National Fuel Gas pany(NFG) - 2024 Q2 - Quarterly Results

Financial Performance Overview Q2 FY2024 Key Financial Results National Fuel Gas Company reported strong Q2 FY2024 financial results, with GAAP net income per share up 18% to $1.80 and adjusted operating results per share up 16% to $1.79, driven by regulated businesses Q2 FY2024 Financial Highlights (YoY) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | GAAP Net Income | $166.3 million | $140.9 million | +18.0% | | GAAP EPS | $1.80 | $1.53 | +17.6% | | Adjusted Operating Results | $165.3 million | $141.8 million | +16.6% | | Adjusted Operating Results EPS | $1.79 | $1.54 | +16.2% | - The strong performance was led by the regulated businesses (Pipeline & Storage and Utility), which collectively delivered earnings growth of 36%, mainly due to favorable rate case resolutions[4] - The company initiated a new $200 million share buyback program during the second quarter, enhancing its commitment to shareholder returns[6] FY2024 Guidance Update The company revised its FY2024 earnings guidance downwards to $4.75-$5.05 per share, reflecting lower natural gas price assumptions and production curtailments, partially offset by increased Pipeline and Storage revenue FY2024 Guidance Revision | Guidance Metric | Previous FY 2024 | Updated FY 2024 | Change at Midpoint | | :--- | :--- | :--- | :--- | | Adjusted EPS | $4.90 - $5.20 | $4.75 - $5.05 | -$0.15 | | Consolidated Capital Expenditures | $885 - $1,000 million | $885 - $980 million | -$10 million | | Net Production (Bcf) | 395 - 410 | 390 - 405 | -7.5 Bcf | | Pipeline & Storage Revenues | $380 - $420 million | $400 - $420 million | +$10 million | - The earnings guidance revision is primarily due to a lower NYMEX natural gas price assumption for the remainder of the fiscal year, now at $2.00/MMBtu, down from $2.40/MMBtu[10][11][49] - The production forecast was lowered to account for approximately 5 Bcf of price-related curtailments that occurred in the second quarter due to low in-basin pricing[12] Segment Performance Analysis Upstream Business (Exploration & Production) The Exploration and Production segment (Seneca) saw Q2 GAAP earnings rise slightly to $62.1 million, driven by a 10% increase in natural gas production to 102.9 Bcf, with hedging mitigating price declines E&P Segment Q2 Financials (in thousands) | Metric | Q2 2024 | Q2 2023 | Variance | | :--- | :--- | :--- | :--- | | GAAP Earnings | $62,065 | $60,982 | +$1,083 | | Adjusted Operating Results | $61,676 | $62,776 | -$1,100 | | Adjusted EBITDA | $172,068 | $154,574 | +$17,494 | - Natural gas production increased by 10% YoY to 102.9 Bcf, driven by new wells in the EDA, despite 5 Bcf of price-related curtailments[22] - Average realized natural gas price was $2.56 per Mcf. While pre-hedging prices fell 29%, hedging gains of $0.58 per Mcf offset most of the decline[23] - DD&A expense increased by $0.08 per Mcf to $0.71 per Mcf, driven by higher production and an increased full cost pool[25] Midstream Businesses Midstream businesses showed strong Q2 growth, with Pipeline and Storage earnings up 29% to $30.7 million due to a rate case, and Gathering earnings up 18% to $28.7 million from increased throughput Pipeline and Storage Segment The Pipeline and Storage segment's Q2 GAAP earnings increased by $6.9 million to $30.7 million, primarily driven by higher transportation and storage rates from a rate case settlement Pipeline & Storage Segment Q2 Financials (in thousands) | Metric | Q2 2024 | Q2 2023 | Variance | | :--- | :--- | :--- | :--- | | GAAP Earnings | $30,737 | $23,858 | +$6,879 | | Adjusted EBITDA | $70,033 | $58,926 | +$11,107 | - Operating revenues increased by $12.9 million, mainly due to higher transportation and storage rates from the Supply Corporation rate case settlement, which is expected to increase annual revenues by $56 million[7][29] Gathering Segment The Gathering segment's Q2 GAAP earnings rose by $4.4 million to $28.7 million, driven by a 15% increase in throughput from both affiliated and third-party producers Gathering Segment Q2 Financials (in thousands) | Metric | Q2 2024 | Q2 2023 | Variance | | :--- | :--- | :--- | :--- | | GAAP Earnings | $28,706 | $24,334 | +$4,372 | | Adjusted EBITDA | $53,103 | $46,263 | +$6,840 | - Operating revenues grew by $7.0 million (12%), driven by a 15% increase in throughput from both Seneca and third-party producers[7][32] Downstream Business (Utility) The Utility segment's Q2 GAAP earnings surged 41% to $44.7 million, primarily due to higher customer margins from a base rate increase in its Pennsylvania jurisdiction Utility Segment Q2 Financials (in thousands) | Metric | Q2 2024 | Q2 2023 | Variance | | :--- | :--- | :--- | :--- | | GAAP Earnings | $44,739 | $31,720 | +$13,019 | | Adjusted EBITDA | $78,326 | $65,820 | +$12,506 | - Customer margin increased by $14.4 million, largely due to a $23 million annual rate increase in the Pennsylvania jurisdiction[36] - The company recovered approximately $4.6 million from the Pennsylvania weather normalization adjustment (WNA) mechanism, which helped mitigate the impact of warmer weather[36] - The segment's effective income tax rate was reduced due to increased tax deductions related to repairs and maintenance expenditures, following updated IRS guidance[38] Consolidated Financial Statements Summary of Operations Q2 consolidated operating revenues decreased to $629.9 million due to lower Utility revenues, but operating income increased to $250.6 million from $221.4 million, resulting in higher net income of $166.3 million Consolidated Operations Summary - Three Months Ended March 31 (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Operating Revenues | $629,939 | $717,261 | | Total Operating Expenses | $379,316 | $495,884 | | Operating Income | $250,623 | $221,377 | | Net Income | $166,272 | $140,880 | Consolidated Balance Sheet As of March 31, 2024, total assets increased to $8.68 billion from $8.28 billion, driven by Net Property, Plant, and Equipment, with Total Comprehensive Shareholders' Equity growing to $3.30 billion Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 | Sept 30, 2023 | | :--- | :--- | :--- | | Total Assets | $8,677,025 | $8,280,260 | | Net Property, Plant and Equipment | $7,507,507 | $7,299,862 | | Total Liabilities | $5,373,552 | $5,316,884 | | Total Comprehensive Shareholders' Equity | $3,303,473 | $2,963,376 | Consolidated Statement of Cash Flows For the six months ended March 31, 2024, net cash from operations decreased to $586.3 million, while cash used in investing remained flat and cash used in financing significantly decreased to $107.8 million Cash Flow Summary - Six Months Ended March 31 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $586,261 | $711,209 | | Net Cash Used in Investing Activities | ($483,147) | ($484,649) | | Net Cash Used in Financing Activities | ($107,792) | ($292,745) | | Net Decrease in Cash | ($4,678) | ($66,185) | Operational Data and Outlook Key Operational Statistics Q2 FY2024 saw Appalachian gas production grow 10% to 102.9 Bcf and Gathering volumes increase 15% to 125.6 Bcf, while Pipeline and Storage throughput decreased 3.5% and Utility throughput declined 2% Q2 Operational Volume Changes (YoY) | Segment | Metric | Q2 2024 (MMcf) | Q2 2023 (MMcf) | % Change | | :--- | :--- | :--- | :--- | :--- | | Exploration & Production | Production | 102,883 | 93,241 | +10.3% | | Gathering | Volume | 125,565 | 109,344 | +14.8% | | Pipeline & Storage | Throughput | 223,529 | 231,700 | -3.5% | | Utility | Throughput | 54,183 | 55,323 | -2.1% | Hedging Summary The company employs a robust hedging program, with 147 Bcf of natural gas production hedged for the remainder of FY2024 and significant positions extending through FY2028 to manage commodity price risk - For the rest of FY2024, 147.0 Bcf is hedged through a combination of swaps, collars, and fixed-price sales[84] - For FY2025, the company has hedged 221.5 Bcf, with NYMEX swaps averaging $3.50/MMBTU and collars providing a floor of $3.49/MMBTU[84] - Hedging extends out to fiscal 2030, demonstrating a long-term strategy to lock in prices and reduce volatility[84]