National Fuel Gas Company

and welcome to the National Fuel Gas Company Q2 Fiscal 2024 Earnings Conference Call. My name is Charlie and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypads. I'll now hand over to our host, Natalie Fisher, Director of Investor Relations. Natalie, please go ahead.

Thank you, Charlie, and good morning. We appreciate you joining us on today's conference call for 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 Lois, President of Seneca Resources and National Fuel Midstream. At the end of the prepared remarks, we will open the discussion to questions. The second quarter fiscal 2024 earnings release and May 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 views. 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. With that, I'll turn it over to Dave Bauer.

Thank you, Natalie. Good morning, everyone. Last night, National Fuel reported solid second quarter results that are yet another great indicator of the strong long-term outlook for the company. Adjusted operating results were $1.79 per share, an increase of 16% from the prior year's second quarter. The combination of significant growth in our regulated businesses, which delivered a 36% increase and earnings per share, along with double-digit growth in Seneca's production and the gathering segment's throughput, drove the increase. While natural gas prices were a headwind during the quarter, our longstanding hedging program helped mitigate this impact. Tim and Justin will hit on the details of the quarter and the near-term outlook, but I want to take a few minutes to highlight the long-term opportunity set for national fuel. Last night, we published a major refresh of our investor relations slide deck. The goal of this update is to highlight what we think is a very compelling value proposition, one that delivers strong investment returns relative to both our peers and the broader market, generates significant expected long-term growth in earnings and free cash flow, and returns capital to shareholders through both our longstanding dividend and opportunistically through our recently announced share buyback program. The foundation for this is our integrated model, with each of our businesses contributing to this simple value proposition. As we saw this past quarter, much of our near-term growth will occur in our regulated utility and pipeline businesses, where rate-making activity is expected to drive tangible increases in both earnings and free cash flow. This past February, our FERC-regulated supply corporation subsidiary reached a settlement with its shippers to resolve the rate case we filed last summer. New rates designed to increase annual revenues by $56 million, or about 15% of last year's total revenue in the pipeline and storage segment, went into effect February 1st. No parties opposed the settlement, so we expect FERC will grant final approval of it in the coming months. There is no required stay-out period, so we can file for another rate increase at any time. Given the level of modernization investment we expect at Supply Corp, along with the increasing cost of complying with new regulations, I expect we'll likely file another rate case within the next year. At the utility, as you know, we settled our Pennsylvania rate case last summer, and higher rates went into effect in August. We realized the bulk of the expected $23 million increase in the first half of the fiscal year which corresponds to the winter heating season. Importantly, our rate structure now includes a weather normalization clause, which, like the mechanism we have in New York, should lessen the margin volatility we've experienced in recent years in Pennsylvania due to temperature fluctuations. Switching to New York, last fall we filed a rate case that requests an $89 million increase in annual revenue. Confidential settlement discussions have commenced and are progressing. While there isn't much we can say at this point, we are working diligently through the process with staff and the parties. Rates are expected to go into effect October 1st of this year, and by our next call, I hope to have a more fulsome update, including the impact on fiscal 2025 and beyond. Added together, these three rate proceedings will have a significant impact on the near-term financial performance of our regulated businesses. Longer term, we have no shortage of investments to make. At the Utility and Supply Corp, we have well over a decade of modernization investments in front of us. These investments have the potential to deliver mid to high single-digit growth and rate base, which in turn drives higher earnings and cash flows. In addition, we continue to develop potential expansions of our FERC-regulated assets, which provides additional upside. The Tioga Pathway Project is a great example of this, and I'm optimistic we'll have additional opportunities over time. One quick note on the status of the Tioga project. We're making good progress with it and expect to file our FERC application this summer for a late calendar of 2026 and service day. Moving to our non-regulated operations, I'm very happy with the progress Seneca has made with its ongoing transition to an eastern development area focus program. We started this process about a year ago and have since turned in line more than 20 wells in the EDA. As you can see on page 16 of our slide deck, These wells continue to demonstrate best-in-class results among our peers. Based on initial results, we expect our EDA wells will be twice as productive as those in our legacy western development area. Consequently, over the next few years, we expect to modestly grow production while decreasing the amount of capital we deploy in Seneca's development program. On top of the improved capital efficiency of Seneca's standalone program, our integrated approach to developing our assets drives further cost structure improvements. While many of our peers divested midstream assets or pay significant gathering costs to third parties, from the beginning, we believe that operating an integrated gathering and upstream company is value-additive. The ability to design our development program to maximize consolidated returns allows us to deploy capital more productively, which leads to a best-in-class cost structure and positions that combine Seneca and NFG midstream to generate free cash flow through nearly all natural gas price environments. We all know natural gas prices have been under pressure, but looking forward, I'm optimistic on the direction of travel. On the demand side, new energy facilities are on the immediate horizon, with significant growth coming as soon as next year. Longer term, I expect electricity demand will continue to grow, driven in large part by the massive build-out of data centers and the unshoring of manufacturing and other industrial processes, all of which need a reliable, cost-effective source of energy. Natural gas is the clear solution and will play a pivotal role in meeting these increasing energy demands, both domestically and abroad. The industry clearly has the resource to meet this increased demand, but the current regulatory environment makes building new infrastructure challenging. As a result, it seems unlikely supply and demand will be completely in sync, which could lead to significant volatility in prices. We continue to believe hedging through the cycles is the right way to navigate this potential for volatility. We typically hedge about two-thirds of our production as we move into the fiscal year, so we still have a good amount of upside should prices run. In recent months, we've taken advantage of the contango strip to add several new hedge positions at prices well above what we've seen this year. Predictability and near-term pricing gives greater certainty to a growing base of free cash flow at Seneca and positions us to build upon our impressive dividend track record, which we've paid for over 120 years and increased in each of the last 53. It also gives us the confidence to be opportunistic and return additional capital to shareholders through share repurchases. To that end, in March, we initiated a modestly sized $200 million buyback program. Given the strength of our balance sheet and the positive outlook for our integrated businesses, we see significant long-term value in national fuel shares. Yes, near-term natural gas prices are challenged, but the long-term outlook is strong, and I see this as a great opportunity to buy back shares at a low point in the commodity price cycle. To bring it all together, our value proposition is simple. Strong returns on capital driven by integration, line of sight visibility to growth and earnings and free cash flow, and a commitment to returning cash to shareholders through dividends and share buybacks. The team and I are incredibly optimistic about the future of national fuel and are intensely focused on executing our strategy and delivering tangible value to shareholders. With that, I'll turn the call over to Justin.