National Fuel Gas Company

Hello all and welcome. My name is Brika and I will be your conference operator for today. At this time, I would like to welcome everyone to the Q4 2022 National Fuel Gas Company Earnings Conference Call. All lines have been placed on mute today to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your touch phone keypad. If you would like to withdraw your question, please press star two. And for operator assistance at any time, please press star zero. Thank you. Brandon Haskett, Director of Investor Relations, you may begin your conference.

Thank you, Barica, 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, Karen Camiolo, Treasurer and Principal Financial Officer, and Justin Loeth, President of Seneca Resources and National Fuel Midstream. At the end of the prepared remarks, we will open the discussion to questions. The fourth quarter fiscal 2022 earnings release and November 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 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. With that, I'll turn it over to Dave Bauer.

Thanks, Brandon. Good morning, everyone. National Fuel ended fiscal 22 with a great fourth quarter. Adjusted operating results were right in line with our expectations at $1.19 per share, a 25% increase over last year. Looking back, fiscal 22 was another exceptional year for National Fuel. Operationally, we had multiple successes, including completing the FM 100 project on time and under budget, growing Seneca's net production by 8%, and replacing more than 150 miles of pipe as part of the utility's modernization program. Strategically, we tightened the focus of our company, selling our California assets at the top of the market. And we also made significant progress on sustainability initiatives. All of these great accomplishments position the company extremely well for the future. While the outlook for the business is strong, we aren't immune to the challenges facing the broader economy. During the year, inflationary pressures and an extremely tight labor market impacted us across our business segments. And as we discussed last quarter, we'll likely have a continuing impact in 2023. Seneca's fourth quarter capital came in a little higher than expected. While some of this was timing between fiscal years, the largest factor was related to increased costs associated with the spot frack crew that is completing two pads in Tioga County ahead of the winter heating season. We've taken several steps to mitigate future inflationary pressures on our upstream capital program, and Justin will have more to say on this later in the call. Regarding the labor market, like most other companies, it's a challenge to attract and retain key talent. In response to these conditions, we've adjusted our compensation practices to bring them more in line with the current market. As a result, we've seen an increase in O&M expense, particularly in our regulated businesses where we have the largest number of employees. These inflationary challenges, along with increased rate base from our modernization program, are expected to lead to rate cases in both divisions of our utility in the coming years. To that end, last week, the Pennsylvania Division of our utility filed its first rate case since 2006. A summary of the filing is included on page 41 of our updated slide deck. In short, we're asking for a $28 million annual rate increase commencing August 1st, 2023. We're also looking to implement a distribution system improvement charge mechanism, or DISC, and a weather normalization clause in our tariff. The DISC is a long-standing modernization tracking mechanism that is commonly used by utilities in Pennsylvania. Like the system modernization tracking mechanism in New York, the DISC would allow us to recover the cost of our Pennsylvania modernization program in a more real-time fashion. The rate proceeding will play out over the next few quarters, and it should be relatively straightforward. We already have the lowest delivery rates in the state by a wide margin. And even after a full $28 million increase, our delivery rates will still be the lowest in the state. We also expect rate cases in our FERC regulated pipeline subsidiaries over the next few years. Under the terms of the settlement agreements governing their rates, Supply and Empire are both required to come in for new rates in 2024 and 2025, respectively, though they can both file earlier than that if they need to. Switching to the outlook for our fiscal 23, the recent drop in the natural gas forward curve has led us to revised guidance to a new range of $6.40 to $6.90 per share. At the midpoint, this is an $0.85 per share reduction, almost all of which is driven by our revised natural gas price assumptions. Despite the reduction, our $6.65 midpoint represents a 13 percent increase in expected earnings year over year. Our longstanding hedging program mitigated a large portion of the drop in expected pricing. Our fiscal 23 production is roughly two-thirds hedged, which is right in line with our stated policy. As a reminder, that policy gives us a lot of latitude, allowing us to hedge between 40 and 80 percent of our production in the current fiscal year. Over the past few years, we've trended closer to the high end of that range. And this was the result of the natural gas pricing outlook that was in place at the time we did the hedges, as well as a desire to have greater certainty around cash flows to help support our investment grade credit rating. Looking forward, we still believe hedging is an important tool to provide downside protection, and I expect Seneca will continue to be active with its program. However, with the improved outlook for natural gas, it's very possible our hedge percentages in fiscal 24 and beyond will trend a bit lower within our policy range. In addition, we've been focused on using more costless collars, which allow us to participate in the upside if commodity prices increase. On the capital spending side of our forecast, the outlook is unchanged. Considering our revised earnings guidance, we now expect funds from operations will exceed capital spending by $325 million for fiscal 23. Karen will have more details on our earnings and cash flow expectations later in the call. Looking beyond 23, the significant investments we've made across our four lines of business should lead to a sustained period of significant free cash flow generation. This puts us in the enviable position where we can simultaneously deleverage our balance sheet, return capital to shareholders through our longstanding dividend, and pursue additional future growth opportunities. National Fuels Outlook is further strengthened by what I see as a growing appreciation of the importance of natural gas. We all know the affordability, resilience, and reliability of natural gas are unmatched by any other form of energy today. At a time when energy security and affordability have never been more important, it's obvious that natural gas and its resilient delivery system needs to be a central component in an all of the above approach to energy policy. One need only look to the challenges facing Europe and California to see the perils of going all in on intermittent resources. Nevertheless, we continue to see policymakers in New York and elsewhere pushing the narrative that growth in wind and solar alone can meet the needs of a fully electric world, including for winter heating and cold climates like Buffalo, without sacrificing affordability and reliability. They fully believe the electric grid can nearly triple in size without impacting costs, and they have complete faith that massive amounts of dispatchable emissions-free generation solutions will be developed when no such technologies exist today at scale. The gap between aspirations and reality is truly remarkable. National Fuel will continue to advocate on behalf of our customers for a more reasonable approach, one that continues to leverage our existing natural gas infrastructure, saving customers money without sacrificing energy reliability. Lastly, before closing, a few words on ESG. In September, we published our third annual corporate responsibility report, which highlights our substantial environmental, social, and governance efforts. In it, you can see that we had another great year with our ESG initiatives. I'm particularly proud of the progress we've made towards our 2030 methane intensity reduction targets, as well as Seneca's responsibly sourced gas certifications. In addition, system-wide, the team did a great job advancing our safety culture. Without a doubt, we're focused on adhering to the guiding principles that are at the core of what makes national fuels successful. In conclusion, fiscal 22 was a great year for National Fuel, and I'm excited about our future. We're in a great position to generate significant and durable free cash flow across our businesses. And combine this with the strength of our investing-grade balance sheet and our significant footprint of assets in one of the lowest emissions intensity basins in the world, and I firmly believe the outlook for National Fuel is as strong as it's ever been. With that, I'll turn the call over to Justin.