National Fuel Gas pany(NFG) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - National Fuel Gas Company reported adjusted operating results of $1.68 per share, a 25% increase year-over-year [7][50] - GAAP earnings were $1.82 per share, with a notable non-cash benefit of $0.16 per share related to a tariff filing [50][51] - Free cash flow from operations is expected to be approximately $290 million, with total excess cash projected around $475 million [23][58] Business Line Data and Key Metrics Changes - Seneca Resources achieved record production of 87.1 Bcfe, a 2% sequential increase, with earnings growing by 50% year-over-year [8][36] - The pipeline business saw a 14% increase in revenues, driven by the FM100 project, which contributed $35 million in incremental expansion revenues [14][15] - Utility operations experienced growth in customer margin despite a reduction in PA rates, attributed to system modernization efforts [16][18] Market Data and Key Metrics Changes - The company revised its capital spending guidance to a range of $475 million to $550 million, reflecting increased completions activity and ongoing cost inflation [12][44] - Natural gas price forecasts were increased to an average of $7.25 per MMBtu for the remainder of the year [53] - The company expects unit costs to decrease by at least $0.15 per Mcfe annually following the divestiture of California properties [55] Company Strategy and Development Direction - The company plans to focus on reducing leverage and improving credit metrics, aiming for a mid-BBB credit rating [24][62] - Continued investment in modernization of utility and pipeline businesses is prioritized to enhance system reliability and reduce carbon emissions [25][30] - The company is exploring opportunities for modest pipeline expansions and is optimistic about future projects [26][70] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the current oil price environment, viewing it as an opportune time to divest non-core assets [9][10] - The regulatory environment in California is seen as a barrier to growth, prompting the sale of California operations [10][11] - The company anticipates significant free cash flow generation, providing flexibility for capital deployment and shareholder returns [63] Other Important Information - The company is experiencing inflation across materials and services, with costs approximately 10% higher than the previous year [17][45] - The sale of California properties is expected to close on June 30, with net proceeds estimated between $175 million to $200 million [11][34] - The company has ample access to short-term liquidity, supported by a new $1 billion revolving credit facility [60] Q&A Session Summary Question: Discussion on hedging strategy and sensitivity to natural gas prices - Management indicated that the hedge position for fiscal '23 will be lower, increasing exposure to upward price movements [66][67] Question: Long-term earnings growth drivers and debottlenecking opportunities - Management highlighted mid to high single-digit production growth potential and ongoing modernization efforts as key growth drivers [68][69] Question: Capital allocation and targeted debt levels - Management aims for an equity to capitalization ratio in the low to mid-50s and is open to returning capital to shareholders once debt targets are met [78][79] Question: Utility business growth outlook and rate case considerations - Management confirmed low-single digit growth expectations for the utility business, with ongoing modernization supporting rate base growth [91][95] Question: Cost inflation specifics and contracted services - Management noted significant inflation in steel costs and other services, but existing contracts provide some stability [108][110]