National Fuel Gas Company

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 National Fuel Gas Company Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Ken Webster, Director of Investor Relations. Please go ahead.

Ken Webster Thank you, Kenzie, and good morning. 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 Aaron Camiolo, Treasurer and Principal Financial Officer, and John McGinnis, President of Seneca Resources. At the end of the prepared remarks, we will open the discussion to questions. The first quarter fiscal 2020 earnings release and January 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. National Fuel will be participating in the Scotia Howard Wheel Energy Conference in March. If you plan on attending, please contact me or the conference planners to schedule a meeting with the management team. With that, I'll turn it over to Dave Bauer.

Thank you, Ken. Good morning, everyone. Overall, the first quarter was a good one for National Fuel. Earnings were right in line with our expectations, and from an operations perspective, we continue to execute on the plans we've laid out in prior quarters. At Seneca, production for the quarter was up nearly 20% over last year. Seneca continues to see excellent results from the Marcellus and Utica wells it brought on production in recent quarters. Our team has done a great job cracking the code on our Utica development program, both in the WDA and at Track 007 in Tioka County. It's also worth highlighting our California oil production, which was up about 5% over last year, on the strength of our recent Pioneer and 17N development programs at midway sunset. Lower natural gas prices are obviously a concern. Earlier this month, we dropped a rig and are currently operating two rigs in our western development area. Given the challenging pricing environment, as we said in last night's release, we intend to make further reductions in Seneca's activity level in the coming quarters. John will have more to say on Seneca's program later on the call. Our lower E&P activity level will also lead to a reduction in Seneca-related gathering capital at NFG midstream. Having said that, as you can see in last night's release, we're raising the midpoint of our gathering capital spending guidance for the year by $10 million. This increase is driven by capital expenditures related to a new gathering agreement with a third-party producer in the vicinity of our Trout Run system in Lycoming County. This is a nice little project that is expected to add roughly $5 to $10 million per year in third-party revenues starting in fiscal 2021. It's a great example of how we can optimize our existing assets to generate new growth opportunities. The first quarter was fairly routine for our regulated businesses. The utility segment continues to perform well, with earnings up a penny a share over last year. In the fall, we wrapped up another successful utility construction season, and as we have for the past several years, we continue to allocate capital to the modernization of our system. For the calendar year, our modernization program replaced over 150 miles of older distribution pipeline, including 113 miles in New York, where we have a regulatory tracking mechanism that provides us with timely recovery of this rate-based investment. The warmer weather we've experienced in the Northeast will likely lead to lower second quarter earnings in our Pennsylvania jurisdiction, where we don't have a weather normalization clause. But on a consolidated basis, the impact shouldn't be overly significant. Our customers should see a real benefit from low natural gas prices. We expect winter heating bills will be more than 10% lower than last year. In the pipeline and storage segment, though earnings were down due to the lingering effects of the Keyspan contract expiration, looking to next year and beyond, the outlook for this business is excellent. The Empire North and FM100 projects will add a combined $60 million in incremental annual revenue over the next few years. both projects are proceeding according to plan. Empire North is under construction and on track to be in service late summer or early fall of this year. If FERC stays on its expected timeline, we expect a certificate for the FM 100 project later in the fiscal year. Supply Corp continues to work through its rate case for FERC. We've held multiple settlement meetings with parties and I'm optimistic we'll reach a settlement. Our balance sheet is in great shape, and our reduction in spending at Seneca will help ensure it stays that way. Just recently, S&P affirmed our investment-grade credit rating and maintained a stable outlook on our credit. In the near term, we expect a modest outspend as we build the Empire North and FM100 projects, but beyond that, we should be generating significant free cash flow. 2020 is looking to be a challenging year for natural gas producers, but National Fuel is well-positioned. We're financially strong, and our integrated yet diversified business model provides a large measure of stability to earnings and cash flows. Looking to the future, though we're slowing the pace of our E&P program to match the reality of natural gas prices, our regulated segments remain on track to see meaningful growth. With that, I'll turn the call over to John for an update on Seneca's operations.