregulated operations I'm very happy with the progress Seneca has made with its ongoing transition to an eastern development area focus program.
David P. Bauer: We started this process about a year ago and have since turned in line more than 20 wells in the EDA.
David P. Bauer: As you can see on page 16 of our slide deck, these wells continue to demonstrate best-in-class results among our peers. Based on initial results, we expect our EDA wells will be twice as productive as those in our legacy western development area.
David P. Bauer: As you can see on page 16 of our slide deck. These wells continued to demonstrate best in class results among our peers.
David P. Bauer: Based on initial results, we expect our EDA wells will be twice as productive as those in our legacy Western development area.
David P. Bauer: Consequently, over the next few years, we expect to modestly grow production while decreasing the amount of capital we deploy in Seneca's development program. On top of the improved capital efficiency of Seneca's standalone program, our integrated approach to developing our assets drives further cost structure improvement. While many of our peers have divested midstream assets or pay significant gathering costs to third parties, from the beginning, we believe that operating an integrated gathering and upstream company is value-added.
David P. Bauer: Consequently over the next few years, we expect to modestly grow production, while decreasing the amount of capital we deploy in Senecas development program.
David P. Bauer: On top of the improved capital efficiency of Seneca Standalone program, our integrated approach to developing our assets drives further cost structure improvements while.
David P. Bauer: While many of our peers divested midstream assets for pay significant gathering cost to third parties from the beginning we believe that operating an integrated gathering an upstream company is value additive.
David P. Bauer: The ability to design our development program to maximize consolidated returns allows us to deploy capital more productively, which leads to a best-in-class cost structure and positions the combined Seneca and NFG midstream to generate free cash flow through nearly all natural gas price environments. We all know natural gas prices have been under pressure. But looking forward, I'm optimistic about the direction of travel. On the demand side, new NG facilities are on the immediate horizon, with significant growth coming as soon as next year.
David P. Bauer: The ability to design our development program to maximize consolidated returns allows us to deploy capital more productively, which leads to a best in class cost structure and positions. The combined Seneca in LFG midstream to generate free cash flow through nearly all natural gas price environments.
David P. Bauer: We all know natural gas prices have been under pressure, but looking forward I'm optimistic on the direction of travel.
David P. Bauer: On the demand side, new LNG facilities are on the immediate horizon.
David P. Bauer: <unk> growth coming as soon as next year.
David P. Bauer: Longer term, I expect electricity demand to continue to grow, driven in large part by the massive build-out of data centers and the onshoring of manufacturing and other industrial processes, all of which need a reliable, cost-effective source of energy. Natural gas is the clear solution and will play a pivotal role in meeting these increasing energy demands, both domestically and abroad. The industry clearly has the resources to meet this increased demand, but the current regulatory environment makes building new infrastructure challenging. As a result, it seems unlikely supply and demand will be completely in sync, which could lead to significant volatility in prices.
David P. Bauer: Longer term I expect electricity demand will continue to grow driven in large part by the massive build out of data centers and the onshoring of manufacturing and other industrial processes, all of which need a reliable cost effective source of energy.
David P. Bauer: Natural gas is the clear solution and will play a pivotal role in meeting these increasing energy demands both domestically and abroad.
David P. Bauer: The industry clearly has the resort resource to meet this increased demand, but the current regulatory environment makes building new infrastructure challenging.
David P. Bauer: As a result, it seems unlikely supply and demand will be completely in sync, which could lead to significant volatility in prices.
David P. Bauer: We continue to believe hedging through the cycles is the right way to navigate this potential for volatility. We typically hedge about two-thirds of our production as we move into the fiscal year, so we still have a good amount of upside, should prices run. In recent months, we've taken advantage of the Contango Strip to add several new hedge positions at prices well above what we've seen this year.
David P. Bauer: We continue to believe hedging through the cycles is the right way to navigate this potential for volatility.
David P. Bauer: We typically hedge about two thirds of our production as we move into the fiscal year.
David P. Bauer: So we still have a good amount of upside should prices run.
David P. Bauer: In recent months, we've taken advantage of the contango strip to add several new hedge positions at prices well above what we've seen this year.
David P. Bauer: Predictability and near-term pricing gives greater certainty to a growing base of free cash flow at Seneca and positions us to build upon our impressive dividend track record, which we have paid for over 120 years and increased in each of the last 53. It also gives us the confidence to be opportunistic and return additional capital to shareholders through share repurchases. To that end, in March, we initiated a modestly-sized $200 million buyback program. Given the strength of our balance sheet and the positive outlook for our integrated businesses, we see significant long-term value in national fuel share.
David P. Bauer: Predictability of near term pricing gives greater certainty to a growing base of free cash flow at Seneca and positions us to build upon our impressive dividend track record, which we paid for over 120 years and increased in each of the last 53.
David P. Bauer: It also gives us the confidence to be opportunistic and return additional capital to shareholders through share repurchases.
David P. Bauer: To that end in March we initiated a modestly sized $200 billion buyback program given.
David P. Bauer: Given the strength of our balance sheet and the positive outlook for our integrated businesses, we see significant long term value in national fuel shares.
David P. Bauer: Yes, near-term natural gas prices are challenged, but the long-term outlook is strong, and I see this as a great opportunity to buy back shares at a low point in the commodity price cycle. To bring it all together, our value proposition is simple: strong returns on capital driven by integration, line-of-sight visibility to growth and earnings and free cash flow, and a commitment to returning cash to shareholders with dividends and share buybacks. The team and I are incredibly optimistic about the future of national fuel and are intensely focused on executing our strategy and delivering tangible value to shareholders. With that, I'll turn the call over to Justin.
David P. Bauer: Yes near term natural gas prices are challenged but the long term outlook is strong and I see this as a great opportunity to buy back shares at a low point in the commodity price cycle.
Justin: To bring it all together our value proposition is simple.
Justin: Returns on capital driven by integration.
Justin: Line of sight visibility to growth in earnings and free cash flow and our commitment to returning cash to shareholders through dividends and share buybacks.
Justin: <unk> and I are incredibly optimistic about the future of national fuel and are intensely focused on executing our strategy and delivering tangible value to shareholders.
David P. Bauer: With that I'll turn the call over to Justin.
Justin: Thanks, Dave and good morning, everyone.
Justin Loweth: Thanks, Dave, and good morning, everyone. Seneca and NFT Midstream continued last quarter's momentum with a third consecutive quarter of record production and throughput, supported by strong operational results. During Q2, we brought 6 EDL wells online, all of which demonstrated excellent initial productivity. Quarterly production was 103 BCFE, a 10% increase over the second quarter of fiscal 23, in spite of voluntary pricing curtailments of over 5 BCF due to low in-basin prices.
Justin Loweth: <unk> midstream continued last quarter's momentum with a third consecutive quarter of record production and throughput supported by strong operational results.
Justin Loweth: During Q2, we turned in line six EDA wells, all of which demonstrated excellent initial productivity.
Justin Loweth: Production was 103 Bcf a day at.
Justin Loweth: A 10% increase over the second quarter of fiscal 'twenty three despite a voluntary pricing curtailments of over five Bcf due to low in basin pricing.
Justin Loweth: You're also seeing positive momentum in achieving our capital reduction target. As announced last night, Senate is reducing the top end of its fiscal 24 guidance by $20 million to a range of $525 to $555 million. The midpoint of guidance now represents an almost $50 million reduction over last year. There are two principal drivers of this decrease.
Justin Loweth: We're also seeing positive momentum and achieving our capital reduction target.
Justin Loweth: As announced last night Senate does reducing the top end of its fiscal 'twenty four guidance by $20 million to a range of $525 million to $555 million.
Justin Loweth: The midpoint of guidance now represents an almost $50 million reduction over last year.
Justin Loweth: There are two principal drivers of this decrease first we are incorporating service cost reductions both realized and expected through the balance of the year.
Justin Loweth: First, we are incorporating service cost reductions, both realized and expected, through the balance of the year. Second, operational efficiencies associated with our transition to the EDA are exceeding initial expectations, which should provide continued benefits in the years to come. Turning to production, as a result of voluntary pricing curtailments during the quarter, we are decreasing Seneca's fiscal 24 production guidance by 5 BCF to a range of 390 to 405 BCFE. Please recall that we do not incorporate the impact of potential future pricing curtailments into our production guidance. In anticipation of higher gas prices, we plan to delay the turn-in-line date for one pad until next fiscal year.
Justin Loweth: Second operational efficiencies associated with our transition to the EDA are exceeding initial expectations, which should provide continued benefits in the years to come.
Justin Loweth: Turning to production as a result of voluntary pricing curtailments during the quarter, we are decreasing senecas fiscal 'twenty four production guidance by five Bcf to a range of 390 to 405 Bcf.
Justin Loweth: Please recall that we do not incorporate the impact of potential future pricing curtailments into our production guidance.
Justin Loweth: In anticipation of higher gas prices, we plan to delay the turn in line date for one pad until next fiscal year. Thus, we assume a modest sequential decline in production throughout the rest of this year. However.
Justin Loweth: Thus, we assume a modest sequential decline in production throughout the rest of this year. However, we do retain flexibility in our program to accelerate production later this summer should prices rebound. Given the near-term supply, demand, and storage fundamentals, we believe that natural gas prices will remain under pressure over the near term. However, we are well insulated from this potential price weakness, with 95% of our expected fiscal 24 production protected by firm transportation and firm sales agreements. We've been only about 10bcf exposed to local spot markets based on the midpoint of our guidance.
Justin Loweth: However, we do retain flexibility in our program to accelerate till activity later this summer should prices rebound.
Justin Loweth: Given the near term supply demand and storage fundamentals, we believe that natural gas prices will remain under pressure over the near term.
Justin Loweth: However, we are well insulated from this potential price weakness with 95% of our expected fiscal 'twenty four production protected by firm transportation and firm sales agreements we have.
Justin Loweth: Only about 10 Bcf exposed to local spot markets based on the midpoint of our guidance range.
Justin Loweth: Beyond Fiscal 24, we are bullish on natural gas spreads. LNG export projects are making continued progress towards completion, and, longer term, tailwinds on natural gas power generation demand are coming into focus. We are well positioned to capitalize on these tailwinds, as Seneca's firm transportation capacity connects to mid-Atlantic and Northeast markets that are expected to experience a disproportionate amount of load growth, both from AI data centers and remaining coal plant retirements, and our low emissions intensity responsibly sourced gas provides the opportunity to meet this growing demand with reliable, sustainable, and affordable energy.
Justin Loweth: Beyond fiscal 'twenty four we're bullish on natural gas prices LNG.
Justin Loweth: LNG export projects are making continued progress towards completion and longer term tailwind on natural gas power generation demand are coming into focus.
Justin Loweth: We are well positioned to capitalize on these tailwind.
Justin Loweth: As Senator <unk> firm transportation capacity connects to mid Atlantic and northeast markets that are expected to experience a disproportionate amount of load growth.
Justin Loweth: Both from AI data centers and remaining coal plant retirements.
Justin Loweth: And our low emissions intensity responsibly sourced gas provides the opportunity to meet this growing demand with reliable sustainable affordable energy.
Justin Loweth: With this backdrop, our long-term development plans remain on track. Our transition to an EDA-focused development plan is exceeding expectations. Our paths to date have delivered excellent well productivity, and we have a deep inventory of well delineated, highly prolific future development. Further, capital expenditure levels are declining, while production is forecasted at low to mid-single-digit growth, on average, in the coming years.
Justin Loweth: With this backdrop, our long term development plans remain on track our transition to an EDA focused development plan is exceeding expectations.
Justin Loweth: Our pads to date have delivered excellent well productivity and we have a deep inventory of well delineated highly prolific future development locations further capital expenditure levels are declining while production is forecasted at low to mid single digit growth on average in the coming years.
Justin Loweth: Overall, we're very pleased with our progress in the EDA and see opportunities for additional efficiency gains.
Justin Loweth: Overall, we're very pleased with our progress in the EDA and see opportunities for additional efficiency gains. Moving to NFG midstream, throughput increased 15% year-over-year to approximately 126 BCF, driven by Seneca and third-party production growth. Our focus remains expanding the Coyote Gathering System as production volumes ramp up. We have several major projects underway that will expand the capacity and connectivity to multiple interstate pipelines. And we are also making progress on a large centralized compressor station that will go into service later this year.
Justin Loweth: Moving to energy midstream throughput increased 15% year over year to approximately 102006 Bcf driven by Seneca and third party production growth.
Justin Loweth: Our focus remains on expanding the title gathering system as production volumes ramp.
Justin Loweth: We have several major projects underway that will expand the capacity and connectivity to multiple interstate pipelines.
Justin Loweth: We're also making progress on our large centralized compressor station that will go in service later this year.
Justin Loweth: In conclusion, the Seneca and Midstream teams have continued to deliver production, throughput, and EBITDA growth despite a particularly challenging price environment. These achievements reflect a culture of excellence and the benefits of an integrated business model that provides enhanced margins, low-cost operations, and a disciplined approach to risk management. In turn, Seneca and NFE Midstream are enhancing returns with less downside risk through the commodity cycle while maintaining significant upside to higher commodity prices expected in fiscal 25 and beyond. With that, I'll turn the call over to Tim.
Justin Loweth: In conclusion, the silica and midstream teams have continued to deliver production throughput and EBITDA growth, despite a particularly challenging price environment.
Tim: These achievements reflect a culture of excellence and the benefits of an integrated business model that provides enhanced margins low cost operations and a disciplined approach to risk management.
Tim: In turn Seneca and <unk> midstream are enhancing returns with less downside risk through the commodity cycles, while maintaining significant upside to higher commodity prices expected in fiscal 'twenty five and beyond.
Justin Loweth: With that I'll turn the call over to Tim.
Timothy J. Silverstein: Thanks Justin and good morning everyone. National Fuel had a great second quarter, with adjusted operating results increasing 16% from the prior fiscal year. It was evident from these results that our inflection towards meaningful and predictable growth in our regulated subsidiaries, combined with increasing capital efficiency in our upstream and gathering businesses, can deliver strong results well into the future. Starting with our regulated businesses, pipeline and storage segment earnings were up 29% versus last year.
Tim: Thanks, Justin and good morning, everyone National fuel had a great second quarter with adjusted operating results, increasing 16% from the prior fiscal year.
Timothy J. Silverstein: It was evident from these results that our inflection towards meaningful and predictable growth in our regulated subsidiaries combined with increasing capital efficiency in our upstream and gathering businesses can deliver strong results while into the future.
Timothy J. Silverstein: Starting with our regulated businesses pipeline and storage segment earnings were up 29% versus last year.
Timothy J. Silverstein: This was driven by significant top-line growth, with revenues up $13 million, largely as a result of the settlement reached in our Supply Corporation Recon. In addition, we recorded $3.5 million in revenue related to the true-up of a surcharge that permitted us to recover costs related to certain pipeline safety and greenhouse gas-related expenditures. As a result of our new rate settlement, the surcharge mechanism ended.
Timothy J. Silverstein: This was driven by significant top line growth with revenues up $13 million largely as a result of the settlement reached in our supply Corporation rate case.
Timothy J. Silverstein: In addition, we recorded $3 $5 million in revenue related to the true up of a surcharge that permitted us to recover costs related to certain pipeline safety and greenhouse gas related expenditures.
Timothy J. Silverstein: As a result of our new rates settlement the surcharge mechanism ended.
Timothy J. Silverstein: We are also running ahead of our projections with respect to short-term revenue. Given our optimally located infrastructure in the heart of the Appalachian Basin, we are well positioned to take advantage of periods of increasing volatility, both in storage valuations as well as basis differentials across the region. We've made a concerted effort to capitalize on this, and as a result, we've seen a decent amount of success this year, largely from marketers willing to be opportunistic with shorter-term contracts.
Timothy J. Silverstein: We are also running ahead of our projections with respect to short term revenue.
Timothy J. Silverstein: Given our optimally located infrastructure in the heart of the Appalachian Basin, we are well positioned to take advantage of periods of increasing volatility.
Timothy J. Silverstein: Both in storage valuations as well as basis differentials across the region.
Timothy J. Silverstein: We've made a concerted effort to capitalize on this and as a result, we've seen a decent amount of success. This year largely from marketers willing to be opportunistic shorter term contracts.
Timothy J. Silverstein: Taken together the settlement of our supply Corp rate case, and the success. We've achieved in our short term business have allowed us to increase our full year revenue guidance by $10 million at the midpoint.
Timothy J. Silverstein: Taken together, the settlement of our supply corp rate case and the success we've achieved in our short-term business have allowed us to increase our full-year revenue guidance by $10 million at the midpoint. In our utility business, the growth we've been projecting is coming to fruition. Earnings improved meaningfully, up 41% compared to last year's second quarter. Principally driving this strong performance was growth in margin, which was up $14 million. Much of this growth was in our Pennsylvania jurisdiction, where we saw the continued impact of our $23 million delivery rate increase that went into effect last August. For the quarter, temperatures were largely consistent with last year.
Timothy J. Silverstein: And our utility the growth we've been projecting is coming to fruition.
Timothy J. Silverstein: Earnings improved meaningfully up 41% compared to last year's second quarter.
Timothy J. Silverstein: Principally driving this strong performance was growth in margin, which was up $14 million much of this growth was in our Pennsylvania jurisdiction, where we saw the continued impact of our $23 million delivery rate increase that went into effect last August.
Timothy J. Silverstein: For the quarter temperatures were largely consistent with last year. However, the addition of weather normalization in Pennsylvania protected approximately $5 million in margin that would have otherwise been lost given the warm weather during the quarter.
Timothy J. Silverstein: However, the addition of weather normalization in Pennsylvania protected approximately $5 million in margin that would have otherwise been lost given the warm weather during the quarter. Shifting to expenses in the regulated businesses, we've had great success hiring and retaining employees, more so than we've seen since the beginning of the pandemic. This may cause labor-related costs to be slightly over our original projection. However, we are certainly happy to be adding high-quality individuals to our already talented workforce. We're also seeing some cost headwinds as it relates to compliance with new and expanding regulations. One recent example is the New York prevailing wage requirements that we discussed last quarter.
Timothy J. Silverstein: Shifting to expenses in the regulated businesses, we've had great success hiring and retaining employees more so than we've seen since the beginning of the pandemic.
Timothy J. Silverstein: May cause labor related cost to be slightly over our original projections. However, we are certainly happy to be adding high quality individuals to our already talented workforce.
Timothy J. Silverstein: We're also seeing some cost headwinds as it relates to compliance with new and expanding regulations.
Timothy J. Silverstein: One recent example is the New York prevailing wage requirement that we discussed last quarter previously we focused on the bigger impact which was the increase the capital expenditures at our utility business.
Timothy J. Silverstein: Previously, we focused on the bigger impact, which was the increase in capital expenditures at our utility business. It also has a knock-on effect on certain O&M-related costs that are being passed on to us by our contractors. As a result, O&M may increase modestly above our initial projections in these cycles. However, despite these increases, our top line growth is significantly higher, which will lead to continued strength in earnings and cash flow as we look out over the next couple of years. Furthermore, we are in the middle of our New York rate case and have the right to file for new rates in each of our other regulated subsidiaries.
Timothy J. Silverstein: It also has a knock on effect to certain O&M related costs that are being passed on to us by our contractors.
Timothy J. Silverstein: As a result, O&M may increase modestly above our initial projections in these segments.
Timothy J. Silverstein: Despite these increases our topline growth is significantly higher which will lead to continued strengthen our earnings and cash flow as we look out over the next couple of years.
Timothy J. Silverstein: Furthermore, we are in the middle of our New York rate case and have the right to file for new rates in each of our other regulated subsidiaries. So we expect to be able to recover any higher costs with minimal regulatory lag.
Timothy J. Silverstein: So we expect to be able to recover any higher costs with minimal regulatory lag. Switching to our other companies, adjusted EBITDA for the E&P and gathering segments was up 12%. When pairing this with our ongoing reduction in capital spending, you can see why we're excited about the outlook for growing free cash flow. Given the meaningful decline in natural gas prices over the past year, the ability to increase EBITDA is a testament to our operating approach within these businesses.
Timothy J. Silverstein: Switching to our other companies adjusted EBITDA for the E&P and gathering segments was up 12%.
Timothy J. Silverstein: Comparing us with our ongoing reduction in capital spending you can see why we're excited about the outlook for growing free cash flow.
Timothy J. Silverstein: Given the meaningful decline in natural gas prices over the past year the ability to increase EBITDA is a testament to our operating approach within these businesses.
Timothy J. Silverstein: Productivity is increasing meaningfully as we transition to the EDA, and we've maintained our longstanding focus on managing our cost structure with cash unit costs down 6% year over year. Furthermore, our approach to hedging, with a focus on mitigating near-term volatility, minimized the impact of lower natural gas prices.
Timothy J. Silverstein: Productivity is increasing meaningfully as we transition to the EDA and.
Timothy J. Silverstein: And we've maintained our long standing focus on managing our cost structure with cash unit costs down 6% year over year.
Timothy J. Silverstein: Furthermore, our approach to hedging with a focus on mitigating near term volatility minimize the impact of lower natural gas prices.
Timothy J. Silverstein: Despite NYMEX dropping by more than a third from last year, our after hedge realized price was down 2 cents per MCF, or less than 1%. Pulling this all together, our quarterly financial results were strong, and operationally things remain on track. Undoubtedly, lower commodity prices remain a near-term headwind, but this is largely mitigated by having 74% of our remaining production fully hedged at prices well north of the current strip. We are assuming NYMEX averages $2 per MMBTU for the remainder of the year, which is a drop of $0.40 from last quarter.
Timothy J. Silverstein: <unk> Nymex dropping by more than a third from last year. Our after hedge realized price was down <unk> <unk> per mcf or less than 1%.
Timothy J. Silverstein: Pulling this all together quarterly financial results were strong and operationally things remain on track undoubtedly lower commodity prices remain a near term headwind, but this is largely mitigated by having 74% of our remaining production fully hedged at prices well north of the current strip.
Timothy J. Silverstein: We are assuming Nymex average is $2 per btu for the remainder of the year, which is a drop of 40 from last quarter.
Timothy J. Silverstein: Given this, we revise our earnings guidance range down 15 cents at the midpoint, such that we now expect operating results, excluding items impacting comparability, to be between $4.75 and $5.05 per share. Our guidance does not assume any additional price-related curtailments. However, we do have a modest amount of in-basin exposure remaining, roughly 10 BCF over the next two quarters. Moving to CapEx, we've modestly reduced the midpoint of our consolidated capital guidance by $10 million, driven by the change at Seneca that Justin discussed.
Timothy J. Silverstein: Given this we revised our earnings guidance range down 15 at the midpoint.
Timothy J. Silverstein: We now expect operating results, excluding items impacting comparability to be between $4 75, and $5 <unk> per share.
Timothy J. Silverstein: Our guidance does not assume any additional price related curtailments. However, we do have a modest amount of in basin exposure remaining roughly 10 Bcf over the next two quarters.
Timothy J. Silverstein: Moving to Capex, we have modestly reduced the midpoint of our consolidated capital guidance by $10 million driven by the change at Seneca adjusted discussed.
Timothy J. Silverstein: And the rest of our subsidiaries, we are moving into peak construction. So the vast majority of our spending is still out in front of us. As a result, we are maintaining our prior capital guidance ranges for these sectors. In conclusion, we see the outlook for national fuel is increasingly constructive.
Timothy J. Silverstein: And the rest of our subsidiaries we are moving into peak construction season. So the vast majority of our spending is still out in front of us as a result, we are maintaining our prior capital guidance ranges for these segments.
Timothy J. Silverstein: In conclusion, we see the outlook for national fuel is increasingly constructive the expected growth in our regulated businesses, the improving capital efficiency from our EDA transition and the strong longer term outlook for natural gas prices are all very positive.
Timothy J. Silverstein: The expected growth in our regulated businesses, the improving capital efficiency from our EDA transition, and the strong, longer-term outlook for natural gas prices are all very positive. We remain focused on investing in our business, where risk-adjusted returns are highly attractive. We also remain committed to returning cash to shareholders through our longstanding dividend, which has increased each of the last 53 years, and through our recently initiated share buyback program. Today, these represent an expected 6% return on capital yield, which, when adjusting for risk and considering our growth outlook, is strong compared to both our upstream and utility peers.
Timothy J. Silverstein: We remain focused on investing in our business where risk adjusted returns are highly attractive.
Timothy J. Silverstein: We also remain committed to returning cash to shareholders through our long standing dividend, which has increased each of the last 53 years and through our recently initiated share buyback program. Today. These represent an expected 6% return of capital yield, which when adjusting for risk and considering our growth outlook is strong compared to both our upstream and utility peers.
Timothy J. Silverstein: <unk>.
Timothy J. Silverstein: Taking it all together, our investment-grade balance sheet, growing long-term earnings and free cash flow, and commitment to returning cash to shareholders positions us well to deliver meaningful value over the long term. With that, I'll ask the operator to open the line for questions.
Timothy J. Silverstein: Taking it all together our investment grade balance sheet growing long term earnings and free cash flow and commitment to returning cash to shareholders positions us well to deliver meaningful value over the long term.
Speaker Change: With that I'll ask the operator to open the line for questions.
Timothy J. Silverstein: Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypads.
Operator: Thank you. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. If you'd like to withdraw your question, please press star followed by 2. When preparing to ask your question, please ensure you're unmuted locally. As a reminder, that's a star followed by 1 on your telephone keypad. Our first question comes from Zach Parham of J.P. Morgan. Zach, your line is open. Please go ahead.
Benjamin Zachary Parham: Your question. Please press star two and prepayments you asked your question. Please ensure you're on mute locally as a reminder, that star followed by one on your telephone keypad.
Benjamin Zachary Parham: Our first question comes from Zach <unk>.
Benjamin Zachary Parham: J P. Morgan Your line is open. Please go ahead.
Benjamin Zachary Parham: Hey, Thanks for taking my question.
Benjamin Zachary Parham: Hey, thanks for taking my question. One, maybe for Justin first, can you talk a little bit more about your outlook for curtailments? One of your peers in Appalachia talked about curtailments for 2Q of the calendar year that were expected to be about twice as high as 1Q curtailments. We're already through a month of the quarter, and local pricing was pretty weak in April. Just trying to get a sense of what curtailments could look like this quarter.
Benjamin Zachary Parham: One maybe some.
Benjamin Zachary Parham: Adjusted first can you talk a little bit more about your outlook for curtailments one of your peers in Appalachia, you had talked about curtailment for <unk>. The calendar year that were expected to be about twice as high as <unk> curtailments, we're already through a month of the quarter in local pricing was pretty weak in April just trying to get a sense of what curtailments could look like this quarter.
Justin Loweth: Yes sure Zack.
Justin Loweth: Yeah, sure, Zach. I'd start just by highlighting that from April 4 to the balance of our year, we really have minimal exposure. Our, you know, credit to our operations and marketing teams on getting ahead of this. We were pretty concerned about kind of what rebates and pricing could look like, and we were very active in locking a lot of our exposure. So now, for the balance of the year, we only have about 10 BCF exposed, you know, so we've kind of locked in on and quantified what the likely max impact could be.
Justin Loweth: I would start this slide highlighting that from April forward through the balance of our year.
Justin Loweth: We really have minimal exposure.
Justin Loweth: Credit to our operations and marketing teams on getting ahead of this we were pretty.
Justin Loweth: Concerned about kind of what in basin pricing could look like and we're very active in unlocking a lot of our exposure. So now through the balance of year, we only have about 10 Bcf exposed.
Justin Loweth: And that's relatively evenly split between Q3 and Q4. You can kind of take half and half of that kind of 11-ish BCF number of what would be exposed at the midpoint of our guidance. It's overall minimal.
Justin Loweth: So we've kind of we've kind of locked in and quantified what the.
Justin Loweth: The likely Max impact could be.
Justin Loweth: And that's that's relatively evenly split between Q3 and Q4.
Justin Loweth: You can take half and half of that kind of a 11 ish Bcf number of what what would be exposed to the mid point of our guidance is overall.
Justin Loweth: You know, you're not going to see, we're not expecting those, like you've heard from others, we're not expecting those kinds of curtailments. We really got ahead of it. So I think we're in a good spot.
Justin Loweth: Overall minimal youre, not youre not going to see.
Justin Loweth: We're not we're not expecting those like you've heard from others, we're not expecting those kinds of curtailments, we really got ahead of it.
Justin Loweth: So I think we're in a good spot.
Speaker Change: Thanks, Jonathan.
Timothy J. Silverstein: Thanks, Justin. And then maybe one just on the utility, you got a utility operating income growth of 7 to 10% year over year, that compares to the prior guide at 15% year over year growth. I know part of this is weather-related, but can you just walk us through the moving pieces there that are driving that change? Sure, Zach. Yeah, I mean, to your point, there wasn't anything fundamentally changing within the business. It's really two pieces. One is weather. You know, as Dave noted, that it minimizes volatility, but it doesn't eliminate it.
Justin Loweth: And then maybe one just on the utility you got at the utility operating income growth.
Timothy J. Silverstein: 10%, 10% year over year that compares to the prior guide at 15% year over year growth I know part of this is weather related but can you just walk us through the moving pieces there that are driving that change.
Timothy J. Silverstein: Sure Zach, yes, I mean to.
Zach: To your point it wasn't anything fundamentally changing within the business. It's really two pieces one is weather.
Zach: As Dave noted that.
Timothy J. Silverstein: It minimizes volatility, but it doesn't eliminate it.
Timothy J. Silverstein: You know, so for example, in Pennsylvania, we have a plus or minus 3% deadband. And given where the weather was in the second quarter, we were certainly outside of that deadband. So there was a weather impact in our PA jurisdictions. And New York, the way the weather norm works there, it's a bit more complicated. But needless to say, when you get more, you know, wider variability in temperatures, weather normalization doesn't fully protect you.
Timothy J. Silverstein: So for example in Pennsylvania, we have a plus or minus 3% that band and given where weather was in the second quarter. We are certainly outside of that band. So there was a weather impact in our jurisdiction.
Timothy J. Silverstein: And New York, the way weather norm works, there, it's a bit more complicated.
Timothy J. Silverstein: But needless to say when you get more wider variability in temperatures the weather normalization doesn't fully protect you.
Timothy J. Silverstein: You know, so together in the quarter, that was roughly $3 million or so. And then, in our New York jurisdiction, dating back to our last rate case, we have this mechanism in place where we're allowed to recover if our lost and unaccounted for gas is below a certain threshold. And given the success of our modernization program, we've been able to take advantage of that.
Timothy J. Silverstein: So together in the quarter that was roughly $3 million or so.
Timothy J. Silverstein: The other item is in our New York jurisdiction dating back to our last rate case, we have this mechanism.
Timothy J. Silverstein: Mechanism in place, where we're allowed to recover if our lost and unaccounted for gas.
Timothy J. Silverstein: Is below a certain threshold and given the success of our modernization program, we've been able to take advantage of that but there's really two components to that mechanism. One is is volume which is consistent in line with our expectations, but the other is pricing and it's driven by.
Timothy J. Silverstein: But there are really two components to that mechanism. One is volume, which is, you know, consistent in line with our expectations. But the other is pricing, and it's driven by the price that our customers are ultimately paying for gas, which is obviously meaningfully lower since we started the fiscal year. So, you know, those two together make up the bulk of it. And then I hit on the, you know, O&M headwinds we're facing, and that's sort of what's driving the range between 7% and 10%.
Timothy J. Silverstein: The price that our customers are ultimately paying for gas, which is obviously meaningfully lower.
Timothy J. Silverstein: Since we started the fiscal year. So those two together make up the bulk of it and then I hit.
Timothy J. Silverstein: O&M headwinds, we're facing and that sort of what's driving the range between seven and 10%.
Speaker Change: Great. Thanks, Tim Thanks Joseph.
Timothy J. Silverstein: Great. Thanks, Tim. Thanks, Justin.
Speaker Change: You bet.
Speaker Change: Thank you as another reminder, if you'd like to ask your question. Please press star followed by one on your telephone keypad now.
Operator: You bet. Yeah. Thank you. As another reminder, if you'd like to ask a question, please press star followed by 1 on your telephone keypad now. Our next question comes from Neil Mehta of Goldman Sachs. Neil, your line is open, please go ahead.
Operator: Our next question comes from Neil Mehta of Goldman Sachs. Your line is open. Please go ahead.
Neil Singhvi Mehta: Yes, good morning team and a nice quarter here.
Neil Singhvi Mehta: Yeah, good morning team, and a nice quarter here. My first question would be just how you're thinking about M&A in the current environment. It's something we've talked about in the past about whether it makes sense to continue to grow the utility business. Any broad perspectives on that.
Neil Singhvi Mehta: First question would be just.
Neil Singhvi Mehta: How youre thinking about M&A in the current environment is something we've talked about in the past.
Neil Singhvi Mehta: Whether it makes sense to continue to grow the utility business.
Neil Singhvi Mehta: Any broad perspectives on that thank you.
Neil Singhvi Mehta: Yes.
David P. Bauer: Thank you.
Neil Singhvi Mehta: It's something we're still interested in.
David P. Bauer: Yeah, you know, it's something we're still interested in. Really, there's no change in our views on that. Adding regulated assets would be a good thing for the company, and we keep our eye open for opportunities that will be out there.
Speaker Change: Really no change in R. R.
David P. Bauer: Our views on that.
David P. Bauer: Adding <unk>.
David P. Bauer: Related assets, we think could be a.
Speaker Change: Good thing for the company and.
David P. Bauer: We keep our eye open for opportunities that that will be out there.
David P. Bauer: Thank you and we'll be looking and then staying on the regulated side, how should we think about.
David P. Bauer: Thank you. We'll be looking and then standing on the regulated side. How should we think about modeling the rate increases here over the course of the next year? Any guidance in terms of trajectory and any idiosyncrasies that we need to be thinking about from a modeling perspective?
David P. Bauer: Modeling the rate increases here.
David P. Bauer: Over the course of the next year or any any guidance in terms of trajectory in any anything Chris.
David P. Bauer: Or do you think receipts that we need to be thinking about from a modeling perspective.
David P. Bauer: Yeah, you know, like we talked about, obviously, we know that increases the rates both for PA and ultimately for New York once we, you know, hopefully, reach a settlement there. The impact is volumetric, so obviously, a bigger impact in Q1 and Q2 and a smaller impact in Q3 and Q4, whereas in the pipeline business, it's a bit more radiibly spread over the course of the year.
Speaker Change: Yeah Neil.
David P. Bauer: Like we talked about obviously, we know that increase the rates both for <unk> and ultimately for New York Once we hope.
David P. Bauer: Hopefully reach a settlement there the impact is volumetric. So obviously, a bigger impact in Q1, and Q2 and a smaller impact in Q3 and Q4.
David P. Bauer: Whereas in the pipeline business, it's a bit more ratably spread over the course of the year.
Speaker Change: Alright, Thanks again.
Neil Singhvi Mehta: All right, team. Thanks again. Thank you.
Speaker Change: Thank you.
Operator: Perfect, thank you. As a final reminder, if you'd like to ask a question, please dial star followed by 1 on your telephone keypad now. At this stage, we have no further questions registered via the telephone line, so I'll hand over to Natalie Fischer for any final or closing remarks.
Speaker Change: Fixed <unk> as a final reminder, if you'd like to ask a question. Please dial star followed by one on your telephone keypad.
Natalie M. Fischer: At this stage, we have no further questions registered by the telephone lines. So I'll hand back over to <unk> to be efficient at Nissan or closing remarks.
Natalie M. Fischer: Thank you Charlie.
Natalie M. Fischer: We'd like to thank everyone for taking the time to be with us today. A replay of this call will be available this afternoon on both our website and by telephone and will run through the close of business on Thursday, May 9. To access the replay online, please visit our investor relations website at investor.nationalfuelgas.com. And to access it by telephone, call 1-866-813-9403 and provide access code 407920. This concludes our conference call for today. Thank you, and have a nice day. Ladies and gentlemen, this concludes today's call. Thank you for joining us.
Natalie M. Fischer: Like to thank everyone for taking the time to be with us today.
Natalie M. Fischer: A replay of this call will be available. This afternoon on both our website and by telephone and will run through the close of business on Thursday may nine.
Natalie M. Fischer: To access the replay online please visit our Investor Relations website at Investor Dot National fuel gas dot com and to access by telephone call 1868139403, and provide access code four euro 7920.
Natalie M. Fischer: This concludes our conference call for today, Thank you and have a nice day.
Natalie M. Fischer: Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining us. You may now disconnect your lines. And I'll disconnect your lines.
Operator: [music].
Operator: Yes.
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