National Fuel Gas Company

Ladies and gentlemen, thank you for standing by. Today's conference call will begin momentarily. Until that time, your lines will again be placed on music hold. Thank you for your patience. Thank you for standing by. My name is Kayla Baker and I will be your conference operator today. At this time, I would like to welcome everyone to the National Fuel Gas Company Q3 fiscal 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and one. I would now like to turn the call over to Director of Investor Relations, Brandon Haspett. You may begin.

Thank you, Kayla, 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, Tim Silverstein, Treasurer and Principal Financial Officer, and Justin Loweth, President of Seneca Resources and National Fuel Midstream. At the end of the prepared remarks, we will open the discussion to questions. The third quarter fiscal 2023 earnings release and August investor presentation have been posted on our investor relations website. We may refer to these materials during today's call. We'd 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 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 the call over to Dave Bauer.

Thanks, Brandon. Good morning, everyone. Last night, we reported adjusted operating results for the quarter of $1.01 per share. While generally in line with our expectations, earnings were down compared to last year. Appalachian production was up 6 BCF versus last year, despite the impact of over 5 BCF of curtailments during the quarter. But this was more than offset by the loss of earnings related to our California properties that were sold last June and sharply lower natural gas prices. You'll recall that during last year's third quarter, NYMEX averaged about $7 a decatherm as compared to about $2.10 this year. Operationally, it was a good quarter across the company. Seneca continues to see excellent results from its development program, which has driven production to record levels. Cash unit operating costs were very much in line with expectations. Pricing, as I just said, was obviously a headwind for the quarter and will likely continue to be volatile through the fall. but our robust marketing and hedging portfolio minimized the impact to low in-basin pricing and limited the amount of voluntary curtailments during the quarter. Longer term, we're constructive on natural gas prices as increasing LNG export capacity that starts ramping up in the next 12 to 24 months should drive increased natural gas demand. Over time, our deep inventory of high-quality drilling locations positions us well to take advantage of higher pricing. Our midstream businesses had strong operational quarters as well. On the non-regulated gathering side, NFG midstream saw record gathering throughput from both Seneca and third-party producers. And our FERC-regulated pipelines were able to capitalize on strong interest in short-term transportation services. Over the past few months, volatility in locational pricing basis has created opportunities for our shippers, and our marketing department has done a great job optimizing the flows on our systems. Earlier this week, Supply Corp filed a rate case with FERC. The filing considers the numerous investments we've made in rate base, the overall increased expenses of our pipeline operations, and the ongoing need for supply to invest in system modernization, including both regulatory-driven and emission reductions projects. New rates will go into effect February 1st, subject to refund. As you know, we have a good history of settling our pipeline rate cases, so I'm hopeful we can reach a settlement before then. Turning to the downstream business, in June, the Pennsylvania Utility Commission approved the settlement of our recent rate case. Under that agreement, annual base rates increased by $23 million, effective August 1st. Construction season is well underway at the utility, and both jurisdictions are on track to meet their mileage replacement targets. As a reminder, we have a modernization tracker in New York that allows us to recover in near real time the investments we make in modernization through September 2024. In Pennsylvania, we plan to increase the pace of our modernization efforts and will likely seek a similar modernization tracking mechanism to begin recovering that investment. In June, our board of directors approved an $0.08 per share increase to our dividend, which continues our impressive track record. We've paid a dividend for 121 consecutive years and increased it in each of the last 53 years. This is a streak that we're proud of, and it's one we plan to continue well into the future. Based on the outlook for the business, I have every confidence we'll be able to do so. Looking to next year, midpoint to midpoint, our initial fiscal 24 earnings per share guidance is nearly 11 percent higher than our updated 23 guidance. This increase is driven by a number of factors, including higher expected production and natural gas price realizations at Seneca, higher projected gathering volumes at NFG Midstream, and the anticipated impact of the Pennsylvania and Supply Corp rate cases at the regulated companies. Tim will have more on our outlook later in the call. Consolidated capital spending next year is expected to be modestly lower than in 23. Most of the expected decreases at Seneca, where we anticipate capital, will be about 7% lower than this year. During fiscal 24, Seneca will moderate its activity level as we transition to a maintenance to low single-digit growth rate by fiscal 25. We also plan to focus our development program more heavily in the eastern development area. It's been three years since we completed our large Tioga County acquisition, and we recently closed on three additional modest acreage acquisitions in the EDA that bolstered our position. Obviously, we like what we see there. Well, results are outstanding, and we have more than a decade of high-quality inventory. So it makes sense to increase our focus on those assets. Justin will have more to say on this later in the call. Capital spending at the regulated companies is expected to increase, driven in large part by continued cost inflation, coupled with the ramp up in the Pennsylvania modernization program I referenced earlier, and the continued investment in modernization and emissions reduction projects at Supply Corp. This is a good use of free cash flow. As I've said on past calls, Growing the regulated side of the business is a priority, and investment and rate base is a great way to generate durable earnings and cash flows that support our growing dividend. In closing, we continue to see great operational results across the system. As we look to fiscal 24 and beyond, we remain focused on the efficient allocation of capital towards investments that deliver strong returns through commodity price cycles and which generate sustainable earnings and cash flows that allow us to grow our dividend further strengthen our balance sheet, and improve our overall financial flexibility. With that, I'll turn the call over to Justin.