NATIONAL FUEL GAS CO [NFG] Filings

10-Q 1 nfg-20220331.htm 10-Q nfg-20220331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____ to_____

Commission File Number 1-3880

NATIONAL FUEL GAS COMPANY

(Exact name of registrant as specified in its charter)


New Jersey		13-1086010
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6363 Main Street
Williamsville,	New York	14221
(Address of principal executive offices)		(Zip Code)

(716) 857-7000

(Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share	NFG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☑	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☑

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common stock, par value $1.00 per share, outstanding at April 30, 2022: 91,455,696 shares.

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GLOSSARY OF TERMS

Frequently used abbreviations, acronyms, or terms used in this report:


National Fuel Gas Companies
Company			The Registrant, the Registrant and its subsidiaries or the Registrant’s subsidiaries as appropriate in the context of the disclosure
Distribution Corporation			National Fuel Gas Distribution Corporation
Empire			Empire Pipeline, Inc.
Midstream Company			National Fuel Gas Midstream Company, LLC
National Fuel			National Fuel Gas Company
Registrant			National Fuel Gas Company
Seneca			Seneca Resources Company, LLC
Supply Corporation			National Fuel Gas Supply Corporation


Regulatory Agencies
CFTC			Commodity Futures Trading Commission
EPA			United States Environmental Protection Agency
FASB			Financial Accounting Standards Board
FERC			Federal Energy Regulatory Commission
NYDEC			New York State Department of Environmental Conservation
NYPSC			State of New York Public Service Commission
PaDEP			Pennsylvania Department of Environmental Protection
PaPUC			Pennsylvania Public Utility Commission
PHMSA			Pipeline and Hazardous Materials Safety Administration
SEC			Securities and Exchange Commission


Other
2021 Form 10-K			The Company’s Annual Report on Form 10-K for the year ended September 30, 2021
2017 Tax Reform Act			Tax legislation referred to as the "Tax Cuts and Jobs Act," enacted December 22, 2017.
Bbl			Barrel (of oil)
Bcf			Billion cubic feet (of natural gas)
Bcfe (or Mcfe) – represents Bcf (or Mcf) Equivalent			The total heat value (Btu) of natural gas and oil expressed as a volume of natural gas. The Company uses a conversion formula of 1 barrel of oil = 6 Mcf of natural gas.
Btu			British thermal unit; the amount of heat needed to raise the temperature of one pound of water one degree Fahrenheit
Capital expenditure			Represents additions to property, plant, and equipment, or the amount of money a company spends to buy capital assets or upgrade its existing capital assets.
Cashout revenues			A cash resolution of a gas imbalance whereby a customer (e.g. a marketer) pays for gas the customer receives in excess of amounts delivered into pipeline/storage or distribution systems by the customer’s shipper.
CLCPA			Legislation referred to as the "Climate Leadership & Community Protection Act," enacted by the State of New York on July 18, 2019.
Degree day			A measure of the coldness of the weather experienced, based on the extent to which the daily average temperature falls below a reference temperature, usually 65 degrees Fahrenheit.
Derivative			A financial instrument or other contract, the terms of which include an underlying variable (a price, interest rate, index rate, exchange rate, or other variable) and a notional amount (number of units, barrels, cubic feet, etc.). The terms also permit for the instrument or contract to be settled net and no initial net investment is required to enter into the financial instrument or contract. Examples include futures contracts, forward contracts, options, no cost collars and swaps.

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Development costs			Costs incurred to obtain access to proved oil and gas reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas
Dodd-Frank Act			Dodd-Frank Wall Street Reform and Consumer Protection Act.
Dth			Decatherm; one Dth of natural gas has a heating value of 1,000,000 British thermal units, approximately equal to the heating value of 1 Mcf of natural gas.
Exchange Act			Securities Exchange Act of 1934, as amended
Expenditures for long-lived assets			Includes capital expenditures, stock acquisitions and/or investments in partnerships.
Exploration costs			Costs incurred in identifying areas that may warrant examination, as well as costs incurred in examining specific areas, including drilling exploratory wells.
Exploratory well			A well drilled in unproven or semi-proven territory for the purpose of ascertaining the presence underground of a commercial hydrocarbon deposit.
FERC 7(c) application			An application to the FERC under Section 7(c) of the federal Natural Gas Act for authority to construct, operate (and provide services through) facilities to transport or store natural gas in interstate commerce.
Firm transportation and/or storage			The transportation and/or storage service that a supplier of such service is obligated by contract to provide and for which the customer is obligated to pay whether or not the service is utilized.
GAAP			Accounting principles generally accepted in the United States of America
Goodwill			An intangible asset representing the difference between the fair value of a company and the price at which a company is purchased.
Hedging			A method of minimizing the impact of price, interest rate, and/or foreign currency exchange rate changes, often times through the use of derivative financial instruments.
Hub			Location where pipelines intersect enabling the trading, transportation, storage, exchange, lending and borrowing of natural gas.
Interruptible transportation and/or storage			The transportation and/or storage service that, in accordance with contractual arrangements, can be interrupted by the supplier of such service, and for which the customer does not pay unless utilized.
LDC			Local distribution company
LIBOR			London Interbank Offered Rate
LIFO			Last-in, first-out
Marcellus Shale			A Middle Devonian-age geological shale formation that is present nearly a mile or more below the surface in the Appalachian region of the United States, including much of Pennsylvania and southern New York.
Mbbl			Thousand barrels (of oil)
Mcf			Thousand cubic feet (of natural gas)
MD&A			Management’s Discussion and Analysis of Financial Condition and Results of Operations
MDth			Thousand decatherms (of natural gas)
MMBtu			Million British thermal units (heating value of one decatherm of natural gas)
MMcf			Million cubic feet (of natural gas)
NGA			The Natural Gas Act of 1938, as amended; the federal law regulating interstate natural gas pipeline and storage companies, among other things, codified beginning at 15 U.S.C. Section 717.
NYMEX			New York Mercantile Exchange. An exchange which maintains a futures market for crude oil and natural gas.
OPEB			Other Post-Employment Benefit
Open Season			A bidding procedure used by pipelines to allocate firm transportation or storage capacity among prospective shippers, in which all bids submitted during a defined time period are evaluated as if they had been submitted simultaneously.

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Precedent Agreement			An agreement between a pipeline company and a potential customer to sign a service agreement after specified events (called “conditions precedent”) happen, usually within a specified time.
Proved developed reserves			Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.
Proved undeveloped (PUD) reserves			Reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required to make these reserves productive.
Reserves			The unproduced but recoverable oil and/or gas in place in a formation which has been proven by production.
Revenue decoupling mechanism			A rate mechanism which adjusts customer rates to render a utility financially indifferent to throughput decreases resulting from conservation.
S&P			Standard & Poor’s Rating Service
SAR			Stock appreciation right
Service agreement			The binding agreement by which the pipeline company agrees to provide service and the shipper agrees to pay for the service.
SOFR			Secured Overnight Financing Rate
Stock acquisitions			Investments in corporations
Utica Shale			A Middle Ordovician-age geological formation lying several thousand feet below the Marcellus Shale in the Appalachian region of the United States, including much of Ohio, Pennsylvania, West Virginia and southern New York.
VEBA			Voluntary Employees’ Beneficiary Association
WNC			Weather normalization clause; a clause in utility rates which adjusts customer rates to allow a utility to recover its normal operating costs calculated at normal temperatures. If temperatures during the measured period are warmer than normal, customer rates are adjusted upward in order to recover projected operating costs. If temperatures during the measured period are colder than normal, customer rates are adjusted downward so that only the projected operating costs will be recovered.

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INDEX						Page

Part I. Financial Information

Item 1. Financial Statements (Unaudited)						6

a. Consolidated Statements of Income and Earnings Reinvested in the Business - Three and Six Months Ended March 31, 2022 and 2021						6
b. Consolidated Statements of Comprehensive Income – Three and Six Months Ended March 31, 2022 and 2021						7
c. Consolidated Balance Sheets – March 31, 2022 and September 30, 2021						8
d. Consolidated Statements of Cash Flows – Six Months Ended March 31, 2022 and 2021						10
e. Notes to Condensed Consolidated Financial Statements						11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations						29
Item 3. Quantitative and Qualitative Disclosures About Market Risk						49
Item 4. Controls and Procedures						49

Part II. Other Information

Item 1. Legal Proceedings						50
Item 1 A. Risk Factors						50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						52
Item 3. Defaults Upon Senior Securities						•
Item 4. Mine Safety Disclosures						•
Item 5. Other Information						53
Item 6. Exhibits						53
Signatures						55

• The Company has nothing to report under this item.

All references to a certain year in this report are to the Company’s fiscal year ended September 30 of that year, unless otherwise noted.

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Part I. Financial Information

Item 1. Financial Statements

National Fuel Gas Company

Consolidated Statements of Income and Earnings

Reinvested in the Business

(Unaudited)


	Three Months Ended March 31,				Six Months Ended March 31,
(Thousands of U.S. Dollars, Except Per Common Share Amounts)	2022		2021		2022		2021
INCOME
Operating Revenues:
Utility and Energy Marketing Revenues	$	369,092	$	270,849	$	605,776	$	460,315
Exploration and Production and Other Revenues	261,676		220,281		505,957		412,316
Pipeline and Storage and Gathering Revenues	70,952		59,985		136,544		119,644
	701,720		551,115		1,248,277		992,275

Operating Expenses:
Purchased Gas	199,592		106,661		301,219		158,280
Operation and Maintenance:
Utility and Energy Marketing	53,476		52,058		100,120		96,944
Exploration and Production and Other	49,806		41,895		95,425		83,922
Pipeline and Storage and Gathering	33,518		28,133		63,446		56,231
Property, Franchise and Other Taxes	27,717		23,987		52,219		46,768
Depreciation, Depletion and Amortization	91,245		84,342		179,823		167,462
Impairment of Oil and Gas Producing Properties	—		—		—		76,152
	455,354		337,076		792,252		685,759
Gain on Sale of Timber Properties	—		—		—		51,066
Operating Income	246,366		214,039		456,025		357,582
Other Income (Expense):

Other Income (Deductions)	10,018		(10,875)		8,940		(13,051)
Interest Expense on Long-Term Debt	(30,079)		(48,820)		(60,209)		(81,076)
Other Interest Expense	(1,519)		(1,698)		(2,680)		(3,618)
Income Before Income Taxes	224,786		152,646		402,076		259,837
Income Tax Expense	57,458		40,210		102,356		69,627

Net Income Available for Common Stock	167,328		112,436		299,720		190,210

EARNINGS REINVESTED IN THE BUSINESS
Balance at Beginning of Period	1,281,963		1,028,844		1,191,175		991,630
	1,449,291		1,141,280		1,490,895		1,181,840

Dividends on Common Stock	(41,608)		(40,562)		(83,212)		(81,122)




Balance at March 31	$	1,407,683	$	1,100,718	$	1,407,683	$	1,100,718

Earnings Per Common Share:
Basic:
Net Income Available for Common Stock	$	1.83	$	1.23	$	3.28	$	2.09
Diluted:
Net Income Available for Common Stock	$	1.82	$	1.23	$	3.26	$	2.08
Weighted Average Common Shares Outstanding:
Used in Basic Calculation	91,444,638		91,163,291		91,354,488		91,084,620
Used in Diluted Calculation	92,064,711		91,645,679		92,047,467		91,581,918
Dividends Per Common Share:
Dividends Declared	$	0.455	$	0.445	$	0.910	$	0.890

See Notes to Condensed Consolidated Financial Statements

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National Fuel Gas Company

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended March 31,				Six Months Ended March 31,
(Thousands of U.S. Dollars)	2022		2021		2022		2021
Net Income Available for Common Stock	$	167,328	$	112,436	$	299,720	$	190,210
Other Comprehensive Income (Loss), Before Tax:
Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period	(641,606)		(34,373)		(478,474)		13,648
Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income	130,221		3,666		292,809		3,977


Other Post-Retirement Adjustment for Regulatory Proceeding	(7,351)		—		(7,351)		—
Other Comprehensive Income (Loss), Before Tax	(518,736)		(30,707)		(193,016)		17,625
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period	(175,605)		(9,470)		(130,956)		3,760
Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Derivative Financial Instruments in Net Income	35,641		1,010		80,141		1,096



Income Tax Expense (Benefit) Related to Other Post-Retirement Adjustment for Regulatory Proceeding	(1,544)		—		(1,544)		—
Income Taxes – Net	(141,508)		(8,460)		(52,359)		4,856
Other Comprehensive Income (Loss)	(377,228)		(22,247)		(140,657)		12,769
Comprehensive Income (Loss)	$	(209,900)	$	90,189	$	159,063	$	202,979

See Notes to Condensed Consolidated Financial Statements

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National Fuel Gas Company

Consolidated Balance Sheets

(Unaudited)


	March 31, 2022		September 30, 2021
(Thousands of U.S. Dollars)
ASSETS
Property, Plant and Equipment	$	13,457,342	$	13,103,639
Less - Accumulated Depreciation, Depletion and Amortization	6,882,961		6,719,356
	6,574,381		6,384,283

Current Assets
Cash and Temporary Cash Investments	52,569		31,528
Hedging Collateral Deposits	102,370		88,610
Receivables – Net of Allowance for Uncollectible Accounts of $41,483 and $31,639, Respectively	339,421		205,294
Unbilled Revenue	49,551		17,000
Gas Stored Underground	6,302		33,669
Materials, Supplies and Emission Allowances	48,887		53,560
Unrecovered Purchased Gas Costs	3,751		33,128
Other Current Assets	68,265		59,660
	671,116		522,449

Other Assets
Recoverable Future Taxes	123,709		121,992
Unamortized Debt Expense	9,735		10,589
Other Regulatory Assets	57,693		60,145
Deferred Charges	81,646		59,939
Other Investments	103,164		149,632
Goodwill	5,476		5,476
Prepaid Pension and Post-Retirement Benefit Costs	178,102		149,151
Fair Value of Derivative Financial Instruments	1		—
Other	—		1,169
	559,526		558,093

Total Assets	$	7,805,023	$	7,464,825

See Notes to Condensed Consolidated Financial Statements

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National Fuel Gas Company

Consolidated Balance Sheets

(Unaudited)


	March 31, 2022		September 30, 2021
(Thousands of U.S. Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders’ Equity
Common Stock, $1 Par Value
Authorized - 200,000,000 Shares; Issued And Outstanding – 91,449,226 Shares and 91,181,549 Shares, Respectively	$	91,449	$	91,182
Paid in Capital	1,018,784		1,017,446
Earnings Reinvested in the Business	1,407,683		1,191,175
Accumulated Other Comprehensive Loss	(654,254)		(513,597)
Total Comprehensive Shareholders’ Equity	1,863,662		1,786,206
Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs	2,081,529		2,628,687
Total Capitalization	3,945,191		4,414,893

Current and Accrued Liabilities
Notes Payable to Banks and Commercial Paper	218,000		158,500
Current Portion of Long-Term Debt	549,000		—
Accounts Payable	135,775		171,655
Amounts Payable to Customers	3,422		21
Dividends Payable	41,608		41,487
Interest Payable on Long-Term Debt	17,376		17,376
Customer Advances	—		17,223
Customer Security Deposits	20,766		19,292
Other Accruals and Current Liabilities	218,139		194,169
Fair Value of Derivative Financial Instruments	802,076		616,410
	2,006,162		1,236,133

Other Liabilities
Deferred Income Taxes	709,598		660,420
Taxes Refundable to Customers	348,480		354,089

Cost of Removal Regulatory Liability	252,471		245,636
Other Regulatory Liabilities	196,589		200,643
Pension and Other Post-Retirement Liabilities	4,756		7,526
Asset Retirement Obligations	207,047		209,639
Other Liabilities	134,729		135,846
	1,853,670		1,813,799
Commitments and Contingencies (Note 8)	—		—

Total Capitalization and Liabilities	$	7,805,023	$	7,464,825

See Notes to Condensed Consolidated Financial Statements

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National Fuel Gas Company

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended March 31,
(Thousands of U.S. Dollars)	2022		2021
OPERATING ACTIVITIES
Net Income Available for Common Stock	$	299,720	$	190,210
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Gain on Sale of Timber Properties	—		(51,066)
Impairment of Oil and Gas Producing Properties	—		76,152
Depreciation, Depletion and Amortization	179,823		167,462
Deferred Income Taxes	94,212		61,408

Premium Paid on Early Redemption of Debt	—		15,715
Stock-Based Compensation	10,631		8,657
Reduction of Other Post-Retirement Regulatory Liability	(18,533)		—
Other	14,494		6,742
Change in:
Receivables and Unbilled Revenue	(166,584)		(101,159)
Gas Stored Underground and Materials, Supplies and Emission Allowances	32,040		27,258
Unrecovered Purchased Gas Costs	29,377		(479)
Other Current Assets	(8,605)		(8,447)
Accounts Payable	2,006		8,613
Amounts Payable to Customers	3,401		8,980
Customer Advances	(17,223)		(15,319)
Customer Security Deposits	1,474		2,304
Other Accruals and Current Liabilities	11,164		9,058
Other Assets	(32,659)		11,039
Other Liabilities	(9,119)		5
Net Cash Provided by Operating Activities	425,619		417,133

INVESTING ACTIVITIES
Capital Expenditures	(415,415)		(338,867)
Net Proceeds from Sale of Oil and Gas Producing Properties	13,525		—
Net Proceeds from Sale of Timber Properties	—		104,582

Sale of Fixed Income Mutual Fund Shares in Grantor Trust	30,000		—
Other	13,689		12,095
Net Cash Used in Investing Activities	(358,201)		(222,190)

FINANCING ACTIVITIES
Changes in Notes Payable to Banks and Commercial Paper	59,500		(30,000)

Net Proceeds from Issuance of Long-Term Debt	—		495,267
Reduction of Long-Term Debt	—		(515,715)
Dividends Paid on Common Stock	(83,091)		(81,035)
Net Repurchases of Common Stock	(9,026)		(3,534)
Net Cash Used in Financing Activities	(32,617)		(135,017)
Net Increase in Cash, Cash Equivalents, and Restricted Cash	34,801		59,926
Cash, Cash Equivalents, and Restricted Cash at October 1	120,138		20,541
Cash, Cash Equivalents, and Restricted Cash at March 31	$	154,939	$	80,467

Supplemental Disclosure of Cash Flow Information
Non-Cash Investing Activities:
Non-Cash Capital Expenditures	$	63,490	$	68,073

See Notes to Condensed Consolidated Financial Statements

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National Fuel Gas Company

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Summary of Significant Accounting Policies

Principles of Consolidation. The Company consolidates all entities in which it has a controlling financial interest. All significant intercompany balances and transactions are eliminated. The Company uses proportionate consolidation when accounting for drilling arrangements related to oil and gas producing properties accounted for under the full cost method of accounting.

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Earnings for Interim Periods. The Company, in its opinion, has included all adjustments (which consist of only normally recurring adjustments, unless otherwise disclosed in this Form 10-Q) that are necessary for a fair statement of the results of operations for the reported periods. The consolidated financial statements and notes thereto, included herein, should be read in conjunction with the financial statements and notes for the years ended September 30, 2021, 2020 and 2019 that are included in the Company's 2021 Form 10-K. The consolidated financial statements for the year ended September 30, 2022 will be audited by the Company's independent registered public accounting firm after the end of the fiscal year.

The earnings for the six months ended March 31, 2022 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2022. Most of the business of the Utility segment is seasonal in nature and is influenced by weather conditions. Due to the seasonal nature of the heating business in the Utility segment, earnings during the winter months normally represent a substantial part of the earnings that this business is expected to achieve for the entire fiscal year. The Company’s business segments are discussed more fully in Note 9 – Business Segment Information.

Consolidated Statements of Cash Flows. The components, as reported on the Company’s Consolidated Balance Sheets, of the total cash, cash equivalents, and restricted cash presented on the Statement of Cash Flows are as follows (in thousands):


	Six Months Ended March 31, 2022				Six Months Ended March 31, 2021
	Balance at October 1, 2021		Balance at March 31, 2022		Balance at October 1, 2020		Balance at March 31, 2021

Cash and Temporary Cash Investments	$	31,528	$	52,569	$	20,541	$	80,467
Hedging Collateral Deposits	88,610		102,370		—		—
Cash, Cash Equivalents, and Restricted Cash	$	120,138	$	154,939	$	20,541	$	80,467

The Company considers all highly liquid debt instruments purchased with a maturity date of generally three months or less to be cash equivalents. The Company’s restricted cash is composed entirely of amounts reported as Hedging Collateral Deposits on the Consolidated Balance Sheets. Hedging Collateral Deposits is an account title for cash held in margin accounts funded by the Company to serve as collateral for derivative financial instruments in an unrealized loss position. In accordance with its accounting policy, the Company does not offset hedging collateral deposits paid or received against related derivative financial instruments liability or asset balances.

Allowance for Uncollectible Accounts. The allowance for uncollectible accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is determined based on historical experience, the age of customer accounts, other specific information about customer accounts, and the economic and regulatory environment. Account balances are charged off against the allowance twelve months after the account is final billed or when it is anticipated that the receivable will not be recovered.

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Activity in the allowance for uncollectible accounts for the six months ended March 31, 2022 and 2021 are as follows (in thousands):


	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Discounts on Purchased Receivables		Net Accounts Receivable Written-Off		Balance at End of Period
Six Months Ended March 31, 2022
Allowance for Uncollectible Accounts	$	31,639	$	9,684	$	790	$	(630)	$	41,483
Six Months Ended March 31, 2021
Allowance for Uncollectible Accounts	$	22,810	$	11,074	$	737	$	(4,493)	$	30,128

Gas Stored Underground. In the Utility segment, gas stored underground is carried at lower of cost or net realizable value, on a LIFO method. Gas stored underground normally declines during the first and second quarters of the year and is replenished during the third and fourth quarters. In the Utility segment, the current cost of replacing gas withdrawn from storage is recorded in the Consolidated Statements of Income and a reserve for gas replacement is recorded in the Consolidated Balance Sheets under the caption “Other Accruals and Current Liabilities.” Such reserve, which amounted to $43.8 million at March 31, 2022, is reduced to zero by September 30 of each year as the inventory is replenished.

Materials, Supplies and Emission Allowances. The components of the Company's materials, supplies and emission allowances are as follows (in thousands):


	At March 31, 2022		At September 30, 2021

Materials and Supplies - at average cost	$	37,769	$	34,880
Emission Allowances	11,118		18,680
	$	48,887	$	53,560

Property, Plant and Equipment. In the Company’s Exploration and Production segment, oil and gas property acquisition, exploration and development costs are capitalized under the full cost method of accounting. Under this methodology, all costs associated with property acquisition, exploration and development activities are capitalized, including internal costs directly identified with acquisition, exploration and development activities. The internal costs that are capitalized do not include any costs related to production, general corporate overhead, or similar activities. The Company does not recognize any gain or loss on the sale or other disposition of oil and gas properties unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center. The Company's capitalized costs relating to oil and gas producing activities, net of accumulated depreciation, depletion and amortization, were $2.0 billion and $1.9 billion at March 31, 2022 and September 30, 2021, respectively.

Capitalized costs include costs related to unproved properties, which are excluded from amortization until proved reserves are found or it is determined that the unproved properties are impaired. Such costs amounted to $124.2 million and $103.8 million at March 31, 2022 and September 30, 2021, respectively. All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred. The amount of any impairment is transferred to the pool of capitalized costs being amortized.

Capitalized costs are subject to the SEC full cost ceiling test. The ceiling test, which is performed each quarter, determines a limit, or ceiling, on the amount of property acquisition, exploration and development costs that can be capitalized. The ceiling under this test represents (a) the present value of estimated future net cash flows, excluding future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, using a discount factor of 10%, which is computed by applying prices of oil and gas (as adjusted for hedging) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet, less estimated future expenditures, plus (b) the cost of unproved properties not being depleted, less (c) income tax effects related to the differences between the book and tax basis of the properties. The gas and oil prices used to calculate the full cost ceiling are based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the twelve-month period prior to the end of the reporting period. If capitalized costs, net of accumulated depreciation, depletion and amortization and related deferred income taxes, exceed the ceiling at the end of any quarter, a permanent non-cash impairment is required to be charged to earnings in that quarter. At March 31, 2022, the ceiling exceeded the book value of the oil and gas properties by approximately $1.8 billion. The estimated future net cash flows were decreased by $452.5 million for hedging under the ceiling test at March 31, 2022

Table of Contents

The principal assets of the Utility, Pipeline and Storage and Gathering segments, consisting primarily of gas distribution pipelines, transmission pipelines, storage facilities, gathering lines and compressor stations, are recorded at historical cost. There were no indications of any impairments to property, plant and equipment in the Utility, Pipeline and Storage and Gathering segments at March 31, 2022.

Accumulated Other Comprehensive Loss. The components of Accumulated Other Comprehensive Loss and changes for the six months ended March 31, 2022 and 2021, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands):


	Gains and Losses on Derivative Financial Instruments		Funded Status of the Pension and Other Post-Retirement Benefit Plans		Total
Three Months Ended March 31, 2022
Balance at January 1, 2022	$	(213,391)	$	(63,635)	$	(277,026)
Other Comprehensive Gains and Losses Before Reclassifications	(466,001)		—		(466,001)
Amounts Reclassified From Other Comprehensive Loss	94,580		—		94,580
Other Post-Retirement Adjustment for Regulatory Proceeding	—		(5,807)		(5,807)
Balance at March 31, 2022	$	(584,812)	$	(69,442)	$	(654,254)
Six Months Ended March 31, 2022
Balance at October 1, 2021	$	(449,962)	$	(63,635)	$	(513,597)
Other Comprehensive Gains and Losses Before Reclassifications	(347,518)		—		(347,518)
Amounts Reclassified From Other Comprehensive Loss	212,668		—		212,668
Other Post-Retirement Adjustment for Regulatory Proceeding	—		(5,807)		(5,807)

Balance at March 31, 2022	$	(584,812)	$	(69,442)	$	(654,254)
Three Months Ended March 31, 2021