National Fuel Gas Company

Hello and welcome to the National Fuel Gas Company Q1 Fiscal 2025 Earnings Conference Call. My name is Elliot and I'll be your coordinator today. If you would like to register a question during today's event, please press star 1 on your telephone keypad. I'd now like to hand over to Natalie Fisher, Director of Investor Relations. Please go ahead.

Thank you, Elliot, 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 today's prepared remarks, we will open the discussion to questions. The first quarter fiscal 2025 earnings call 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 its 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. Before getting into the quarter, I wanted to take a moment to recognize the team of operations employees and contractors who got us through last week's bitter Arctic blast. In the face of bitterly cold temperatures, our talented employees stepped up, as they always do, to ensure that our system, from the wellhead to the burner tip, performed flawlessly. Thank you for going the extra mile. Now to the quarter. Overall, we had a strong first quarter, with adjusted operating results up 14% over last year. As I've said on prior calls, our focus has been on execution, and our success with that across the system is evident in our results for the quarter. Of particular note, our rate-regulated subsidiaries collectively delivered approximately 30 percent growth in earnings per share. And as I'll discuss in a moment, the positive outcomes in rate proceedings at distribution and supply corporation over the past 18 months gives us line of sight on continued long-term growth in these businesses. On the non-regulated side of the company, our upstream and gathering businesses once again posted solid operating results. During the quarter, production was up 6% sequentially, and the strength of our hedge book more than mitigated the drop in pricing we experienced compared to last year's first quarter. And over the last six weeks, gas pricing has materially improved, providing momentum for the balance of the year. At the same time, Seneca's operational success is driving continued improvement in the capital efficiency of our development program. As we've discussed on recent calls, Seneca's transition to the eastern development area has been their principal area of focus. The results we're seeing continue to exceed our expectations, which gives us further confidence in the strength and durability of these assets. Since fiscal 2023, capital expenditures are down 14%, while production is up 12%. These capital efficiency trends are best in class, unmatched by any of our peers in Appalachia, and I'm happy to say we expect to see still further improvement in the years ahead. Justin will have more on this later in the call. Switching back to the regulated side of the company, in December, the Public Service Commission approved the joint proposal that we filed in September to settle our New York utilities rate case. This settlement caps off a period of highly impactful rate-making activity across the system. Collectively, our New York and Pennsylvania utility rate cases, along with the settlement in our Supply Corp rate case last February, are expected to provide in excess of $130 million of additional margin compared to fiscal 2023. The New York rate settlement, which extends through fiscal 2027, is a good outcome, both for National Fuel and our customers. The allowed rate of return on equity is 9.7% on a 48% equity layer. which is a significant improvement over the 8.7% and 43% in our prior rate case. The settlement keeps the margin protection items that we've had in the past, including weather normalization, revenue decoupling, and our large volume customer revenue tracker. And it also adds an uncollectible expense tracker for the first two years of our settlement. As a multi-year agreement, we will have two additional rate increases in 2026 and 2027 to account for our ongoing modernization spending, as well as expected inflationary increases in our operating costs. This gives us great visibility to continued earnings growth in our New York utility. And it's important to note that even with these increases, our delivery rates will still be amongst the lowest in the state, which is obviously great for our customers. From a policy standpoint, the record in the case and the Commission's unanimous approval of the joint proposal clearly shows their support for natural gas utilities in New York State. Of particular note, the Chairman of the Commission emphasized the importance of our continued investment in the modernization of our distribution utility infrastructure. Despite the rhetoric from elected officials, it's clear that the state's energy experts see a long future for natural gas in New York. Switching to our Pennsylvania utility, we recently received approval to implement a distribution system improvement charge, or DISC, which is the Pennsylvania Commission's version of a modernization tracking mechanism. We're permitted to begin the surcharge this month, and though the impact will be small in the first year, I expect it to grow over the next few years as we make ongoing investments in our distribution system. In our pipeline and storage business, the Tioga Pathway project continues to move ahead according to schedule, and we expect FERC to issue its environmental assessment in the coming months, which is a key milestone for the project. As a reminder, this 190 million a day project will provide an important outlet for Seneca's growing EDA production. In addition, at our Empire pipeline, we've had constructive discussions with our shippers on amending our existing rate settlement, which currently requires Empire to file a rate case by the end of April. Based on these discussions, we're hopeful that we'll be able to submit a negotiated settlement extension for FERC approval in the next month or so. Taken together, the multi-year New York settlement and the Pennsylvania disk, along with future rate-making activity at Supply Corp, and additional pipeline expansions like Tioga Pathway are expected to deliver continued growth in the coming years. Turning to the broader industry, the outlook for natural gas is excellent. During winter storm ENSO, national daily demand reached record levels for two consecutive days. Colder weather, along with increased industrial and power generation demand, is contributing to an expected storage withdrawal for the month of approximately one TCF, which in addition to being a record pull on storage, also helps to remove some of the overhang on pricing from recent high inventory levels. Prices for the remainder of fiscal 25 have hovered in the $3.50 area, which, absent abnormally warm weather, feels sustainable given the current level of production and the expectations for demand growth stemming from LNG, onshoring of industry, and the continued growth in gas-fired generation. This improved outlook bodes well for national fuel. At the current NYMEX Strip, And assuming the hedge position set forth in our IR deck, we expect significant free cash flow in our non-regulated businesses, potentially upwards of $1 billion over the next three years. Over the longer term, there's clear cause for optimism. The new administration in Washington is unquestionably supportive of natural gas. And while it's still early innings, I'm hopeful they'll work with Congress to address the permitting and regulatory reform the industry so urgently needs. Additionally, as we've all read in the press, the expected growth in power demand from data centers and artificial intelligence is impressive. And without question, natural gas as a highly reliable base load fuel source will play a critical role in meeting this growing need for new generation. National Fuels operating footprint in Pennsylvania is an attractive location for data centers. It has large amounts of available land, is situated atop an abundant source of natural gas, and its relatively cooler climate can help temper power consumption. As an integrated natural gas company, National Fuel is uniquely positioned to support the needs of data center developers and power generation facilities. Our highly interconnected pipeline infrastructure, long track record of executing on expansion projects, and decades of high-quality development inventory allows us to offer a range of services to developers from routine transportation service to a fully integrated solution underpinned by long-term natural gas supply contracts. Like many of our peers, we are in active discussions with key players in the data center value chain and are optimistic that this will drive additional growth opportunities in the coming years. Putting it all together, I'm excited for the future of national fuel. We have a great collection of assets located in the lowest cost basin in North America, a great team that's focused on operational excellence and a strong investment-grade balance sheet, all of which positions us to deliver significant value to shareholders over the longer term. Before turning the call over to Tim, I want to take a moment to recognize Ron Kramer, our Chief Operating Officer, who, as we previously announced, is retiring tomorrow. Ron has had an incredible 45-plus year career with the company, and I wish him nothing but the best in retirement. With that, I'll turn the call over to Tim.