National Fuel Gas Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

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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, 2020

☐ 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, 2020: 86,573,652 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
NFR	National Fuel Resources, Inc.
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
2019 Form 10-K	The Company’s Annual Report on Form 10-K for the year ended September 30, 2019
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.

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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.
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.
ICE	Intercontinental Exchange. An exchange which maintains a futures market for crude oil and 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)

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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.
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.
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.
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, 2020 and 2019		6
b. Consolidated Statements of Comprehensive Income – Three and Six Months Ended March 31, 2020 and 2019		7
c. Consolidated Balance Sheets – March 31, 2020 and September 30, 2019		8
d. Consolidated Statements of Cash Flows – Six Months Ended March 31, 2020 and 2019		10
e. Notes to Condensed Consolidated Financial Statements		11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3. Quantitative and Qualitative Disclosures About Market Risk		52
Item 4. Controls and Procedures		53

Part II. Other Information

Item 1. Legal Proceedings		53
Item 1 A. Risk Factors		53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		56
Item 3. Defaults Upon Senior Securities		•
Item 4. Mine Safety Disclosures		•
Item 5. Other Information		•
Item 6. Exhibits		57
Signatures		58

• 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.

Table of Contents

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)	2020			2019			2020			2019
INCOME
Operating Revenues:
Utility and Energy Marketing Revenues	$	282,634		$	357,654		$	510,660		$	629,747
Exploration and Production and Other Revenues	156,542			146,467			323,735			310,403
Pipeline and Storage and Gathering Revenues	51,919			48,423			100,888			102,641
	491,095			552,544			935,283			1,042,791

Operating Expenses:
Purchased Gas	118,270			195,037			210,542			333,697
Operation and Maintenance:
Utility and Energy Marketing	51,725			48,559			94,981			92,475
Exploration and Production and Other	39,959			40,141			76,652			72,936
Pipeline and Storage and Gathering	27,305			27,249			53,190			52,182
Property, Franchise and Other Taxes	22,743			22,535			45,887			46,540
Depreciation, Depletion and Amortization	77,912			65,664			152,830			129,918
Impairment of Oil and Gas Producing Properties	177,761			—			177,761			—
	515,675			399,185			811,843			727,748
Operating Income (Loss)	(24,580		)	153,359			123,440			315,043
Other Income (Expense):
Other Income (Deductions)	(17,480		)	(5,919		)	(20,520		)	(15,521		)
Interest Expense on Long-Term Debt	(25,270		)	(25,273		)	(50,713		)	(50,713		)
Other Interest Expense	(1,892		)	(1,787		)	(3,443		)	(2,860		)
Income (Loss) Before Income Taxes	(69,222		)	120,380			48,764			245,949
Income Tax Expense	36,846			29,785			68,241			52,693

Net Income (Loss) Available for Common Stock	(106,068		)	90,595			(19,477		)	193,256

EARNINGS REINVESTED IN THE BUSINESS
Balance at Beginning of Period	1,320,592			1,172,334			1,272,601			1,098,900
	1,214,524			1,262,929			1,253,124			1,292,156

Dividends on Common Stock	(37,654		)	(36,678		)	(75,304		)	(73,342		)
Cumulative Effect of Adoption of Authoritative Guidance for Hedging	—			—			(950		)	—
Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities	—			—			—			7,437
Cumulative Effect of Adoption of Authoritative Guidance for Reclassification of Stranded Tax Effects	—			10,406			—			10,406
Balance at March 31	$	1,176,870		$	1,236,657		$	1,176,870		$	1,236,657

Earnings (Loss) Per Common Share:
Basic:
Net Income (Loss) Available for Common Stock	$	(1.23	)	$	1.05		$	(0.23	)	$	2.24
Diluted:
Net Income (Loss) Available for Common Stock	$	(1.23	)	$	1.04		$	(0.23	)	$	2.23
Weighted Average Common Shares Outstanding:
Used in Basic Calculation	86,561,066			86,290,047			86,469,258			86,159,932
Used in Diluted Calculation	86,561,066			86,767,673			86,469,258			86,738,809
Dividends Per Common Share:
Dividends Declared	$	0.435		$	0.425		$	0.870		$	0.850

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)	2020			2019			2020			2019
Net Income (Loss) Available for Common Stock	$	(106,068	)	$	90,595		$	(19,477	)	$	193,256
Other Comprehensive Income (Loss), Before Tax:
Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period	76,304			(26,000		)	76,799			19,390
Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income	(25,034		)	4,739			(32,386		)	24,384
Cumulative Effect of Adoption of Authoritative Guidance for Hedging	—			—			1,313			—
Reclassification Adjustment for the Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities to Earnings Reinvested in the Business	—			—			—			(11,738		)
Other Comprehensive Income (Loss), Before Tax	51,270			(21,261		)	45,726			32,036
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period	20,854			(7,399		)	20,974			5,593
Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Derivative Financial Instruments in Net Income	(6,817		)	1,328			(8,849		)	6,874
Income Tax Benefit (Expense) on Cumulative Effect of Adoption of Authoritative Guidance for Hedging	—			—			363			—
Reclassification Adjustment for Income Tax Benefit (Expense) on the Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities to Earnings Reinvested in the Business	—			—			—			(4,301		)
Reclassification Adjustment for Stranded Tax Effects Related to the 2017 Tax Reform Act to Earnings Reinvested in the Business	—			10,406			—			10,406
Income Taxes – Net	14,037			4,335			12,488			18,572
Other Comprehensive Income (Loss)	37,233			(25,596		)	33,238			13,464
Comprehensive Income (Loss)	$	(68,835	)	$	64,999		$	13,761		$	206,720

See Notes to Condensed Consolidated Financial Statements

Table of Contents

National Fuel Gas Company

Consolidated Balance Sheets

(Unaudited)



	March 31, 2020		September 30, 2019
(Thousands of U.S. Dollars)
ASSETS
Property, Plant and Equipment	$	11,559,528	$	11,204,838
Less - Accumulated Depreciation, Depletion and Amortization	6,003,658		5,695,328
	5,555,870		5,509,510
Current Assets
Cash and Temporary Cash Investments	111,655		20,428
Hedging Collateral Deposits	10,728		6,832
Receivables – Net of Allowance for Uncollectible Accounts of $29,627 and $25,788, Respectively	172,011		139,956
Unbilled Revenue	44,715		18,758
Gas Stored Underground	8,860		36,632
Materials and Supplies - at average cost	48,113		40,717
Unrecovered Purchased Gas Costs	—		2,246
Other Current Assets	100,188		97,054
	496,270		362,623

Other Assets
Recoverable Future Taxes	115,934		115,197
Unamortized Debt Expense	13,151		14,005
Other Regulatory Assets	161,800		167,320
Deferred Charges	56,855		33,843
Other Investments	137,044		144,917
Goodwill	5,476		5,476
Prepaid Post-Retirement Benefit Costs	71,381		60,517
Fair Value of Derivative Financial Instruments	94,797		48,669
Other	81		80

Price	47.87	EPS	4
Shares	87	P/E	14
MCap	4,154	P/FCF	7
Net Debt	2,106	EBIT	390
TEV	6,260	TEV/EBIT	16
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-01
10-Q	2019-12-31	Filed 2020-01-31
10-K	2019-09-30	Filed 2019-11-15
10-Q	2019-06-30	Filed 2019-08-02
10-Q	2019-03-31	Filed 2019-05-03
10-Q	2018-12-31	Filed 2019-02-01
10-K	2018-09-30	Filed 2018-11-16
10-Q	2018-06-30	Filed 2018-08-03
10-Q	2018-03-31	Filed 2018-05-04
10-Q	2017-12-31	Filed 2018-02-02
10-K	2017-09-30	Filed 2017-11-17
10-Q	2017-06-30	Filed 2017-08-04
10-Q	2017-03-31	Filed 2017-05-05
10-Q	2016-12-31	Filed 2017-02-03
10-K	2016-09-30	Filed 2016-11-18
10-Q	2016-06-30	Filed 2016-08-05
10-Q	2016-03-31	Filed 2016-05-04
10-Q	2015-12-31	Filed 2016-02-05
10-K	2015-09-30	Filed 2015-11-20
10-Q	2015-06-30	Filed 2015-08-07
10-Q	2015-03-31	Filed 2015-05-01
10-Q	2014-12-31	Filed 2015-01-30
10-K	2014-09-30	Filed 2014-11-21
10-Q	2014-06-30	Filed 2014-08-08
10-Q	2014-03-31	Filed 2014-05-09
10-Q	2013-12-31	Filed 2014-02-07
10-K	2013-09-30	Filed 2013-11-22
10-Q	2013-06-30	Filed 2013-08-09
10-Q	2013-03-31	Filed 2013-05-03
10-Q	2012-12-31	Filed 2013-02-08
10-K	2012-09-30	Filed 2012-11-21
10-Q	2012-06-30	Filed 2012-08-03
10-Q	2012-03-31	Filed 2012-05-04
10-Q	2011-12-31	Filed 2012-02-03
10-K	2011-09-30	Filed 2011-11-23
10-Q	2011-06-30	Filed 2011-08-09
10-Q	2011-03-31	Filed 2011-05-06
10-Q	2010-12-31	Filed 2011-02-04
10-K	2010-09-30	Filed 2010-11-24
10-Q	2010-06-30	Filed 2010-08-06
10-Q	2010-03-31	Filed 2010-05-07
10-Q	2009-12-31	Filed 2010-02-05

8-K	2020-05-04	Regulation FD, Exhibits
8-K	2020-05-04	Enter Agreement, Off-BS Arrangement, Sale of Shares, Regulation FD, Exhibits
8-K	2020-04-30	Regulation FD, Exhibits
8-K	2020-04-30	Earnings, Exhibits
8-K	2020-03-11	Shareholder Vote
8-K	2020-01-30	Regulation FD, Exhibits
8-K	2020-01-30	Earnings, Exhibits
8-K	2020-01-17	Officers
8-K	2019-12-09	Officers
8-K	2019-10-31	Earnings, Exhibits
8-K	2019-10-31	Regulation FD, Exhibits
8-K	2019-08-01	Regulation FD, Exhibits
8-K	2019-08-01	Earnings, Exhibits
8-K	2019-06-12	Officers, Regulation FD, Exhibits
8-K	2019-05-02	Earnings, Exhibits
8-K	2019-05-02	Regulation FD, Exhibits
8-K	2019-04-02	Officers, Regulation FD, Exhibits
8-K	2019-03-25	Regulation FD, Exhibits
8-K	2019-03-07	Officers, Shareholder Vote, Exhibits
8-K	2019-01-31	Regulation FD, Exhibits
8-K	2019-01-31	Earnings, Exhibits
8-K	2018-12-19	Officers
8-K	2018-12-18	Regulation FD, Exhibits
8-K	2018-11-01	Earnings, Exhibits
8-K	2018-11-01	Regulation FD, Exhibits
8-K	2018-10-31	Officers, Regulation FD, Exhibits
8-K	2018-10-25	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2018-08-08	Other Events, Exhibits
8-K	2018-08-06	Other Events
8-K	2018-08-02	Regulation FD, Exhibits
8-K	2018-08-02	Earnings, Exhibits
8-K	2018-07-12	Officers, Regulation FD, Exhibits
8-K	2018-05-18	Regulation FD, Exhibits
8-K	2018-05-03	Regulation FD, Exhibits
8-K	2018-05-03
8-K	2018-03-26	Regulation FD, Exhibits
8-K	2018-03-08	Shareholder Vote
8-K	2018-02-01	Earnings, Exhibits
8-K	2018-02-01	Earnings, Exhibits
8-K	2018-01-12
8-K	2018-01-11	Enter Agreement, Shareholder Rights, Regulation FD, Exhibits
8-K	2018-01-10	Officers

EX-10.1	nfg-3312020xexhibit101.htm
EX-31.1	nfg-3312020xexhibit311.htm
EX-31.2	nfg-3312020xexhibit312.htm
EX-32	nfg-3312020xexhibit32.htm
EX-99	nfg-3312020xexhibit99.htm

NFG 10Q Quarterly Report

National Fuel Gas Earnings 2020-03-31