Q4 2024 National Fuel Gas Co Earnings Call

In This Article:

Participants

Natalie Fischer; Director of Investor Relations; National Fuel Gas Co

David Bauer; President, Chief Executive Officer, Director; National Fuel Gas Co

Justin Loweth; President of Seneca Resources Company LLC, President of Midstream; National Fuel Gas Co

Timothy Silverstein; Principal Financial Officer, Treasurer; National Fuel Gas Co

Noah Hungness; Analyst; BofA Global Research

Ati Modak; Analyst; Goldman Sachs Research

Presentation

Operator

Hello, and welcome to the National Fuel Gas Company Q4 Fiscal 2024 Earnings Conference Call. My name is Elliot, and I'll be coordinating your call today. (Operator Instructions)
Now I'd like to hand over to Natalie Fischer, Director of Investor Relations. Please go ahead.

Natalie Fischer

Thank you, Elliot, 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, our 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 today's prepared remarks, we will open the discussion to questions.
The fourth quarter and full year fiscal 2024 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 remain 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

Thank you, Natalie. Good morning, everyone. As we reported in last night's release, National Fuel's fourth quarter adjusted operating results were $0.77 per share. Natural gas prices were once again a headwind and but our strong hedge book, which delivered a $61 million gain during the quarter, along with the positive results from our regulated businesses, largely mitigated the commodity price impact.
Operationally, we continue to execute very well. At our upstream and gathering businesses, all of our drilling and the vast majority of our completions and midstream development are focused on the eastern development area in Tioga and Lycoming counties, which is our highest returning acreage.
The impact of our focus on the EDA is clear, with Seneca Capital down 10%, while production is up 5% year over year, a trend we expect to continue in the coming years. With more than a decade of delineated well inventory in this area, the team is focused on optimizing our development plan to maximize returns and capital efficiency.
As you can see from slide 21 in our IR deck, our half cycle breakevens are best-in-class, which allows us to generate strong returns and free cash flow at forward gas prices.
Switching to our pipeline and storage business, we continue to see the benefit of our Supply Corporation rate settlement which you'll recall, provided a $56 million annual rate increase that went into effect this past February. Additionally, in August, we filed the FERC application for our Tioga Pathway project, which will provide 190 million a day of capacity to Seneca to transport its production out of Tioga County.
While it's still early in the process, things are moving along as planned. FERC's recent scheduling notice calls for an environmental assessment study by February 2025. That makes it likely we'll receive our certificate for the project by next fall, which would keep us on track to meeting our fall 2026 target in-service date.
As you saw in last night's release, we no longer intend to pursue an extension of the Northern Access project's FERC certificate, which expires at the end of the calendar year. You may recall that project was our Plan A to move Seneca's growing production out of the basin.
When New York regulators put that project in limbo in 2017, we quickly pivoted to Plan B, the FM100 project, which was completed in 2021, and which frankly moved Seneca's production to a better market on the Transco system. All the while, we continue to pursue Northern Access because we believe the region needed more pipeline infrastructure to serve growing demand and we had a FERC regulated project that would deliver significant volumes in the New York State and connected markets.
Due to several years of litigation on key regulatory approvals, we never put shovels in the ground. Earlier this summer, that litigation was favorably resolved in the courts, which led us to take another look at the project. But at the end of the day, a substantial increase in expected project costs led us to decide to cease further project development efforts.
Turning to the utility. We reached a three-year settlement with the parties in our ongoing New York rate case. The joint proposal that was the product of that settlement is a good outcome for both National Fuel and our customers. It calls for a total annual revenue requirement increase of $86 million that phases in over a three-year period.
This catches us up for the regulatory lag we experienced from higher operating costs due to the inflation we saw coming out of the pandemic and it addresses recovery of our ongoing modernization program. Our New York utility has not had a base rate increase since 2017. And even after new rates go into effect, our delivery rates will still be the lowest in the state.
There are a number of other provisions in the joint proposal that protect the interest of our customers, including enhanced customer service and safety performance metrics and the continuation of our long-standing modernization program, which strengthens the reliability of our system and drives down methane emissions.
We anticipate the New York Commission will consider approval of the joint proposal at its December session, though it's possible approval could slip into the new year. Regardless, the proposal included a standard make-whole provision that allows the company to recover any loss rate increase from the October 1st effective date of the settlement through the date that new rates actually go into effect.
Moving to energy policy. National Fuel remains a strong advocate for an all-of-the-above approach to energy policy. In New York, policymakers have pursued an aggressive anti-fossil fuel agenda whose goal is to complete electrification of the economy.
But it's becoming increasingly clear that the state's climate goals will take considerably longer to achieve and cost substantially more than the state envisioned. Take, for example, the Climate Act's 70% renewable electricity target by 2030.
Over the five years since the passage of the act, New York has decommissioned more than 5 gigawatts of mostly baseload nuclear and gas-fired generation, but replaced it with only 2 gigawatts of intermittent wind and solar. Over the same period, New Yorkers have seen a 40% increase in the average cost of electricity.
And energy cost to consumers are poised to increase further still as the New York Cap-and-Invest carbon pricing program, which is expected to take effect next year, could increase the average residential customer's annual natural gas heating costs by more than $500. However, we're beginning to see signs that the momentum may be shifting.
The governor has recently spoken out in favor of an all of the above energy strategy, which again is the approach we've been advocating since the Climate Act was passed. And perhaps more importantly, New York recently convened its Energy Planning Board, which on a five-year cycle takes a hard look at energy policy in the state.
I'm hopeful this forum will carefully assess the current circumstances and potentially reset statewide energy policy based upon the economic realities and technical feasibility of what can be reasonably accomplished.
In closing, I'm pleased with our continued strong execution during the quarter, and I'm confident in National Fuel's future. Seneca and Energy Midstream's integrated development program is delivering enhanced capital efficiencies and increasing levels of free cash flow at forward natural gas prices.
At the same time, our modernization program and expansion projects should continue to grow the rate base of our regulated businesses. All of these efforts should lead to growing consolidated earnings and cash flows, which, combined with our long-standing history of returning capital to shareholders via our dividend and share buyback program, should drive significant shareholder value over the long term.
And with that, I'll turn the call over to Justin.

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