NFG National Fuel Gas Co

National Fuel Gas Company ("National Fuel" or the "Company") (NYSE:NFG) today announced consolidated earnings for the first quarter of its 2006 fiscal year (the quarter ended December 31, 2005) of $57.4 million or $0.67 per share, an increase of $7.0 million or $0.07 per share when compared to the first quarter of the previous fiscal year (note: all references to earnings per share are to diluted earnings per share and all amounts are stated in U.S. dollars). As a result of the sale of United Energy, its former operations in the Czech Republic, during the fourth quarter of fiscal 2005, National Fuel has reclassified certain historical information in its financial statements related to its former International segment into the category "Income from Discontinued Operations." Earnings from continuing operations for the quarter ended December 31, 2005, were $57.4 million or $0.67 per share, an increase of $12.6 million from the prior year's first quarter earnings from continuing operations of $44.8 million or $0.53 per share. The Company had no income from discontinued operations in the first quarter of fiscal 2006. This is a decrease of $5.6 million from the prior year first quarter. In all of fiscal 2005, recurring earnings from discontinued operations were $10.2 million. DISCUSSION OF FIRST QUARTER EARNINGS Earnings in each of the Company's five continuing reportable segments increased this quarter compared to last year's first quarter results. Utility Segment The Utility segment operations are carried out by National Fuel Gas Distribution Corporation ("Distribution") which sells or transports natural gas to approximately 731,000 customers located in western New York and northwestern Pennsylvania. The Utility segment's earnings of $21.7 million for the quarter ended December 31, 2005, were $3.7 million higher than the earnings in the same period last fiscal year. In Distribution's New York Division, earnings of $17.0 million for the quarter increased $1.8 million from $15.2 million in the first quarter of 2005. The increase in earnings for the quarter was mainly the result of an out-of-period adjustment of $2.6 million (after tax) to correct Distribution's calculation of the symmetrical sharing component included in the New York Gas Adjustment rate. The adjustment resulted when it was determined that certain credits that had been included in the calculation should have been removed during the implementation of a previous rate case settlement. The symmetrical sharing component is a mechanism incorporated in Distribution's New York rates that shares with customers 90% of the differences between actual revenues received from large volume customers and the level of revenues that were projected to be received during the rate year. The adjustment related to fiscal years 2002 through 2005. The remaining difference was due to lower average usage per customer, and higher bad debt, pension and interest expenses, which more than offset the positive impact of the rate settlement in New York. In Distribution's Pennsylvania Division, earnings for the quarter of $4.7 million were up $1.9 million from $2.8 million reported in the prior year's first quarter, as a result of the benefit of the $12.0 million annual base rate increase implemented in April 2005. This increase more than offset higher bad debt expense. Pipeline and Storage Segment The Pipeline and Storage segment operations are carried out by National Fuel Gas Supply Corporation ("Supply") and Empire State Pipeline ("Empire"). These companies provide natural gas transportation and storage services to affiliated and non-affiliated companies through an integrated system of pipelines and underground natural gas storage fields in western New York and western Pennsylvania. The Pipeline and Storage segment's earnings of $15.9 million for the quarter ended December 31, 2005, were up $3.6 million when compared with the same period in the prior fiscal year. The impact of higher transportation and efficiency gas revenues and lower project development costs associated with the Empire Connector project were the primary contributors to the increase. Transported volumes increased more than 21.0 billion cubic feet ("Bcf") from the first quarter of the prior year. Supply and Empire were both able to generate additional earnings by utilizing a portion of their system capacity to provide alternate transportation options to customers whose normal natural gas transportation routes were impacted by the hurricanes last fall. Exploration and Production Segment The Exploration and Production segment operations are carried out by Seneca Resources Corporation ("Seneca"). Seneca explores for, develops and purchases natural gas and oil reserves in California, in the Appalachian region, in the Gulf Coast region of Texas, Louisiana and Alabama, and in the western provinces of Canada. The Exploration and Production segment's earnings for the first quarter of fiscal 2006 of $17.4 million were up $3.5 million from the prior year's quarter. The increase was mainly due to the positive impact of higher crude oil and natural gas commodity prices, which was partially offset by expected lower production volumes (related to last fall's hurricanes in the Gulf of Mexico) and higher lease operating expenses. Production of 11.2 billion cubic feet equivalent ("Bcfe") met expected first quarter 2006 estimated production of 10 to 12 Bcfe. This was down 2.1 Bcfe from the prior year's first quarter. Gulf of Mexico production was 2.7 Bcfe lower than the prior year's quarter mainly due to production shut-ins resulting from Hurricane Rita. This decline was partially offset by higher production in Canada, California and the Appalachian region. Higher commodity prices (after hedging) more than offset the impact of this decline in production. For the quarter ended December 31, 2005, the weighted average natural gas price (after hedging) was $8.44/thousand cubic feet ("Mcf"), an increase of $2.45/Mcf from the prior year's quarter, and the weighted average oil price (after hedging) was $33.07/barrel ("Bbl"), an increase of $6.72/Bbl from the prior year's quarter. At the date of this release, approximately 87 percent of Seneca's Gulf of Mexico pre hurricane production is back on line. The remaining 13 percent of production continues to wait on repairs to Seneca's facilities, as well as third-party pipelines. These repairs may be completed within the next six months.* The increase in production revenues was partially offset by higher lease operating expenses, which, on a per unit basis, increased by $0.44/thousand cubic feet equivalent ("Mcfe") to $1.32/Mcfe. The increase in lease operating expense was mainly the result of higher steaming costs associated with heavy crude oil production in Seneca's California Midway-Sunset field. Seneca resumed operations of its scrubber facility in the Midway-Sunset field on December 7, 2005. Seneca expects to be able to burn waste gas rather than purchased utility gas to generate the steam for its thermal recovery project.* The current waste gas burn rate as a result of this project is about 1,400 Mcfe/day (58.3 Mcfe/hr), and is expected to reach 1,800 Mcfe/day in the next few weeks.* At a utility gas price of $7.00/Mcfe, this would save nearly $3.0 million per year.* During the first quarter of fiscal 2006, Seneca drilled 81 gross wells with a 96 percent success rate. Seneca also completed the High Island 37 A-5 well that was drilled to a depth of 12,030 feet Total Vertical Depth ("TVD") and encountered 91 feet TVD of net pay sand. The well is currently flowing 15.4 Mmcf/day of gas at 8,500 pounds per square inch ("PSI"). Seneca's working interest in the well is 78 percent; Seneca is the operator of this well. Seneca's capital expenditures during the first quarter of 2006 were $50.9 million. Seneca spent more than $24.0 million on well completion, exploratory drilling, facilities and seismic data in the Gulf of Mexico as high commodity prices, plus royalty relief, have improved the economics of investment in the area. In California, $9.4 million was spent mostly on developmental wells. Capital expenditures in the East were $5.4 million and in Canada were $12.1 million. Seneca increased its hedge positions for gas produced in 2006 and 2007. For the remaining three quarters of fiscal 2006, Seneca has 11.8 Bcf of gas hedged at an average price of $7.57/Mcf and 1.4 million barrels of oil hedged at an average price of $35.33/Bbl based on NYMEX prices at February 3, 2006. Seneca has emphasized the use of no-cost collars in its hedging program. This will allow Seneca to capture a portion of the upside of gas prices in this volatile gas market.* Energy Marketing National Fuel Resources, Inc. ("NFR"), comprises the Company's Energy Marketing segment. NFR markets natural gas to industrial, commercial, public authority and residential customers in western and central New York and northwestern Pennsylvania, offering competitively priced energy and energy management services to its customers. The Energy Marketing segment's net income for the quarter of $1.0 million increased $0.2 from $0.8 million during the first quarter last year mainly due to a 2.0 Bcf increase in volumes. Timber Segment The Timber segment operations are carried out by Highland Forest Resources, Inc. ("Highland"), and Seneca's Northeast Division. This segment markets timber from its New York and Pennsylvania land holdings, owns two sawmill operations in northwestern Pennsylvania, and processes timber consisting primarily of high quality hardwoods. The Timber segment's first quarter earnings of $1.5 million were $0.7 million higher than the prior year's first quarter. Favorable weather conditions throughout most of the first quarter allowed for an increase in harvested timber volumes and an increase in sales. Sales of cherry veneer logs, which have the highest margins in Highland's timber mix, increased 104,000 board feet or 20% from the prior year's first quarter. Corporate and All Other Other direct wholly-owned subsidiaries of the Company include Horizon Energy Development, Inc. ("Horizon"), a corporation formerly engaged in the development of international power projects, Horizon LFG, Inc., a corporation engaged through subsidiaries in the purchase, sale and transportation of landfill gas, Leidy Hub, Inc., a corporation formed to provide various natural gas hub services to customers in the eastern United States, Data-Track Account Services, Inc., a corporation that provides collection services principally for the Company's subsidiaries, and Horizon Power, Inc. ("Horizon Power"), a corporation that develops or operates mid-range independent power production facilities and landfill gas electric generation facilities. The loss in this category of $70,000 improved from a loss of $0.9 million mainly due to an increase in interest income resulting from the investment of the proceeds from the sale of United Energy. Philip C. Ackerman, Chairman and Chief Executive Officer of National Fuel Gas Company stated: "This quarter's results again demonstrate the benefit of our diversified structure. Notwithstanding the volatility in energy commodity prices that have affected almost every aspect of our operation, each of our segments increased their contribution to consolidated earnings per share this quarter and more than offset the loss of earnings from the sale of assets in our former International segment. Our Gulf of Mexico production has been restored to nearly 87% of the pre-Hurricane Rita levels. Continued high commodity prices have bolstered earnings in the Exploration and Production segment. In addition, earnings in our Pipeline and Storage segment benefited from providing an alternate transportation route to customers whose normal natural gas supplies and transportation routes were negatively impacted by the hurricanes, and the Utility segment is beginning to realize the full impact of last year's rate settlements. While the Company benefited from the implementation of these rate settlements, our New York customers also received some relief in their monthly bills through the refund of revenue taxes in a credit mechanism negotiated in that same settlement."* Effective October 1, 2005, the Company adopted Statement of Financial Accounting Standard 123R, commonly known as expensing of stock options. The increase in expense for the quarter ended December 31, 2005 as a result of expensing stock options, was $50,000. As previously announced, at its December 8, 2005, meeting the Board of Directors authorized the Company to repurchase up to eight million shares of the Company's common stock. To date no shares have been repurchased under this program but it is expected that open market repurchases will begin this month and continue from time to time depending on market conditions.* Any repurchase, will be reported on a quarterly basis in the Company's Forms 10-Q and 10-K. EARNINGS GUIDANCE Earnings guidance for the second quarter of fiscal 2006 is in the range of $0.93 to $1.03 per share (diluted). The Company's guidance regarding diluted earnings per share for its entire 2006 fiscal year remains in the range of $2.30 to $2.50.* Earnings per share guidance on a consolidated and segment basis is provided in the table that follows. The Company cautions that this range is based on NYMEX commodity futures prices that settled on September 13, 2005. A table (current as of February 8, 2005) is also included and shows how projected earnings are expected to change in response to changes from commodity pricing on which the guidance is based. NYMEX futures settlement prices on February 7, 2006 had changed as follows: natural gas prices averaged for the remaining nine months of the Company's fiscal year had dropped by approximately $1.54 per MMbtu, and NYMEX futures settlement prices for oil, averaged over the same period had increased by approximately $0.11 per barrel. Utilizing the sensitivities from the table that follows, and the February 7, 2006, NYMEX futures settlement prices, the earnings guidance range for fiscal 2006 could be reduced by approximately $0.15 per share. Because of the volatility in commodity prices, readers should review both the earnings guidance and sensitivity table when performing their analysis. EARNINGS TELECONFERENCE The Company will host a conference call on Thursday, February 9, 2006, at 11 a.m. (Eastern Time) to discuss this announcement. There are two ways to access this call. For those with Internet access, you may go to National Fuel's Web site at http://www.nationalfuelgas.com and click on the "For Investors" link at the top of the homepage. For those without Internet access, you may access the live call by dialing (toll-free) 1-866-362-4666, and use the passcode "38365930". For those unable to listen to the live conference call, a replay will be available approximately one hour after the conclusion of the call at the same Web site link and by phone at (toll free) 888-286-8010 using passcode "46826595." Both the webcast and telephonic replay will be available until the close of business on Thursday, February 16, 2006. National Fuel is an integrated energy company with $3.9 billion in assets comprised of the following five operating segments: Utility, Pipeline and Storage, Exploration and Production, Energy Marketing, and Timber. Additional information about National Fuel is available on its Internet Web site: http://www.nationalfuelgas.com or through its investor information service at 1-800-334-2188. -0- *T Certain statements contained herein, including those which are designated with an asterisk ("*") and those which use words such as "anticipates," "estimates," "expects," "intends," "plans," "predicts," "projects," and similar expressions, are "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The Company's expectations, beliefs and projections contained herein are expressed in good faith and are believed to have a reasonable basis, but there can be no assurance that such expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors, the following are important factors that could cause actual results to differ materially from those discussed in the forward-looking statements: changes in laws and regulations to which the Company is subject, including changes in tax, environmental, safety and employment laws and regulations, repeal of the Public Utility Holding Company Act of 1935, and changes in laws and regulations relating to such repeal; changes in economic conditions, including economic disruptions caused by terrorist activities, acts of war or major accidents; changes in demographic patterns and weather conditions, including the occurrence of severe weather, such as hurricanes; changes in the availability and/or price of natural gas or oil and the effect of such changes on the accounting treatment or valuation of derivative financial instruments or the Company's natural gas and oil reserves; impairments under the Securities and Exchange Commission's full cost ceiling test for natural gas and oil reserves; changes in the availability and/or price of derivative financial instruments; changes in the price differentials between various types of oil; failure of the price differential between heavy sour crude oil and light sweet crude oil to return to its historical norm; inability to obtain new customers or retain existing ones; significant changes in competitive factors affecting the Company; governmental/regulatory actions, initiatives and proceedings, including those involving acquisitions, financings, rate cases (which address, among other things, allowed rates of return, rate design and retained gas), affiliate relationships, industry structure, franchise renewal, and environmental/safety requirements; unanticipated impacts of restructuring initiatives in the natural gas and electric industries; significant changes from expectations in actual capital expenditures and operating expenses and unanticipated project delays or changes in project costs or plans, including changes in the plans of the sponsors of the proposed Millennium Pipeline with respect to that project; the nature and projected profitability of pending and potential projects and other investments; occurrences affecting the Company's ability to obtain funds from operations, debt or equity to finance needed capital expenditures and other investments, including any downgrades in the Company's credit ratings; uncertainty of oil and gas reserve estimates; ability to successfully identify and finance acquisitions or other investments and ability to operate and integrate existing and any subsequently acquired business or properties; ability to successfully identify, drill for and produce economically viable natural gas and oil reserves; significant changes from expectations in the Company's actual production levels for natural gas or oil; regarding foreign operations, changes in trade and monetary policies, inflation and exchange rates, taxes, operating conditions, laws and regulations related to foreign operations, and political and governmental changes; significant changes in tax rates or policies or in rates of inflation or interest; significant changes in the Company's relationship with its employees or contractors and the potential adverse effects if labor disputes, grievances or shortages were to occur; changes in accounting principles or the application of such principles to the Company; the cost and effects of legal and administrative claims against the Company; changes in actuarial assumptions and the return on assets with respect to the Company's retirement plan and post-retirement benefit plans; increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide post-retirement benefits; or increasing costs of insurance, changes in coverage and the ability to obtain insurance. The Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES RECONCILIATION TO REPORTED EARNINGS Three Three Months Months (Thousands of Dollars) Ended Ended December December 31, 2005 31, 2004 (unaudited) (unaudited) ----------- ----------- Utility ------- ----------- ----------- Reported earnings $21,753 $18,072 ----------- ----------- Pipeline and Storage -------------------- ----------- ----------- Reported earnings 15,850 12,277 ----------- ----------- Exploration and Production -------------------------- ----------- ----------- Reported earnings 17,435 13,923 ----------- ----------- Energy Marketing ---------------- ----------- ----------- Reported earnings 987 750 ----------- ----------- Timber ------ ----------- ----------- Reported earnings 1,464 753 ----------- ----------- Corporate and All Other ----------------------- ----------- ----------- Reported earnings (70) (945) ----------- ----------- Consolidated Earnings from Continuing Operations ------------------------------------- Reported earnings from continuing operations 57,419 44,830 Total non-recurring items from above - - ----------- ----------- Earnings from continuing operations before non-recurring items $57,419 $44,830 ----------- ----------- ----------- ----------- Discontinued Operations ----------------------- Reported earnings from discontinued operations - 5,608 ----------- ----------- Consolidated ------------ Reported earnings $57,419 $50,438 ----------- ----------- ----------- ----------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES RECONCILIATION TO REPORTED EARNINGS Three Three Months Months (Diluted Earnings Per Share) Ended Ended December December 31, 2005 31, 2004 (unaudited) (unaudited) ----------- ----------- Utility ------- ----------- ----------- Reported earnings $0.25 $0.21 ----------- ----------- Pipeline and Storage -------------------- ----------- ----------- Reported earnings 0.19 0.15 ----------- ----------- Exploration and Production -------------------------- ----------- ----------- Reported earnings 0.20 0.16 ----------- ----------- Energy Marketing ---------------- ----------- ----------- Reported earnings 0.01 0.01 ----------- ----------- Timber ------ ----------- ----------- Reported earnings 0.02 0.01 ----------- ----------- Corporate and All Other ----------------------- ----------- ----------- Reported earnings - (0.01) ----------- ----------- Consolidated Earnings from Continuing Operations ------------------------------------- Reported earnings from continuing operations 0.67 0.53 Total non-recurring items from above - - ----------- ----------- Earnings from continuing operations before non-recurring items $0.67 $0.53 =========== =========== Discontinued Operations ----------------------- Reported earnings from discontinued operations - 0.07 ----------- ----------- Consolidated ------------ Reported earnings $0.67 $0.60 ----------- ----------- ----------- ----------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES (Thousands of Dollars, except per share amounts) Three Months Ended December 31, (Unaudited) ----------------------- SUMMARY OF OPERATIONS 2005 2004 --------------------- ----------- ----------- Operating Revenues $710,756 $500,283 ----------- ----------- Operating Expenses: Purchased Gas 436,778 256,156 Operation and Maintenance 103,628 92,623 Property, Franchise and Other Taxes 17,181 17,056 Depreciation, Depletion and Amortization 43,046 42,709 ----------- ----------- 600,633 408,544 Operating Income 110,123 91,739 Other Income (Expense): Income from Unconsolidated Subsidiaries 1,264 785 Interest Income 1,134 272 Other Income 741 552 Interest Expense on Long-Term Debt (18,218) (18,376) Other Interest Expense (1,775) (2,417) ----------- ----------- Income from Continuing Operations Before Income Taxes 93,269 72,555 Income Tax Expense 35,850 27,725 ----------- ----------- Income from Continuing Operations 57,419 44,830 Income from Discontinued Operations, Net of Tax - 5,608 ----------- ----------- Net Income Available for Common Stock $57,419 $50,438 ----------- ----------- ----------- ----------- Earnings Per Common Share: Basic: Income from Continuing Operations $0.68 $0.54 Income from Discontinued Operations - 0.07 ----------- ----------- Net Income Available for Common Stock $0.68 $0.61 ----------- ----------- ----------- ----------- Diluted: Income from Continuing Operations $0.67 $0.53 Income from Discontinued Operations - 0.07 ----------- ----------- Net Income Available for Common Stock $0.67 $0.60 ----------- ----------- ----------- ----------- Weighted Average Common Shares: Used in Basic Calculation 84,422,717 83,150,086 ----------- ----------- ----------- ----------- Used in Diluted Calculation 86,256,862 84,638,106 ----------- ----------- ----------- ----------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, September 30, (Thousands of Dollars) 2005 2005 ---------------------------------------------------------------------- ASSETS Property, Plant and Equipment $4,471,581 $4,423,255 Less - Accumulated Depreciation, Depletion and Amortization 1,602,254 1,583,955 ------------------------------------------- -------------------------- Net Property, Plant and Equipment 2,869,327 2,839,300 ------------------------------------------- -------------------------- Current Assets: Cash and Temporary Cash Investments 64,464 57,607 Hedging Collateral Deposits 38,691 77,784 Receivables - Net 289,229 155,064 Unbilled Utility Revenue 97,932 20,465 Gas Stored Underground 60,040 64,529 Materials and Supplies - at average cost 32,063 33,267 Unrecovered Purchased Gas Costs 28,552 14,817 Prepayments and Other Current Assets 53,697 65,469 Deferred Income Taxes 47,635 83,774 Fair Value of Derivative Financial Instruments 797 - ------------------------------------------- -------------------------- Total Current Assets 713,100 572,776 ------------------------------------------- -------------------------- Other Assets: Recoverable Future Taxes 85,000 85,000 Unamortized Debt Expense 17,025 17,567 Other Regulatory Assets 50,790 47,028 Deferred Charges 3,864 4,474 Other Investments 82,336 80,394 Investments in Unconsolidated Subsidiaries 10,771 12,658 Goodwill 5,476 5,476 Intangible Assets 41,637 42,302 Other 10,609 15,677 ------------------------------------------- -------------------------- Total Other Assets 307,508 310,576 ------------------------------------------- -------------------------- Total Assets $3,889,935 $3,722,652 ------------------------------------------- -------------------------- ------------------------------------------- -------------------------- CAPITALIZATION AND LIABILITIES Capitalization: Comprehensive Shareholders' Equity Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding - 84,498,511 Shares and 84,356,748 Shares, Respectively $84,499 $84,357 Paid in Capital 538,907 529,834 Earnings Reinvested in the Business 845,951 813,020 ------------------------------------------- -------------------------- Total Common Shareholder Equity Before Items of Other Comprehensive Income Loss 1,469,357 1,427,211 Accumulated Other Comprehensive Loss (148,064) (197,628) ------------------------------------------- -------------------------- Total Comprehensive Shareholders' Equity 1,321,293 1,229,583 Long-Term Debt, Net of Current Portion 1,116,779 1,119,012 ------------------------------------------- -------------------------- Total Capitalization 2,438,072 2,348,595 ------------------------------------------- -------------------------- Current and Accrued Liabilities: Notes Payable to Banks and Commercial Paper 74,800 - Current Portion of Long-Term Debt 9,516 9,393 Accounts Payable 212,067 155,485 Amounts Payable to Customers 1,031 1,158 Dividends Payable 24,488 24,445 Other Accruals and Current Liabilities 58,788 60,404 Fair Value of Derivative Financial Instruments 127,428 209,072 ------------------------------------------- -------------------------- Total Current and Accrued Liabilities 508,118 459,957 ------------------------------------------- -------------------------- Deferred Credits: Deferred Income Taxes 500,982 489,720 Taxes Refundable to Customers 11,066 11,009 Unamortized Investment Tax Credit 6,621 6,796 Cost of Removal Regulatory Liability 91,724 90,396 Other Regulatory Liabilities 64,360 66,339 Pension and Other Post-Retirement Benefit Liabilities 153,242 143,687 Asset Retirement Obligation 41,647 41,411 Other Deferred Credits 74,103 64,742 ------------------------------------------- -------------------------- Total Deferred Credits 943,745 914,100 ------------------------------------------- -------------------------- Commitments and Contingencies - - ------------------------------------------- -------------------------- Total Capitalization and Liabilities $3,889,935 $3,722,652 ------------------------------------------- -------------------------- ------------------------------------------- -------------------------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended December 31, (Thousands of Dollars) 2005 2004 ---------------------------------------------------------------------- Operating Activities: Net Income Available for Common Stock $57,419 $50,438 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation, Depletion and Amortization 43,046 46,940 Deferred Income Taxes 16,653 (1,864) (Income) Loss from Unconsolidated Subsidiaries, Net of Cash Distributions 1,887 715 Minority Interest in Foreign Subsidiaries - 937 Excess Tax Benefits Associated with Stock-Based Compensation Awards (6,439) - Other 3,159 2,684 Change in: Hedging Collateral Deposits 39,093 973 Receivables and Unbilled Utility Revenue (211,491) (132,963) Gas Stored Underground and Materials and Supplies 5,692 12,824 Unrecovered Purchased Gas Costs (13,735) 636 Prepayments and Other Current Assets 17,075 6,946 Accounts Payable 56,580 43,950 Amounts Payable to Customers (127) 7,640 Other Accruals and Current Liabilities (554) 14,605 Other Assets (3,083) (13,894) Other Liabilities 15,394 18,560 ---------------------------------------------------------------------- Net Cash Provided by Operating Activities $20,569 $59,127 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Investing Activities: Capital Expenditures ($70,368) ($40,022) Other (745) (1,046) ---------------------------------------------------------------------- Net Cash Used in Investing Activities ($71,113) ($41,068) ---------------------------------------------------------------------- ---------------------------------------------------------------------- Financing Activities: Change in Notes Payable to Banks and Commercial Paper $74,800 $13,300 Excess Tax Benefits Associated with Stock-Based Compensation Awards 6,439 - Reduction of Long-Term Debt (2,110) (3,509) Dividends Paid on Common Stock (24,445) (23,210) Proceeds From Issuance of Common Stock 2,570 3,452 ---------------------------------------------------------------------- Net Cash Provided by (Used In) Financing Activities $57,254 ($9,967) ---------------------------------------------------------------------- ---------------------------------------------------------------------- Effect of Exchange Rates on Cash 147 5,339 ---------------------------------------------------------------------- Net Increase in Cash and Temporary Cash Investments 6,857 13,431 Cash and Temporary Cash Investments at Beginning of Period 57,607 57,541 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Cash and Temporary Cash Investments at December 31 $64,464 $70,972 ---------------------------------------------------------------------- ---------------------------------------------------------------------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended amounts) December 31, --------------------------- UTILITY SEGMENT 2005 2004 Variance --------------- -------------------------- Revenues from External Customers $431,479 $316,829 $114,650 Intersegment Revenues 4,121 4,305 (184) --------------------------- Total Operating Revenues 435,600 321,134 114,466 --------------------------- Operating Expenses: Purchased Gas 320,557 217,955 102,602 Operation and Maintenance 51,711 45,813 5,898 Property, Franchise and Other Taxes 11,514 11,511 3 Depreciation, Depletion and Amortization 9,977 9,980 (3) --------------------------- 393,759 285,259 108,500 --------------------------- Operating Income 41,841 35,875 5,966 Other Income (Expense): Interest Income 201 (6) 207 Other Income 212 124 88 Other Interest Expense (6,723) (5,610) (1,113) --------------------------- Income Before Income Taxes 35,531 30,383 5,148 Income Tax Expense 13,778 12,311 1,467 --------------------------- Net Income $ 21,753 $ 18,072 $ 3,681 --------------------------- --------------------------- Net Income Per Share (Diluted) $ 0.25 $ 0.21 $ 0.04 --------------------------- --------------------------- Three Months Ended December 31, --------------------------- PIPELINE AND STORAGE SEGMENT 2005 2004 Variance ---------------------------- --------------------------- Revenues from External Customers $ 34,738 $ 32,445 $ 2,293 Intersegment Revenues 21,296 20,599 697 --------------------------- Total Operating Revenues 56,034 53,044 2,990 --------------------------- Operating Expenses: Purchased Gas (16) 680 (696) Operation and Maintenance 15,316 16,985 (1,669) Property, Franchise and Other Taxes 3,956 3,725 231 Depreciation, Depletion and Amortization 9,183 9,094 89 --------------------------- 28,439 30,484 (2,045) --------------------------- Operating Income 27,595 22,560 5,035 Other Income (Expense): Interest Income 52 12 40 Other Income 208 104 104 Interest Expense on Long-Term Debt (318) (483) 165 Other Interest Expense (1,296) (1,357) 61 --------------------------- Income Before Income Taxes 26,241 20,836 5,405 Income Tax Expense 10,391 8,559 1,832 --------------------------- Net Income $ 15,850 $ 12,277 $ 3,573 --------------------------- --------------------------- Net Income Per Share (Diluted) $ 0.19 $ 0.15 $ 0.04 --------------------------- --------------------------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended amounts) December 31, -------------------------- EXPLORATION AND PRODUCTION SEGMENT 2005 2004 Variance ---------------------------------- -------------------------- Operating Revenues $ 82,087 $ 71,838 $10,249 -------------------------- Operating Expenses: Purchased Gas 94 (228) 322 Operation and Maintenance: General and Administrative Expense 6,300 5,178 1,122 Lease Operating Expense 13,539 10,457 3,082 All Other Operation and Maintenance Expense 1,972 1,726 246 Property, Franchise and Other Taxes (Lease Operating Expense) 1,208 1,257 (49) Depreciation, Depletion and Amortization 21,540 21,828 (288) -------------------------- 44,653 40,218 4,435 -------------------------- Operating Income 37,434 31,620 5,814 Other Income (Expense): Interest Income 1,841 858 983 Other Interest Expense (12,429) (12,028) (401) -------------------------- Income Before Income Taxes 26,846 20,450 6,396 Income Tax Expense 9,411 6,527 2,884 -------------------------- Net Income $ 17,435 $ 13,923 $ 3,512 -------------------------- -------------------------- Net Income Per Share (Diluted) $ 0.20 $ 0.16 $ 0.04 -------------------------- -------------------------- Three Months Ended December 31, -------------------------- ENERGY MARKETING SEGMENT 2005 2004 Variance ------------------------ -------------------------- Operating Revenues $145,560 $ 63,494 $82,066 -------------------------- Operating Expenses: Purchased Gas 142,829 61,589 81,240 Operation and Maintenance 1,231 768 463 Property, Franchise and Other Taxes 10 46 (36) Depreciation, Depletion and Amortization 21 21 - -------------------------- 144,091 62,424 81,667 -------------------------- Operating Income 1,469 1,070 399 Other Income (Expense): Interest Income 126 134 (8) Other Income 99 53 46 Other Interest Expense (62) (2) (60) -------------------------- Income Before Income Taxes 1,632 1,255 377 Income Tax Expense 645 505 140 -------------------------- Net Income $ 987 $ 750 $ 237 -------------------------- -------------------------- Net Income Per Share (Diluted) $ 0.01 $ 0.01 $ - -------------------------- -------------------------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended amounts) December 31, ------------------------- TIMBER SEGMENT 2005 2004 Variance -------------- ------------------------- Revenues from External Customers $16,908 $12,995 $ 3,913 Intersegment Revenues 23 - 23 ------------------------- Total Operating Revenues 16,931 12,995 3,936 ------------------------- Operating Expenses: Operation and Maintenance 11,684 9,558 2,126 Property, Franchise and Other Taxes 380 329 51 Depreciation, Depletion and Amortization 2,011 1,477 534 ------------------------- 14,075 11,364 2,711 ------------------------- Operating Income 2,856 1,631 1,225 Other Income (Expense): Interest Income 137 92 45 Other Income 17 17 - Other Interest Expense (763) (585) (178) ------------------------- Income Before Income Taxes 2,247 1,155 1,092 Income Tax Expense 783 402 381 ------------------------- Net Income $ 1,464 $ 753 $ 711 ------------------------- ------------------------- Net Income Per Share (Diluted) $ 0.02 $ 0.01 $ 0.01 ------------------------- ------------------------- Three Months Ended December 31, ------------------------- ALL OTHER 2005 2004 Variance --------- ------------------------- Revenues from External Customers $ (16) $ 2,682 $(2,698) Intersegment Revenues 4,527 1,080 3,447 ------------------------- Total Operating Revenues 4,511 3,762 749 ------------------------- Operating Expenses: Purchased Gas 3,107 2,070 1,037 Operation and Maintenance 874 890 (16) Property, Franchise and Other Taxes 19 20 (1) Depreciation, Depletion and Amortization 199 193 6 ------------------------- 4,199 3,173 1,026 ------------------------- Operating Income 312 589 (277) Other Income (Expense): Income from Unconsolidated Subsidiaries 1,264 785 479 Interest Income 6 4 2 Other Income 3 - 3 Other Interest Expense (590) (352) (238) ------------------------- Income Before Income Taxes 995 1,026 (31) Income Tax Expense 425 426 (1) ------------------------- Net Income $ 570 $ 600 $ (30) ------------------------- ------------------------- Net Income Per Share (Diluted) $ 0.01 $ 0.01 $ - ------------------------- ------------------------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended amounts) December 31, ---------------------------- CORPORATE 2005 2004 Variance --------- ---------------------------- Intersegment Revenues $ 692 $ 628 $ 64 ---------------------------- Operating Expenses: Operation and Maintenance 1,867 1,950 (83) Property, Franchise and Other Taxes 94 168 (74) Depreciation, Depletion and Amortization 115 116 (1) ---------------------------- 2,076 2,234 (158) ---------------------------- Operating Loss (1,384) (1,606) 222 Other Income (Expense): Interest Income 22,654 19,553 3,101 Other Income 202 254 (52) Interest Expense on Long-Term Debt (17,900) (17,893) (7) Other Interest Expense (3,795) (2,858) (937) ---------------------------- Loss Before Income Taxes (223) (2,550) 2,327 Income Tax Expense 417 (1,005) 1,422 ---------------------------- Net Loss $ (640) $ (1,545) $ 905 ---------------------------- ---------------------------- Net Loss Per Share (Diluted) $ (0.01) $ (0.02) $ 0.01 ---------------------------- ---------------------------- Three Months Ended December 31, ---------------------------- INTERSEGMENT ELIMINATIONS 2005 2004 Variance ------------------------- ---------------------------- Intersegment Revenues $(30,659) $(26,612) $(4,047) ---------------------------- Operating Expenses: Purchased Gas (29,793) (25,910) (3,883) Operation and Maintenance (866) (702) (164) ---------------------------- (30,659) (26,612) (4,047) ---------------------------- Operating Income - - - Other Income (Expense): Interest Income (23,883) (20,375) (3,508) Other Interest Expense 23,883 20,375 3,508 ---------------------------- Net Income $ - $ - $ - ---------------------------- ---------------------------- Net Income Per Share (Diluted) $ - $ - $ - ---------------------------- ---------------------------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Continued) (Thousands of Dollars) Three Months Ended December 31, (Unaudited) ------------------------------------- Increase 2005 2004 (Decrease) --------- --------- ----------- Capital Expenditures: --------------------- Utility $ 12,354 $ 11,335 $ 1,019 Pipeline and Storage 6,163 4,887 1,276 Exploration and Production 50,923 21,008 29,915 Energy Marketing 5 11 (6) Timber 495 852 (357) --------- --------- ----------- Total Reportable Segments 69,940 38,093 31,847 All Other - 7 (7) Corporate 428 19 409 --------- --------- ----------- Total Expenditures from Continuing Operations $ 70,368 $ 38,119 $ 32,249 --------- --------- ----------- --------- --------- ----------- DEGREE DAYS ----------- Percent Colder Three Months Ended (Warmer) Than: December 31 Normal 2005 2004 Normal Last Year ------------------- -------- ------- -------- -------- --------- Buffalo, NY 2,260 2,210 2,172 (2.2) 1.7 Erie, PA 2,081 2,048 1,997 (1.6) 2.6 NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES EXPLORATION AND PRODUCTION INFORMATION -------------------------------------- Three Months Ended December 31, ---------------------------- Increase 2005 2004 (Decrease) ------- ------- ---------- Gas Production/Prices: ---------------------- Production (MMcf) Gulf Coast 1,667 3,225 (1,558) West Coast 1,018 1,039 (21) Appalachia 1,253 1,206 47 Canada 1,911 1,665 246 ------- ------- --------- 5,849 7,135 (1,286) ------- ------- --------- ------- ------- --------- Average Prices (Per Mcf) Gulf Coast $ 10.74 $ 6.50 $ 4.24 West Coast 11.08 6.55 4.53 Appalachia 13.62 7.73 5.89 Canada 10.76 5.45 5.31 Weighted Average 11.42 6.47 4.95 Weighted Average after Hedging 8.44 5.99 2.45 Oil Production/Prices: ---------------------- Production (Thousands of Barrels) Gulf Coast 107 289 (182) West Coast 685 653 32 Appalachia 10 3 7 Canada 87 76 11 ------- ------- --------- 889 1,021 (132) ------- ------- --------- ------- ------- --------- Average Prices (Per Barrel) Gulf Coast $ 57.90 $ 47.08 $ 10.82 West Coast 51.34 37.14 14.20 Appalachia 61.53 44.33 17.20 Canada 43.18 38.43 4.75 Weighted Average 51.45 40.08 11.37 Weighted Average after Hedging 33.07 26.35 6.72 Total Production (Mmcfe) 11,183 13,261 (2,078) ------------------------ ------- ------- --------- ------- ------- --------- Selected Operating Performance Statistics: ------------------------------------------ General & Administrative Expense per Mcfe (1) $ 0.56 $ 0.39 $ 0.17 Lease Operating Expense per Mcfe (1) $ 1.32 $ 0.88 $ 0.44 Depreciation, Depletion & Amortization per Mcfe (1) $ 1.93 $ 1.65 $ 0.28 (1) Refer to page 13 for the General and Administrative Expense, Lease Operating Expense and Depreciation, Depletion, and Amortization Expense for the Exploration and Production segment. NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES EXPLORATION AND PRODUCTION INFORMATION -------------------------------------- Hedging Summary for Fiscal 2006 SWAPS Volume Average Hedge Price ----- ------ ------------------- Oil 1.4 .MMBBL $35.33 / BBL Gas 6.7 BCF $6.21 / MCF No-cost Collars Volume Floor Price Ceiling Price --------------- ------ ----------- ------------- Gas 5.1 BCF $7.28 / MCF $11.34 / MCF Hedging Summary for Fiscal 2007 SWAPS Volume Average Hedge Price ----- ------ ------------------- Oil 0.9 MMBBL $37.03 / BBL Gas 0.7 BCF $5.84 / MCF No-cost Collars Volume Floor Price Ceiling Price --------------- ------ ----------- ------------- Gas 3.5 BCF $8.12 / MCF $11.35 / MCF Drilling Program Quarter Ended December 31, 2005: ------------------------------------------------- Gross Wells Drilled ------------------- Gulf West East Canada Total -------- -------- ------- -------- -------- Exploratory Successful 0 0 1 6 7 Unsuccessful 0 0 0 2 2 Developmental Successful 0 32 38 1 71 Unsuccessful 0 1 0 0 1 Total Successful 0 32 39 7 78 Unsuccessful 0 1 0 2 3 Success Ratio N/A 97% 100% 78% 96% NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES Utility Throughput - (millions of cubic feet - MMcf) Three Months Ended December 31, --------------------------- Increase 2005 2004 (Decrease) -------- ------- ---------- Retail Sales: Residential Sales 19,524 19,869 (345) Commercial Sales 3,443 3,454 (11) Industrial Sales 327 176 151 -------- ------- ---------- 23,294 23,499 (205) Transportation 14,342 14,103 239 -------- ------- ---------- 37,636 37,602 34 -------- ------- ---------- -------- ------- ---------- Pipeline & Storage Throughput- (MMcf) Three Months Ended December 31, --------------------------- Increase 2005 2004 (Decrease) -------- ------- ---------- Firm Transportation - Affiliated 33,225 32,202 1,023 Firm Transportation - Non-Affiliated 69,597 51,540 18,057 Interruptible Transportation 3,723 1,662 2,061 -------- ------- ---------- 106,545 85,404 21,141 -------- ------- ---------- -------- ------- ---------- Energy Marketing Volumes Three Months Ended December 31, --------------------------- Increase 2005 2004 (Decrease) -------- ------- ---------- Natural Gas (MMcf) 9,975 8,007 1,968 -------- ------- ---------- -------- ------- ---------- Timber Board Feet (Thousands) December 31, --------------------------- Increase 2005 2004 (Decrease) -------- ------- ---------- Log Sales 2,491 1,745 746 Green Lumber Sales 1,974 2,164 (190) Kiln Dry Lumber Sales 4,486 3,366 1,120 -------- ------- ---------- 8,951 7,275 1,676 -------- ------- ---------- -------- ------- ---------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES FISCAL 2006 SEGMENT EARNINGS GUIDANCE AND SENSITIVITIES Earnings per share sensitivity to changes from September 13, 2005 NYMEX prices(a)(b) Fiscal 2006 earnings per ----------------------------------- share guidance by segment(a) $1 change per $1 change per MMBtu gas Bbl oil ---------------- ------------------ Range Increase Decrease Increase Decrease ---------------- -------- -------- -------- -------- Utility $0.52 $0.59 - $0.01 + $0.01 - - Pipeline & Storage $0.60 $0.63 + $0.015 - $0.015 - - Exploration & Production $1.10 $1.20 + $0.09 - $0.09 + $0.01 - $0.01 Energy Marketing $0.02 $0.02 - - - - Timber $0.05 $0.05 - - - - Corporate & Other $0.01 $0.01 - - - - Consolidated $2.30 $2.50 + $0.095 - $0.095 + $0.01 - $0.01 NYMEX Settlement Prices at September 13, 2005 --------------------------------------------- Natural Gas Oil ($ per MMBtu) ($ per Bbl) ------------- ----------- Oct-05 $10.763 $63.11 Nov-05 $11.371 $63.78 Dec-05 $11.866 $64.38 Jan-06 $12.156 $64.83 Feb-06 $12.046 $65.19 Mar-06 $11.751 $65.41 Apr-06 $9.551 $65.48 May-06 $9.191 $65.44 Jun-06 $9.216 $65.35 Jul-06 $9.257 $65.23 Aug-06 $9.300 $65.10 Sep-06 $9.276 $64.96 Fiscal Year Average $10.479 $64.86 Jan-06/Sept-06 Average $10.194 $65.22 (a) Please refer to forward looking statement footnote at page 6 of this document. (b) This sensitivity table is current as of February 8, 2006, but will become obsolete with the passage of time, changes in Seneca's production forecast, changes in customer use per account, as additional hedging contracts are entered into, and the settling of NYMEX hedge contracts at their maturity. NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES Quarter Ended December 31 (unaudited) 2005 2004 -------------------------------------- -------------- -------------- Operating Revenues $ 710,756,000 $ 500,283,000 --------------- -------------- --------------- -------------- Income from Continuing Operations $ 57,419,000 $ 44,830,000 Income from Discontinued Operations, Net of Tax - 5,608,000 --------------- -------------- Net Income Available for Common Stock $ 57,419,000 $ 50,438,000 --------------- -------------- --------------- -------------- Earnings Per Common Share: Basic: Income from Continuing Operations $ 0.68 $ 0.54 Income from Discontinued Operations - 0.07 -------------- -------------- Net Income Available for Common Stock $ 0.68 $ 0.61 --------------- -------------- --------------- -------------- Diluted: Income from Continuing Operations $ 0.67 $ 0.53 Income from Discontinued Operations - 0.07 -------------- -------------- Net Income Available for Common Stock $ 0.67 $ 0.60 --------------- -------------- --------------- -------------- Weighted Average Common Shares: Used in Basic Calculation 84,422,717 83,150,086 --------------- -------------- --------------- -------------- Used in Diluted Calculation 86,256,862 84,638,106 --------------- -------------- --------------- -------------- Twelve Months Ended December 31 (unaudited) ------------------------------------------- Operating Revenues $2,134,021,000 $1,917,888,000 -------------- -------------- -------------- -------------- Income from Continuing Operations $ 166,104,000 $ 159,561,000 Income from Discontinued Operations, Net of Tax 30,365,000 8,249,000 -------------- -------------- Net Income Available for Common Stock $ 196,469,000 $ 167,810,000 -------------- -------------- -------------- -------------- Earnings Per Common Share: Basic: Income from Continuing Operations $ 1.98 $ 1.94 Income from Discontinued Operations 0.36 0.10 -------------- -------------- Net Income Available for Common Stock $ 2.34 $ 2.04 -------------- -------------- -------------- -------------- Diluted: Income from Continuing Operations $ 1.94 $ 1.91 Income from Discontinued Operations 0.36 0.10 -------------- -------------- Net Income Available for Common Stock $ 2.30 $ 2.01 -------------- -------------- -------------- -------------- Weighted Average Common Shares: Used in Basic Calculation 83,862,052 82,442,202 -------------- -------------- -------------- -------------- Used in Diluted Calculation 85,438,189 83,520,574 -------------- -------------- -------------- -------------- *T