National Fuel Gas Company Q1 2021 Earnings Conference Call February 5, 2021
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National Fuel Gas Company
Q1 2021 Earnings Conference Call
February 5, 2021National Fuel Gas Company – Q1 2021 Earnings Conference Call, February 5, 2021
CORPORATE PARTICIPANTS
Kenneth Webster, Director of Investor Relations
David Bauer, President and Chief Executive Officer, National Fuel Gas Company
Jonathan McGinnis, President, Seneca Resources Company, LLC
Karen Camiolo, Treasurer and Principal Financial Officer, National Fuel Gas Company
CONFERENCE CALL PARTICIPANTS
Brian Singer, Goldman Sachs
Asit Sen, Bank of America Global Research
Holly Stewart, Scotia Howard Weil
Gordon Loy, Raymond James
PRESENTATION
Operator
Welcome to the Q1 2021 National Fuel Gas Company Earnings Conference Call.
At this time, all participants’ lines are in a listen-only mode. After the speakers' presentation, there will be a
question-and-answer session. To ask a question during the session, you will need to press star, one on
your telephone. Please be advised that today’s conference is being recorded. If you require any further
assistance, please press star, zero.
I would now like to hand the conference over to your speaker today, Ken Webster, Director of Investor
Relations. Thank you. Please go ahead, sir.
Kenneth Webster
Thank you, Tamara, 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 John McGinnis, President of Seneca
Resources. At the end of the prepared remarks, we will open the discussion to questions.
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The first quarter Fiscal 2021 Earnings release and February 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.
With that, I’ll turn it over to Dave Bauer.
David Bauer
Thanks, Ken. Good morning, everyone.
National Fuel’s first quarter was a great start to our fiscal year, with operating results up 5% year-over-year.
Operationally, we had a really strong quarter, particularly at Seneca and NFG Midstream, where, in spite
of four Bcf of pricing-related curtailments, production and the associated gathering throughput was up 36%
over last year. Most of that growth was the result of last year’s Tioga County acquisition, which continues
to trend better than our initial expectations.
The team has been focused on high-grading our consolidated development program, optimizing our firm
sales and transportation portfolio, and driving down unit costs. You can see our success in Seneca’s
updated guidance. We increased the midpoint of our production range and lowered our forecasted unit
costs all while holding our capital range constant.
Seneca added a second drilling rig in January, with first production from it scheduled to come online in early
Fiscal 2022. The goal is to fill our Leidy South capacity soon after it goes in service, and thereby capture
the premium winter pricing in the East Coast markets. The second rig will focus principally on Tioga County,
where at $2 netback prices, our consolidated returns on Utica wells are north of 65%.
Looking beyond Fiscal ’22, absent new firm takeaway capacity, Seneca’s program will likely average
between 1.5 and two rigs, which will keep our production flat to slightly growing. Our focus will be on
generating free cash flow. As you can see from our updated slide deck, at a $2.75 NYMEX price, we expect
our upstream and gathering businesses will generate approximately $115 million to $125 million in free
cash flow in 2021. As our production grows in ’22 and ’23, we expect this level of free cash flow to similarly
increase.
Obviously, our ability to generate cash is heavily dependent on the direction of commodity prices. As you
know, we have an active hedging program, and continue to methodically layer in hedges with the goal of
protecting our investment and PDPs and locking in the strong rates of return generated by our unique
integrated development program.
Switching gears, our FERC-regulated pipeline businesses had a great quarter, with earnings up nearly
25%. This was driven by the Supply Corporation rate case settlement that went into effect last February,
coupled with the new revenues from our Empire North expansion project that was placed in service at the
end of Fiscal ’20.
Our FM100 expansion and modernization project is on track to continue this momentum into Fiscal ’22 and
’23. As a reminder, this project will add $50 million in annual revenue once it goes in service, which I expect
will occur late in this calendar year. We’re waiting on a few remaining state permits, which we anticipate
receiving in the next few weeks. All of the necessary federal permits have been received. We’ve awarded
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the job to contractors, and ordered the necessary long lead time items, including pipeline and compressor
units. Once all permits are in hand, we’ll file for a notice to provide with FERC, and start construction shortly
thereafter.
With respect to the recent change in leadership with FERC, we don’t see any cause for concern on FM100.
As you know, FM100 is a companion project to Transco’s Leidy South expansion, and though the latter
project is a little ahead of ours in the permitting process, FERC views them as essentially one project. Just
last week, Transco received a notice to proceed from FERC for a portion of their project, which gives us
confidence that ours will receive similar treatment when we file for our notice to proceed in the next few
weeks.
Switching to the utility; warmer than normal weather and the impact of the pandemic on our operating costs
weighed on earnings for the quarter. These were somewhat offset by the continued growth in revenues
from our New York jurisdictions system modernization tracking mechanism. As we continue to face the
COVID pandemic, the safety and wellbeing of our employees, customers, and communities are our highest
priorities. We remain focused on business continuity and providing the safe and reliable service our
customers expect. Our employees have done a terrific job and I’d like to say thank you to them for all their
hard work.
With the change in administration in Washington, there’s been increased focus on the role of natural gas in
the nation’s energy complex. Natural gas has already played a significant role in the de-carbonization of
the economy. The displacement of coal-fired power generation and fuel switching for residential heating
drove a 12% reduction in total U.S. greenhouse gas emissions since 2008.
The importance of natural gas to the economy cannot be understated. For example, in our New York utility
service territory, nearly 90% of households use natural gas to heat their homes; and on a day like today,
nearly 50% of New York State’s electricity is being generated using natural gas. In the near term, that role
is not going to change overnight; but longer term, it’s clear we’re moving towards a lower carbon world. I
firmly believe the cost and reliability advantages provided by natural gas will ensure it has a future serving
the energy needs of the country.
Heating a home in the Northeast using natural gas costs less than half of what it would using electric heat.
And LDCs are incredibly reliable. This past winter, natural gas service at our utility was available 99.9% of
the time. It makes little sense to forfeit these benefits in favor of more expensive, less reliable alternatives.
But to make sure we have a place in the energy complex, we must dramatically lower our emissions
footprint, and National Fuel is committing to do so.
How will we get there? Well, in my view, there are three main avenues to pursue. First is improving the
emissions profile of our operations. We’ve already made great progress here. For example, through our
modernization program, greenhouse gas emissions on our utility system have dropped by more than 60%
from 1990 levels. But we’re not done; at the current pace of the program, we expect a more than 80%
reduction by 2040.
Second is conservation. We have to encourage our customers to use less; thankfully, the State
Commissions have given us the tools to do so. Our conservation incentive program has resulted in end-
use emissions reduction of over 1.3 million metric tons since its implementation in 2007.
Lastly, we need to embrace technology across all aspects of our business, including our own operations,
the equipment used by our customers, and alternative fuels like RNG and hydrogen. We’re proud to be an
anchor sponsor of the Low Carbon Resource Initiative, which is researching new technologies that lower
the carbon footprint of pipelines, LDCs and their customers.
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I’m excited for the future of natural gas. We have some work to do, but at the end of the day, I’m very
confident natural gas will have a prominent role in meeting our country’s energy needs, and that National
Fuel’s operations, from the wellhead to the burner tip, will remain an important part of the energy solution.
In closing, National Fuel had a great first quarter. As I’ve said on prior calls, Fiscal ’21 should be a big
growth year for us. The first quarter delivered on that expectation, and the outlook for the remainder of the
year continues to be strong. Gas prices have been volatile, but our strong hedge book helps protect from
those swings.
As we look towards ’22 and beyond, we’re well-positioned for both growth and meaningful cash flow
generation, a combination that many of our peers cannot match. Our balance sheet is in great shape and
our integrated yet diversified business model provides a level of downside protection to help us navigate
the ebbs and flows that we’ll inevitably face.
Before turning the call over to John, I want to take a minute to acknowledge two upcoming retirements. As
you’ve probably seen, John McGinnis is retiring effective May 1 of this year. Over the course of his 14 years
with the Company, John has been instrumental in the growth of Seneca, taking it from a small conventional
operator that produced less than 50 Bcfe annually, to the key player in the Appalachian Basin that Seneca
has become.
Also, John Pustulka, our Chief Operating Officer, is retiring effective May 1. There isn’t an individual that
I’ve met who’s been more dedicated to the Company and the industry. Over his 47-year career, he led by
example, and was a main driver of our corporate culture, particularly as it relates to employee safety.
I wish them both the best in retirement. While they’ll be missed, I’m certain the Company won’t miss a beat
under the leadership of Ron Kraemer, who will assume the role of COO, and Justin Loweth, who will
become the new President of Seneca.
With that, I’ll turn the call over to John McGinnis for an update on our upstream operations.
Jonathan McGinnis
Thanks, Dave, and good morning, everyone.
Seneca had a strong first quarter. It produced a Company record, 79.5 Bcfe, despite approximately four
Bcf of price-related curtailments in October and early November. Our nearly 40% production increase in
Appalachia was largely due to the Company’s Fourth Quarter Fiscal 2020 acquisition of upstream assets
in Tioga County, as well as production from our ongoing development program. We continue to see the
benefits of our recent acquisition, with increased scale and operational synergies driving a collective $0.10
per Mcfe decrease in G&A and LOE expenses from the prior year’s first quarter.
With about six months of operations now under our belt, we are seeing additional cost reductions above
our initial expectations. As an example, LOE reductions of over $50,000 a month have been realized by
releasing unneeded equipment rentals and contract services on the acquired assets. Additionally, we
achieved between $300,000 to $500,000 per well, and reduced water costs on our recent Tioga 007 pad
completions through the use of acquired water withdrawal points and storage facilities.
In line with our plans discussed on last quarter’s call, we added a second drill rig in early January, which
will focus on our EDA assets, including the deep inventory of acquired Utica locations in Tioga. This activity
will allow Seneca to bring online additional volumes in early Fiscal ’22, commensurate with the expected
availability of our capacity on the Leidy South project, reaching premium markets during the winter heating
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season. We expect Seneca’s other rig to remain focused in the WDA, maintaining relatively balanced
activity between these two operating areas longer term.
Although pricing in Fiscal ’21 has not been as strong as we initially projected during this winter, the supply
and demand fundamentals, weather notwithstanding, remain constructive over the next 12 to 18 months.
Looking out beyond the current year, the Fiscal ’22 strip is around $2.80 an Mcf, a price where we realize
strong returns from our Appalachia program.
As always, we have maintained our disciplined approach to hedging and are already well positioned in
Fiscal ’22 with over 180 Bcf of fixed price firm sales, NYMEX swaps, and costless collars in place. This
provides Seneca with downside protection, but leaves the potential to generate significant additional free
cash flow should prices move up. We’ll keep a close eye on pricing dynamics, and look for opportunities to
layer in additional hedges as we move through this fiscal year closer to the in-service date of Leidy South.
We are maintaining our Fiscal ’21 Capex guidance, which remains in the $350 million to $390 million range.
Based on our strong first quarter well results and solid execution by our Operations team, we are revising
our production guidance to a range of 310 Bcfe to 335 Bcfe, a 2.5 Bcfe increase at the midpoint. Most of
our production growth in Fiscal ’21 should occur during the first half of the year, with flat to slightly declining
production during the back half as we defer completion and flowback activity until the winter season, when
our new FT capacity is targeted to be in service.
For the remainder of the fiscal year, we have 186 Bcf, or around 80% of our East Division gas production,
locked in physically and financially. We have another 30 Bcf of firm sales providing basis protection, so
over 90% of our forecasted gas production is already sold. We currently estimate that we’ll have around 17
Bcf of gas exposed to the spot market, so as always, these volumes are potentially at risk of curtailment.
In California, we have around 67% of remaining oil production that’s hedged at an average price of around
$57 per barrel.
Finally, as indicated in our press release last month, our plan to retire from Seneca, effective May 1. Justin
Loweth, our Senior VP of Seneca, will be promoted to President. Justin has been with Seneca for 10 years
and has been instrumental in much of our success over the past decade, and I am confident in his ability
to lead the Company forward. We pay a lot of attention to our succession planning across the Organization,
and I am pleased to be leaving Seneca with an experienced and strong Management team.
With that, I’ll turn it over to Karen.
Karen Camiolo
Thank you, John, and good morning, everyone.
National Fuel’s first quarter GAAP earnings were $0.85 per share. When you back out items impacting
comparability, including a ceiling test charge and the impact of a gain related to the sale of our timber
properties, operating results were $1.06 per share. This increase of 5% over last year was on the strength
of our Pipeline and Storage segment results, as well as the impact of the upstream and gathering acquisition
in Appalachia. Dave and John already hit on the high level drivers, so I’ll focus on a few other details from
the quarter and discuss our outlook for the remainder of the year.
First, in line with our expectations, we closed on the sale of our timber properties in December, receiving
net proceeds of $105 million after closing adjustments. As a result, we recorded an after-tax gain of $37
million. We made the decision to divest substantially all of these properties to fund a portion of our
Appalachian acquisition. The timing of the sale allowed us to structure the transaction as a (inaudible)
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exchange, which defers a relatively sizable tax gain over the life of the Appalachian reserves that we
acquired last year.
The other large item impacting comparability during the quarter was the $55 million after-tax non-cash
ceiling test charge. Given where prices are today, we would not expect to record another ceiling test
impairment in the fiscal year.
Moving to operating results for the quarter, John and Dave hit the high points in our upstream and pipeline
businesses, so let me touch briefly on earnings at the utility, which were down $3.5 million versus last year’s
first quarter. Warmer weather, particularly in our Pennsylvania service territory, and an additional accrual
for bad debt likely to result from the pandemic impacted this business during the quarter. While we haven’t
witnessed material deterioration in customer payment trends, we are in the midst of the winter heating
season and customers are only just beginning to see larger monthly bills. As a result, we continue to
conservatively accrue additional expense to reserve against the potential for increased bad debts, and
would expect to do so at least through the remainder of the winter.
Switching to our outlook for the rest of the year, we revised our guidance range higher, now projecting
earnings to be between $3.65 and $3.95 per share, a $0.10 increase at the midpoint. This increase was
driven by strong results during the first quarter, modest decreases in Seneca’s cash unit costs, and a
reduction in our expected DD&A rate as a result of the additional ceiling test charge and reserve bookings
during the first quarter. These are expected to be somewhat offset by revisions to our commodity price
assumptions for the remaining nine months of the year, with our NYMEX natural gas guidance decreasing
to $2.75 per MMBtu and WTI guidance increasing to $52.50 per barrel. All of our other key assumptions
are largely unchanged and fully laid out in the Earnings release and investor deck, published last night.
With respect to consolidated capital spending, all of our segment ranges remain the same, and we are still
projecting between $720 million and $830 million for the fiscal year. At the midpoint of our guidance ranges,
we’d expect funds from operations to exceed our capital spending by approximately $50 million for the year.
Incorporating that with the proceeds from the sale of our timber properties, we expect to be able to cover
our dividend without any material incremental short-term borrowings. We are well hedged for the remainder
of the year, so any changes in commodity prices should have a muted impact on earnings and cash flows.
Switching to the balance sheet, we have $500 million of long-term debt set to mature in December. We
expect to access the capital markets in Fiscal 2021 to replace this maturity. With our next maturity thereafter
not until Fiscal 2023, we have a nice runway without any major refinancing requirements.
On our short-term credit facilities, we enhanced our liquidity by increasing the size of our 364-day credit
facility, extending its maturity through the end of Calendar 2022. This now gives us a billion dollars in
committed, unsecured credit facilities that are almost entirely undrawn today.
From an overall leverage standpoint, our balance sheet is in great shape. We are well within the investment-
grade target set forth by the rating agencies, and as we look to Fiscal 2022 and finish construction on the
FM100 project, we expect to see further improvement in these metrics.
In closing, we had a solid first quarter and the outlook for the year remains strong.
With that, I’ll close and ask the Operator to open the line for questions.
Operator
Thank you. To ask a question, you will need to press star, one on your telephone. To withdraw your
question, press the pound key. Please stand by while we compile the Q&A roster.
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Your first response is from Brian Singer of Goldman Sachs. Please go ahead.
Brian Singer
Thank you and good morning.
David Bauer
Morning.
Karen Camiolo
Hi, Brian.
Brian Singer
Wanted to start on FM100, but really more from an E&P perspective, as FM100 ramps up at the end of this
year. Can you talk a little bit more about what goes into the picture from a DUC, rig count, and ultimately
production perspective? You added a second rig in the Eastern development area, how did that DUCs and
rigs evolve over the year? Then importantly, should we expect that production will go up cubic foot for cubic
foot for the new capacity?
David Bauer
John, do you want to take that?
Jonathan McGinnis
Yes, I’ll take that.
You’ll see the production increase if you go to one of the slides in our deck, let me pull it up. Yes, if you go
to Slide 27 and Slide 28, you’ll sort of get a sense for what we’re looking at as we go through the remainder
of this year into next year.
The majority of the production will certainly come out of the WDA. We’re drilling around 25 wells there this
year, completing, I think, around 30. Most of it will come out of the WDA, but we will have additional available
volumes if we need them, in Lycoming and also in Tioga. We have around 100 million a day on the Dominion
line that will connect us to Leidy South; and if necessary, we can certainly utilize the production coming out
of Tioga as well. But as far as the growth profile, if you take a look at those two slides, you’ll get a pretty
good feel for how we look.
Brian Singer
Great, thank you.
Then my follow-up is with regard to some of the comments that you made on lower carbon ventures and
efficiencies. One is, you mention in your comments on convincing customers to use less, which is something
that’s been embraced on the New York side. What do you see as the range of potential impact of customer
efficiency or demand reduction in gas, whether it’s in your service areas or more broadly in the Northeast?
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Then, you talked on Slide 48 or so on renewable natural gas, which you also mentioned in your opening
comments. I wondered if you could just talk about what your key objectives are this year to promote not
only this but the other low carbon ventures and low carbon resources initiatives that you talked about?
David Bauer
Sure. With respect to efficiency gains, I think over time, a lot’s going to depend on technology from, call it,
a heating equipment perspective. Then how willingly customers are to embrace further insulation and, call
it, tightening of the envelope. Our team is busy calculating what those impacts could be, and I don’t want
to throw out a number of where we think we could get to without getting to them; but it is a meaningful
reduction, particularly on the tightening the envelope side.
When you look at some of the technologies that are coming out, whether it’s a gas-fired heat pump or a
hybrid type system that uses an air-source heat pump with supplemental gas heat, the potential for a
meaningful reduction in usage is there. You point out in New York - we have a revenue to coupling
mechanism, so we’re largely indifferent—well, not largely, we are indifferent, to our customers’ usage.
With respect to RNG, I guess in the near term, since we really are early innings on it, is first getting RNG
plants hooked up to our system so that we’re able to take the gas and use it. Then second, working with
the Commission to allow for our gas purchasing department to include RNG in our overall supply mix. Those
would be the two near-term objectives, and then obviously as we go through time and the industry becomes
more mature, it’ll go from there.
Brian Singer
Thank you.
David Bauer
Yes.
Operator
Thank you. Your next response is from Asit Sen with Bank of America. Please go ahead.
Asit Sen
Good morning. I just wanted to follow-up on Brian’s question on carbon. Dave, I appreciate all the comments
on reducing carbon intensity, and as we await more clarity on energy policy, thanks for sharing those details.
If I’m thinking about—broadly, as we find out where carbon policies evolve, near term if I’m thinking about
it, it’s conservation, and you also mention modernization. You gave details on conservation, but is there
more further opportunities on modernization that could help reducing carbon intensity?
Thinking about technology, you said RNG. Would hydrogen be a much longer-term aspiration also?
David Bauer
Yes. Well, hydrogen certainly long term would be an opportunity to reduce emissions. When you look longer
term, the best renewable generation sites happen to be very near our service territory, and so it’s certainly
possible that any excess generation from them could go towards a hydrogen-type production facility.
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In terms of modernization, on the utility side, we’ve been—well, at both utility and the pipeline side, we’ve
been at it for a couple decades in modernizing our system. I think we still have room to go, and at the end
of the day, the utility side can certainly get to an 80% reduction relative to 1990 levels. On the pipeline side,
it’s a little bit more challenging because we have stack emissions from our compressor stations that we’ve
got to address. I’m confident that over time we’ll find a solution, whether it’s new technologies, offsets, or
something else that hasn’t even been thought of.
Asit Sen
Got it. How do you view California and potential ramifications with the changes in energy policy?
David Bauer
John, do you want to take that?
Jonathan McGinnis
Yes, certainly California has a larger environmental footprint than our natural gas assets do, but we
recognize that. We actually now have a slide in our deck as well that we’re looking to replace some of our
power needs through building solar plants out there. We’ve done that at North Midway a few years ago; it’s
proven to be very successful. We’ve actually hooked up our office to solar power as well, and we’ll be
moving forward with the plant in South Midway Sunset, which is another key production operations area for
us.
Asit Sen
Thanks, John, and congrats on your retirement, and appreciate the comments that you made on
improvement in cost savings and efficiency, post-acquisition last year.
Could you comment a little bit on what you’re seeing in terms of decline rate on a combined basis? You’d
mentioned earlier the potential improvement. Also, any thoughts on service costs for the balance of the
year that you’re witnessing?
Jonathan McGinnis
You’re talking decline rates in Pennsylvania?
Asit Sen
Yes, Pennsylvania.
Jonathan McGinnis
Okay, yes, okay. It pretty much remains the same. Quarter-over-quarter, we don’t see a huge difference,
but it’s in that 20%, 23% range. Maybe a little bit lower some quarters, depending on how recently we’ve
brought on new pads. But around 20% decline rate is what we see across our Pennsylvania assets.
In terms of service costs, honestly I think they’ll remain relatively flat over the next six to 12 months. I don’t
see them going down, especially with where gas prices tend to be going, and oil prices. I think at least with
respect to Seneca, we’ll be able to keep our service costs pretty much flat.
Asit Sen
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Thanks, appreciate the color.
Operator
Thank you. Your next response is from Holly Stewart of Scotia Howard Weil. Please go ahead.
Holly Stewart
Good morning, gentlemen, Karen.
David Bauer
Morning.
Holly Stewart
Maybe, first start off by a big congrats to John. John, good luck in your retirement - we are all jealous. It’s
definitely been a pleasure working with you all these years.
Jonathan McGinnis
Well, thank you, Holly, I appreciate that.
Holly Stewart
I’ll start off with you. On the Capex, I think for the first quarter, I mean, really kind of light across the board
as you sort of extrapolate it to the full-year guidance. Maybe focusing on upstream specifically, how should
we think about that progression of spend throughout the next couple quarters, assuming we should see
quite a bit of jump-up in 2Q given the rig add? Just kind of wanted to walk through those thoughts with you.
Jonathan McGinnis
Yes, that’s exactly right, is you’ll see an increase in our second quarter, and then it should remain—second
to third quarter should remain relatively consistent. But as we step into our fourth quarter and even first
quarter of next fiscal year, you’ll begin to see that ramp up. Because we’re deferring some of our completion
activity, flowback activity as a result of waiting for the turn-on date of Leidy South, we’ll begin to ramp-up
that activity level. Pretty much in our fourth quarter, is what we see right now.
Holly Stewart
Sorry, I kind of got confused there; so, a ramp-up in spending in 2Q, flat in 3Q, and then fourth quarter
would decline?
Jonathan McGinnis
No, we’ll see even a further ramp-up…
Holly Stewart
Oh, a ramp again, okay.
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Jonathan McGinnis
Yes, because there’ll be a number of wells that we’re going to look to complete in our fourth quarter of this
fiscal year and first quarter in next fiscal year, depending on the turn-on date of Leidy South, obviously.
Holly Stewart
Okay, ramping into that pipe.
Jonathan McGinnis
Yes.
Holly Stewart
Okay, got it, understood. Then, maybe, it appears that the free cash flow generation numbers actually went
up pretty nicely. I was kind of honing in on that $2.75 type of price, even though you decreased your GAAP
price overall in the guidance. Any color on what drove that free cash flow increase?
Jonathan McGinnis
Well, certainly, the increase in production, having the Tioga assets for the entire quarter producing.
Obviously that goes 100% into our gathering business, so that was a big plus. And as you just pointed out,
we had a low Capex quarter. In terms of Seneca as a standalone, we’ll not be generating the same free
cash flow because we added that second rig, as we go forward, but on a consolidated basis, we will continue
to do so.
Holly Stewart
Sure. I guess one more for me if I could, and this is either for John or for Dave. You guys obviously just
completed your largest acquisition to date with the Shell deal, but there appears to be more Northeast PA
assets that are being talked about on the market. Curious as to your appetite right now for additional M&A.
David Bauer
Yes, I think, as we’ve said on prior calls, Holly, that we would certainly be interested in adding acreage in
the areas that would be adjacent to areas where we’re currently active - in particular, Lycoming County.
Ideally what we’d buy would be near us and have a gathering opportunity, and either come with FT or be
able to be sold into FT that we have already. To the extent that stuff comes on the market like that, we
definitely would be interested.
Holly Stewart
Great, thank you, guys.
David Bauer
Yes.
Jonathan McGinnis
Thanks, Holly.
11
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Operator
Thank you. To ask a question, please press star, one on your telephone keypad. Again, to ask a question,
please press star, one. To withdraw your question, press the pound key.
Your next response is from Gordon Loy of Raymond James. Please go ahead.
Gordon Loy
Hi. Good morning, everyone, and also congratulations to John on your upcoming retirement.
My first question is for John; with kind of the trans-ship (phon) above 50 until about 2023 or so, have there
been any discussions regarding increasing spending in California from the $10 million and maybe getting
back to $30 million?
Then on top of that, what does a maintenance-level program in California look like?
Jonathan McGinnis
Okay. Yes, we are already talking about adding development dollars back into California. As we’ve seen
over the last few months, prices continue to improve. I think recently, we’re in the mid-50 level, mid-50-plus.
We do have projects out there that make sense in that dollar range.
Our struggle right now, which I don’t think—well, hopefully won’t last, is looking in Fiscal ’22 and beyond.
It’s still fairly low. I think last I looked, it was around $50. We’re looking for that $55 to $60 range, both this
year and next year, and then we’ll begin to add dollars back into California.
I do not see only $10 million in spending on an annual basis out in California. I would prefer to get back up
to that $20 million to $30 million range, because we do have two or three new farm-in (phon) opportunities
out there that so far have been fairly successful and we would like to get back developing those assets.
As far as maintenance mode out in California, our decline rate out there is fairly low. You’re looking at
anywhere from around 6%, plus or minus a couple. Having said that, typically that $20 million a year is
what’s really needed to sort of keep our production flat out there, so I would say $20 million plus or minus
a couple million.
Gordon Loy
Got it, that makes sense.
Then my follow-up, I was looking at the Pipeline and Storage Capex. With a guidance between $250 million
to $300 million, is that kind of $50 million delta—how much of that is down to the timing of the start of
construction of FM100 and how much of it is just down to other maintenance Capex-type spending?
Karen Camiolo
Yes, so most of it probably is due to the FM100 project and the timing of when those costs hit.
Gordon Loy
Okay, perfect, that makes sense. Thank you all.
12
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1-888-562-0262 1-604-929-1352 www.viavid.comNational Fuel Gas Company – Q1 2021 Earnings Conference Call, February 5, 2021
David Bauer
Yes.
Operator
At this time, there are no further questions in the queue. I’d like to turn the conference call back over to Ken
Webster for closing remarks.
Kenneth Webster
Thank you, Tamara.
We'd like to thank everyone for taking the time to be with us today. A replay of this call will be available this
afternoon on both our website and by telephone, and will (audio interference) close of business Friday,
February 12. To access the replay online, please visit our Investor Relations website at
investor.nationalfuelgas.com; and to access via telephone, call 1-800-585-8367 and enter Conference ID
number 9363257.
This concludes our conference call for today. Thank you and goodbye.
Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now
disconnect.
13
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