NFG National Fuel Gas Co

National Fuel Gas Company ("National Fuel" or the "Company") (NYSE:NFG) today announced consolidated earnings for the quarter ended March 31, 2006, of $78.6 million or $0.91 per share, an increase of $7.9 million or $0.08 per share from the second 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). All earnings from the second quarter of 2006 were from continuing operations and there were no non-recurring items. -0- *T Three Months Six Months Ended March 31, Ended March 31, 2006 2005 2006 2005 --------- --------- --------- --------- (in thousands except per share amounts) Reported GAAP earnings $ 78,594 $ 70,683 $136,013 $121,120 Less: Discontinued operations of United Energy(1) (6,702) (12,310) --------- -------- --------- -------- Income from continuing operations 78,594 63,981 136,013 108,810 Less: Non-recurring base gas sale(2) (2,636) (2,636) --------- -------- --------- -------- Recurring earnings $ 78,594 $ 61,345 $136,013 $106,174 ======== ======== ======== ======== Reported GAAP earnings per share $ 0.91 $ 0.83 $ 1.58 $ 1.43 Less: Discontinued operations of United Energy(1) (0.08) (0.15) --------- -------- --------- -------- Income from continuing operations 0.91 0.75 1.58 1.28 Less: Non-recurring base gas sale(2) (0.03) (0.03) --------- -------- --------- -------- Recurring earnings per share $ 0.91 $ 0.72 $ 1.58 $ 1.25 ======== ======== ======== ======== (1) National Fuel presents the earnings of United Energy, a.s. ("United Energy"), its former operations in the Czech Republic, as "Income from Discontinued Operations." (2) See discussion of non-recurring items later within this release. *T As a result of the July, 2005, sale of United Energy, the Company's former operations in the Czech Republic, the Company has presented its earnings in terms of earnings from continuing operations and earnings from discontinued operations. Earnings from discontinued operations for the quarter ended March 31, 2005, were $6.7 million or $0.08 per share. For fiscal 2005, recurring earnings from discontinued operations totaled $10.2 million. Earnings from continuing operations for the quarter ended March 31, 2006, increased $14.6 million or $0.16 per share from the prior year's second quarter earnings from continuing operations of $64.0 million or $0.75 per share. Earnings from continuing operations before non-recurring items for the quarter ended March 31, 2005, exclude a $2.6 million gain (after tax) from the sale of base gas from National Fuel Gas Supply Corporation's ("Supply Corporation") jointly-owned Ellisburg Storage Field. Excluding that item, earnings from continuing operations for the current quarter increased $17.25 million or $0.19 per share from the prior year's second quarter earnings from continuing operations of $61.35 million or $0.72 per share. See further discussion of non-recurring items later within this document. Philip C. Ackerman, Chairman and Chief Executive Officer of National Fuel Gas Company stated: "We are pleased with this quarter. Solid performance across all segments has put us on track to achieve record earnings this fiscal year.* Recurring earnings for the quarter and six-months ended March 31, 2006, increased over the same periods in the prior fiscal year, mainly due to higher oil and gas prices realized in the Exploration and Production segment. While commodity prices were higher versus the prior year, natural gas prices declined significantly from the prices that were used to develop the Company's earnings guidance of $0.93 to $1.03 per share for the quarter. Those lower prices tended to dampen our earnings in the Exploration and Production segment in line with the pricing sensitivity table provided last quarter. The warmer than normal weather and customer conservation also caused earnings in the Utility segment for the quarter to be below forecast. DISCUSSION OF SECOND QUARTER EARNINGS CONTINUING OPERATIONS BEFORE NON-RECURRING ITEMS Please note that the following discussion of earnings from continuing operations excludes certain non-recurring profit and loss items in an effort to provide a clearer picture of actual operating results for the period. A summary of those non-recurring items follows the Discussion of Second Quarter Earnings and Discussion of Six Month Earnings and Earnings Guidance. A reconciliation of reported earnings to the earnings discussed below is provided later within this report. 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 $28.7 million for the quarter ended March 31, 2006, were $0.2 million lower than the earnings in the prior year's second quarter. In Distribution's New York Division, earnings of $23.72 million for the quarter increased $1.28 million from $22.44 million in the second quarter of 2005. The impact of the New York rate settlement implemented in August 2005 more than offset lower average usage per customer and higher bad debt, pension, and interest expenses. In Distribution's Pennsylvania Division, earnings for the quarter of $4.93 million were down $1.51 million from the $6.44 million reported in the prior year's second quarter. This decrease is mainly the result of weather that was 13.9 percent warmer than normal and 17.2 percent warmer than the prior year. Lower average usage per customer and higher bad debt expense combined with the warmer weather to more than offset the benefit of the $12.0 million annual base rate increase implemented in April 2005. Pipeline and Storage Segment The Pipeline and Storage segment operations are carried out by Supply Corporation 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 $16.9 million for the quarter ended March 31, 2006, were up $1.1 million when compared with the same period in the prior fiscal year. The impact of higher efficiency gas revenues and lower project development costs associated with the Empire Connector project were the primary contributors to the increase. These items more than offset an increase in pension expense for the quarter. 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 second quarter of fiscal 2006 of $25.8 million were up $14.6 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 anticipated slightly lower production volumes and higher depletion and lease operating expenses. In addition Seneca recognized a $5.1 million benefit to earnings that resulted from an adjustment to a deferred income tax balance. Under generally accepted accounting principles, a company may recognize the benefit of certain expected future income tax deductions as a deferred tax asset only if it anticipates sufficient future taxable income to utilize those deductions. As a result of the rise in commodity prices and higher than anticipated production from certain properties, Seneca increased its forecast of future taxable income in the Canadian division and, as a result, recorded a deferred tax asset for certain costs related to capital expenditures that it now expects to deduct on future income tax returns. Higher commodity prices (after hedging) more than offset the impact of a 7 percent decline in production. Production of 12.1 billion cubic feet equivalent ("Bcfe") was in line with Seneca's expected production estimate for the quarter of 11 to 13 Bcfe. For the quarter ended March 31, 2006, the weighted average natural gas price (after hedging) was $7.39/thousand cubic feet ("Mcf"), an increase of $1.42/Mcf from the prior year's quarter, and the weighted average oil price (after hedging) was $40.30/barrel ("Bbl"), an increase of $14.20/Bbl from the prior year's quarter. Seneca remains on track to meet its production estimate of 46 to 51 Bcfe for the fiscal year.* Seneca's higher production revenues were partially offset by higher lease operating expenses of approximately $2.1 million, which, on a per unit basis, increased $0.25/thousand cubic feet equivalent ("Mcfe") to $1.21/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 and North Lost Hills fields and a general increase in the cost of field services. The higher steaming costs were due to an increase in the price for gas purchased and used in the steaming operations that averaged $7.72/Mcfe this quarter versus $5.62/Mcfe in the prior year's quarter, and an increase in the steaming activity at the North Lost Hills field. Seneca's scrubber facility in the Midway-Sunset field began full operations in April 2006 and is now burning waste gas rather than gas purchased in the field to generate the steam for its thermal recovery project. The current waste gas burn rate is 1,800 Mcfe/day. Savings from the scrubber operation have been incorporated into future earnings guidance.* Seneca drilled 48 wells with a 100 percent success rate during the second quarter. Drilling activity in the third quarter is expected to increase in both Seneca's East and Canadian divisions as field conditions for drilling improve.* Offshore, Seneca commenced production on its West Cameron 213 #B-1 well. This well initiated production on April 21, 2006, and is expected to produce 4 Mmcf/day.* Seneca's working interest in this well is 100%. On March 31, 2006, Seneca completed a $5.2 million acquisition in California of 640 acres. The property includes 2.5 Bcfe of gross reserves and three producing wells adjacent to its South Lost Hills field. The three wells are producing a total of 105 barrels of oil equivalent per day. Seneca plans to drill three additional wells on this property starting this month.* The acquired production is already connected to Seneca's existing facilities. 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 $3.9 million increased $1.3 million from $2.6 million in the second quarter last year. This increase resulted from a number of factors, most notably a 14% increase in sales volumes and the marketing flexibility that NFR had from its stored gas. NFR's contracts for significant storage and transportation volumes have provided operational flexibility resulting in increased sales throughput and earnings. 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/dry kiln operations in northwestern Pennsylvania, and processes timber consisting primarily of high quality hardwoods. The Timber segment's second quarter earnings of $2.2 million were $0.7 million lower than the prior year's second quarter. Sales of the highest margin cherry veneer logs were down approximately 231,000 board feet or 22 percent from the prior year's second quarter. Unseasonably warm weather in January and March hampered harvesting efforts during the quarter. Despite the lower harvested volumes, log and lumber sales volumes increased due to the liquidation of higher log volumes in inventory at the beginning of the quarter versus the prior year's quarter, and Highland processed higher volumes of purchased lumber through its expanded kiln capacity. The increase in log sales consisted primarily of low margin saw logs. Corporate and All Other Other direct wholly-owned subsidiaries of the Company include Horizon Energy Development, Inc., 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, and Horizon Power, Inc., a corporation that develops or operates mid-range independent power production facilities and landfill gas electric generation facilities. Earnings in this category of $1.1 million improved from a loss of $0.1 million mainly due to an increase in interest income resulting from the investment of the proceeds from the sale of United Energy and lower expenses for project development costs in the former international segment. DISCUSSION OF SIX MONTH EARNINGS Consolidated earnings for the six months ended March 31, 2006, were $136.0 million or $1.58 per share, an increase of $14.9 million from the prior year's earnings of $121.1 million. Earnings for the six months ended March 31, 2005, include earnings from discontinued operations from United Energy, the Company's former operations in the Czech Republic, of $12.3 million or $0.15 per share. There was no income from discontinued operations for the six months ended March 31, 2006. Earnings from continuing operations for the six months ended March 31, 2006, were $136.0 million or $1.58 per share, an increase of $27.2 million from the prior year's six months earnings from continuing operations of $108.8 million or $1.28 per share. Excluding non-recurring items for the six months ended March 31, 2005, (there were no non-recurring items for the six months ended March 31, 2006), earnings from continuing operations for the six months ended March 31, 2006, increased $29.8 million to $136.0 million or $1.58 per share, from the prior year's earnings before non-recurring items of $106.2 million or $1.25 per share. CONTINUING OPERATIONS BEFORE NON-RECURRING ITEMS Please note that the following discussion of earnings from continuing operations also excludes certain non-recurring profit and loss items. In the Utility segment, the principal contributor to the $3.5 million increase in segment earnings was a $2.6 million (after tax) out-of-period adjustment to correct Distribution's calculation of the symmetrical sharing component included in the New York gas adjustment rate. The remaining difference was due to the positive impact of the rate settlements in New York and Pennsylvania which more than offset the impact in Pennsylvania of warmer weather, lower average usage per customer and higher bad debt expense in New York and Pennsylvania and higher interest expense in New York. In the Pipeline and Storage segment, earnings were up $4.6 million due to higher transportation and efficiency gas revenues, as well as lower project development costs associated with the Empire Connector project, which more than offset higher pension expense. Earnings in the Exploration and Production segment increased $18.1 million mainly due to higher weighted average natural gas and oil prices after hedging, partially offset by lower production volumes and higher operating expenses. The Energy Marketing segment's earnings were up $1.5 million primarily due to an increase in sales volumes. In the Timber segment, earnings increased $0.1 million. The impact of overall higher sales volumes was mostly offset by lower volumes of the highest margin cherry veneer logs. Earnings in the Corporate and All Other category increased $2.1 million from a loss of $1.0 million mainly due to an increase in interest income resulting from the investment of the proceeds from the sale of United Energy and lower expenses for project development costs in the former international segment. EARNINGS GUIDANCE The Company is refining its earnings guidance for the remainder of its 2006 fiscal year. Consolidated earnings for fiscal 2006 are expected to be in the range of $2.27 to $2.47 per share.* Earnings per share guidance on a consolidated and major segment basis is provided later in this document. The earnings range for the Exploration & Production segment has been revised downward due to the decrease in commodity prices from the September 13, 2005, NYMEX forward strip prices on which the original forecast was based. The earnings range for the Pipeline & Storage segment was increased due to increased transportation throughput and higher rates for transportation and storage services. The combined earnings range for the Company's other segments was increased as a result of the Energy Marketing segment's better than expected performance through the first six months of the year combined with higher than expected net interest income in the Corporate and All Other category. This revised earnings per share guidance has excluded the projected impact of the repurchase by the Company of its common shares. As announced in December, 2005, the Company's Board of Directors authorized the repurchase of up to eight million shares in the open market or through private transactions. Through March 31, 2006, the Company had repurchased 825,250 shares. These repurchases had the effect of increasing earnings per share during the current quarter by approximately $0.003 per share. Based on certain purchase limitations dictated by share trading volumes, the Company estimates that the total eight million share repurchase could be completed by January, 2007.* At that repurchase rate, and at the resultant reduced number of shares outstanding, earnings per share for the entire 2006 fiscal year might be increased by approximately $0.03 per share as a result of the share repurchase.* The revised guidance has also excluded any impact from changing commodity prices. The current guidance for the remaining six months of the Company's 2006 fiscal year is based on NYMEX commodity prices as of April 24, 2006. Earnings per share guidance will be affected by changes in prices from those used to develop the guidance. Those prices, and the earnings sensitivity to changes in those prices can be found later within this release. In addition, the sensitivity table does not include any impact from possible ceiling test impairments that could result if: 1) quarter-end commodity pricing were to decrease below the prices that were in effect on March 31, 2006, and 2) there were no substantial addition to reserves from exploratory activities in Canada. Under the full-cost accounting method that Seneca utilizes for its oil and gas operations, the capitalized costs of Canadian oil and gas properties less accumulated depletion and related deferred taxes were nearly equal to the ceiling for Canadian oil and gas properties. Any decrease in pricing from March 31, 2006, could cause Seneca to incur a non-cash impairment charge which would have an immediate impact on earnings.* In the United States, Seneca has a full-cost cushion of approximately $427 million. Consolidated earnings for the third quarter of fiscal 2006 are projected to be in the range of $0.44 to $0.50 per share.* DISCUSSION OF NON-RECURRING ITEMS (all amounts are after tax) The comparative consolidated earnings for the three months and six months ended March 31, 2005, exclude a $2.6 million gain from the sale of base gas from Supply Corporation's jointly-owned Ellisburg Storage Field. There were no non-recurring items for the three months or six months ended March 31, 2006. Including non-recurring items, compared with the same three months in the prior fiscal year, the Pipeline and Storage segment's earnings were down $1.6 million to $16.9 million. Including non-recurring items, compared with the same six months in the prior fiscal year, the Pipeline and Storage segment's earnings were up $2.0 million to $32.7 million. EARNINGS TELECONFERENCE The Company will host a conference call on Friday, May 5, 2006, at 10 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) 1-800-591-6930, and use the passcode "45950940". 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 "80957234." Both the webcast and telephonic replay will be available until the close of business on Friday, May 12, 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. 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, and changes in laws and regulations relating to repeal of the Public Utility Holding Company Act of 1935; 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. -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES RECONCILIATION TO REPORTED EARNINGS Three Three Six Six Months Months Months Months (Thousands of Dollars) Ended Ended Ended Ended March 31, March 31, March 31, March 31, 2006 2005 2006 2005 (unaudited) (unaudited) (unaudited) (unaudited) ----------- ----------- ----------- ----------- Utility ---------------------- ----------- ----------- ----------- ----------- Reported earnings $28,654 $28,882 $50,407 $46,954 ----------- ----------- ----------- ----------- Pipeline and Storage ---------------------- Reported earnings 16,892 18,457 32,742 30,734 Base gas sale - (2,636) - (2,636) ----------- ----------- ----------- ----------- Earnings before non- recurring items 16,892 15,821 32,742 28,098 ----------- ----------- ----------- ----------- Exploration and Production ---------------------- ----------- ----------- ----------- ----------- Reported earnings 25,845 11,230 43,280 25,153 ----------- ----------- ----------- ----------- Energy Marketing ---------------------- ----------- ----------- ----------- ----------- Reported earnings 3,877 2,612 4,864 3,361 ----------- ----------- ----------- ----------- Timber ---------------------- ----------- ----------- ----------- ----------- Reported earnings 2,242 2,893 3,706 3,646 ----------- ----------- ----------- ----------- Corporate and All Other ---------------------- ----------- ----------- ----------- ----------- Reported earnings 1,084 (93) 1,014 (1,038) ----------- ----------- ----------- ----------- Consolidated Earnings from Continuing Operations ---------------------- Reported earnings from continuing operations 78,594 63,981 136,013 108,810 Total non-recurring items from above - (2,636) - (2,636) ----------- ----------- ----------- ----------- Earnings from continuing operations before non-recurring items $78,594 $61,345 $136,013 $106,174 =========== =========== =========== =========== Discontinued Operations ---------------------- Reported earnings from discontinued operations - 6,702 - 12,310 ----------- ----------- ----------- ----------- Consolidated ---------------------- Reported earnings $78,594 $70,683 $136,013 $121,120 =========== =========== =========== =========== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES RECONCILIATION TO REPORTED EARNINGS Three Three Six Six Months Months Months Months (Diluted Earnings Per Ended Ended Ended Ended Share) March 31, March 31, March 31, March 31, 2006 2005 2006 2005 (unaudited) (unaudited) (unaudited) (unaudited) ----------- ----------- ----------- ----------- Utility ---------------------- ----------- ----------- ----------- ----------- Reported earnings $0.33 $0.34 $0.58 $0.55 ----------- ----------- ----------- ----------- Pipeline and Storage ---------------------- Reported earnings 0.20 0.22 0.38 0.36 Base gas sale - (0.03) - (0.03) ----------- ----------- ----------- ----------- Earnings before non- recurring items 0.20 0.19 0.38 0.33 ----------- ----------- ----------- ----------- Exploration and Production ---------------------- ----------- ----------- ----------- ----------- Reported earnings 0.30 0.13 0.50 0.30 ----------- ----------- ----------- ----------- Energy Marketing ---------------------- ----------- ----------- ----------- ----------- Reported earnings 0.04 0.03 0.06 0.04 ----------- ----------- ----------- ----------- Timber ---------------------- ----------- ----------- ----------- ----------- Reported earnings 0.03 0.03 0.04 0.04 ----------- ----------- ----------- ----------- Corporate and All Other (Including Rounding) ---------------------- ----------- ----------- ----------- ----------- Reported earnings 0.01 - 0.02 (0.01) ----------- ----------- ----------- ----------- Consolidated Earnings from Continuing Operations ---------------------- Reported earnings from continuing operations 0.91 0.75 1.58 1.28 Total non-recurring items from above - (0.03) - (0.03) ----------- ----------- ----------- ----------- Earnings from continuing operations before non-recurring items $0.91 $0.72 $1.58 $1.25 =========== =========== =========== =========== Discontinued Operations ---------------------- Reported earnings from discontinued operations - 0.08 - 0.15 ----------- ----------- ----------- ----------- Consolidated ---------------------- Reported earnings $0.91 $0.83 $1.58 $1.43 =========== =========== =========== =========== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES (Thousands of Dollars, except per share amounts) Three Months Ended Six Months Ended March 31, March 31, (Unaudited) (Unaudited) ----------------------- ------------------------ SUMMARY OF OPERATIONS 2006 2005 2006 2005 ---------------------- ----------- ----------- ----------- ----------- Operating Revenues $ 890,981 $ 735,842 $ 1,601,737 $ 1,236,126 ----------- ----------- ----------- ----------- Operating Expenses: Purchased Gas 566,540 440,254 1,003,317 696,410 Operation and Maintenance 121,076 110,392 224,704 203,015 Property, Franchise and Other Taxes 20,120 19,897 37,302 36,953 Depreciation, Depletion and Amortization 44,278 44,632 87,324 87,340 ----------- ----------- ----------- ----------- 752,014 615,175 1,352,647 1,023,718 Operating Income 138,967 120,667 249,090 212,408 Other Income(Expense): Income from Unconsolidated Subsidiaries 720 455 1,985 1,239 Interest Income 965 1,018 2,098 1,290 Other Income 248 4,827 989 5,378 Interest Expense on Long-Term Debt (18,149) (18,319) (36,367) (36,694) Other Interest Expense (1,465) (1,936) (3,240) (4,354) ----------- ----------- ----------- ----------- Income from Continuing Operations Before Income Taxes 121,286 106,712 214,555 179,267 Income Tax Expense 42,692 42,731 78,542 70,457 ----------- ----------- ----------- ----------- Income from Continuing Operations 78,594 63,981 136,013 108,810 Income from Discontinued Operations, Net of Tax - 6,702 - 12,310 ----------- ----------- ----------- ----------- Net Income Available for Common Stock $ 78,594 $ 70,683 $ 136,013 $ 121,120 =========== =========== =========== =========== Earnings Per Common Share: Basic: Income from Continuing Operations $ 0.93 $ 0.77 $ 1.61 $ 1.31 Income from Discontinued Operations - 0.08 - 0.15 ----------- ----------- ----------- ----------- Net Income Available for Common Stock $ 0.93 $ 0.85 $ 1.61 $ 1.46 =========== =========== =========== =========== Diluted: Income from Continuing Operations $ 0.91 $ 0.75 $ 1.58 $ 1.28 Income from Discontinued Operations - 0.08 - 0.15 ----------- ----------- ----------- ----------- Net Income Available for Common Stock $ 0.91 $ 0.83 $ 1.58 $ 1.43 =========== =========== =========== =========== Weighted Average Common Shares: Used in Basic Calculation 84,346,733 83,313,191 84,385,140 83,231,435 =========== =========== =========== =========== Used in Diluted Calculation 86,253,597 84,770,068 86,256,515 84,711,134 =========== =========== =========== =========== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, Sept. 30, (Thousands of Dollars) 2006 2005 ----------------------------------------------- ----------- ---------- ASSETS Property, Plant and Equipment $4,535,882 $4,423,255 Less - Accumulated Depreciation, Depletion and Amortization 1,639,493 1,583,955 ----------------------------------------------- ----------- ---------- Net Property, Plant and Equipment 2,896,389 2,839,300 ---------------------------------------------- ----------- ---------- Current Assets: Cash and Temporary Cash Investments 98,099 57,607 Hedging Collateral Accounts 16,890 77,784 Receivables - Net 358,026 155,064 Unbilled Utility Revenue 67,074 20,465 Gas Stored Underground 31,883 64,529 Materials and Supplies - at average cost 32,425 33,267 Unrecovered Purchased Gas Costs - 14,817 Prepayments and Other Current Assets 41,096 65,469 Deferred Income Taxes 49,546 83,774 Fair Value of Derivative Financial Instruments 5,895 - ----------------------------------------------- ----------- ---------- Total Current Assets 700,934 572,776 ---------------------------------------------- ----------- ---------- Other Assets: Recoverable Future Taxes 84,834 85,000 Unamortized Debt Expense 16,516 17,567 Other Regulatory Assets 56,713 47,028 Deferred Charges 8,086 4,474 Other Investments 85,349 80,394 Investments in Unconsolidated Subsidiaries 11,491 12,658 Goodwill 5,476 5,476 Intangible Assets 40,971 42,302 Other 6,808 15,677 ---------------------------------------------- ----------- ---------- Total Other Assets 316,244 310,576 ---------------------------------------------- ----------- ---------- Total Assets $3,913,567 $3,722,652 ---------------------------------------------- ----------- ---------- CAPITALIZATION AND LIABILITIES Capitalization: Comprehensive Shareholders' Equity Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding - 83,919,742 Shares and 84,356,748 Shares, Respectively $ 83,920 $ 84,357 Paid in Capital 540,388 529,834 Earnings Reinvested in the Business 877,599 813,020 ---------------------------------------------- ----------- ---------- Total Common Shareholder Equity Before Items of Other Comprehensive Loss 1,501,907 1,427,211 Accumulated Other Comprehensive Loss (119,248) (197,628) ---------------------------------------------- ----------- ---------- Total Comprehensive Shareholders' Equity 1,382,659 1,229,583 Long-Term Debt, Net of Current Portion 1,114,371 1,119,012 ---------------------------------------------- ----------- ---------- Total Capitalization 2,497,030 2,348,595 ---------------------------------------------- ----------- ---------- Current and Accrued Liabilities: Notes Payable to Banks and Commercial Paper - - Current Portion of Long-Term Debt 9,505 9,393 Accounts Payable 145,438 155,485 Amounts Payable to Customers 12,650 1,158 Dividends Payable 24,327 24,445 Other Accruals and Current Liabilities 193,249 60,404 Fair Value of Derivative Financial Instruments 87,962 209,072 ----------------------------------------------- ----------- ---------- Total Current and Accrued Liabilities 473,131 459,957 ---------------------------------------------- ----------- ---------- Deferred Credits: Deferred Income Taxes 503,147 489,720 Taxes Refundable to Customers 11,070 11,009 Unamortized Investment Tax Credit 6,445 6,796 Cost of Removal Regulatory Liability 93,092 90,396 Other Regulatory Liabilities 58,886 66,339 Pension and Other Post-Retirement Liabilities 155,582 143,687 Asset Retirement Obligation 42,216 41,411 Other Deferred Credits 72,968 64,742 ---------------------------------------------- ----------- ---------- Total Deferred Credits 943,406 914,100 ---------------------------------------------- ----------- ---------- Commitments and Contingencies - - ---------------------------------------------- ----------- ---------- Total Capitalization and Liabilities 3,913,567 3,722,652 ============================================== =========== ========== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended March 31, (Thousands of Dollars) 2006 2005 ---------------------------------------------------------------------- Operating Activities: Net Income Available for Common Stock $ 136,013 $ 121,120 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation, Depletion and Amortization 87,324 96,285 Deferred Income Taxes (1,435) (3,982) Income from Unconsolidated Subsidiaries, Net of Cash Distributions 1,166 282 Minority Interest in Foreign Subsidiaries - 3,342 Excess Tax Benefits Associated with Stock-Based Compensation Awards (6,515) - Other (5,297) (7,124) Change in: Hedging Collateral Deposits 60,894 (10,962) Receivables and Unbilled Utility Revenue (249,466) (228,969) Gas Stored Underground and Materials and Supplies 33,486 43,628 Unrecovered Purchased Gas Costs 14,817 7,532 Prepayments and Other Current Assets 24,372 (745) Accounts Payable (9,951) 47,541 Amounts Payable to Customers 11,492 25,342 Other Accruals and Current Liabilities 139,020 153,928 Other Assets (11,837) (13,191) Other Liabilities 19,107 11,989 ----------------------------------------------- ----------- ---------- Net Cash Provided by Operating Activities $ 243,190 $ 246,016 ====================================================================== Investing Activities: Capital Expenditures ($134,961) ($114,624) Net Proceeds from Sale of Oil and Gas Producing Properties 4 85 Other (1,396) 2,450 ----------------------------------------------- ----------- ---------- Net Cash Used in Investing Activities ($136,353) ($112,089) ====================================================================== Financing Activities: Change in Notes Payable to Banks and Commercial Paper $ 0 ($43,600) Excess Tax Benefits Associated with Stock- Based Compensation Awards 6,515 - Shares Repurchased under Repurchase Plan (26,577) - Reduction of Long-Term Debt (4,529) (7,314) Dividends Paid on Common Stock (48,933) (46,483) Proceeds From Issuance of Common Stock 7,164 6,301 ----------------------------------------------- ----------- ---------- Net Cash Used In Financing Activities ($66,360) ($91,096) ====================================================================== Effect of Exchange Rates on Cash 15 3,135 ----------------------------------------------- ----------- ---------- Net Increase in Cash and Temporary Cash Investments 40,492 45,966 Cash and Temporary Cash Investments at Beginning of Period 57,607 57,541 ====================================================================== Cash and Temporary Cash Investments at March 31 $ 98,099 $ 103,507 ====================================================================== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended Six Months Ended amounts) March 31, March 31, -------------------------- --------------------------- UTILITY SEGMENT 2006 2005 Variance 2006 2005 Variance --------------- --------------------------- -------------------------- Revenues from External Customers $536,235 $485,647 $50,588 $967,714 $802,476 $165,238 Intersegment Revenues 5,681 5,693 (12) 9,803 9,998 (195) -------------------------- -------------------------- Total Operating Revenues 541,916 491,340 50,576 977,517 812,474 165,043 -------------------------- -------------------------- Operating Expenses: Purchased Gas 394,803 349,656 45,147 715,360 567,611 147,749 Operation and Maintenance 65,496 63,358 2,138 117,209 109,171 8,038 Property, Franchise and Other Taxes 14,259 14,043 216 25,773 25,554 219 Depreciation, Depletion and Amortization 10,027 10,017 10 20,004 19,997 7 -------------------------- --------------------------- 484,585 437,074 47,511 878,346 722,333 156,013 -------------------------- --------------------------- Operating Income 57,331 54,266 3,065 99,171 90,141 9,030 Other Income (Expense): Interest Income 179 218 (39) 380 212 168 Other Income 192 160 32 404 283 121 Other Interest Expense (6,880) (5,234) (1,646) (13,603) (10,843) (2,760) -------------------------- --------------------------- Income Before Income Taxes 50,822 49,410 1,412 86,352 79,793 6,559 Income Tax Expense 22,168 20,528 1,640 35,945 32,839 3,106 -------------------------- --------------------------- Net Income $ 28,654 $ 28,882 $ (228) $ 50,407 $ 46,954 $ 3,453 ========================== =========================== Net Income Per Share (Diluted)$ 0.33 $ 0.34 $ (0.01) $ 0.58 $ 0.55 $ 0.03 ========================== =========================== Three Months Ended Six Months Ended March 31, March 31, -------------------------- --------------------------- PIPELINE AND STORAGE SEGMENT 2006 2005 Variance 2006 2005 Variance ------------------------------------------ --------------------------- Revenues from External Customers $ 39,346 $ 36,029 $ 3,317 $ 74,085 $ 68,474 $ 5,611 Intersegment Revenues 19,711 21,517 (1,806) 41,006 42,116 (1,110) -------------------------- --------------------------- Total Operating Revenues 59,057 57,546 1,511 115,091 110,590 4,501 -------------------------- --------------------------- Operating Expenses: Purchased Gas 78 (26) 104 62 655 (593) Operation and Maintenance 16,949 14,616 2,333 32,265 31,600 665 Property, Franchise and Other Taxes 4,010 3,924 86 7,966 7,649 317 Depreciation, Depletion and Amortization 9,176 10,262 (1,086) 18,359 19,356 (997) -------------------------- --------------------------- 30,213 28,776 1,437 58,652 59,260 (608) -------------------------- --------------------------- Operating Income 28,844 28,770 74 56,439 51,330 5,109 Other Income (Expense): Interest Income 144 12 132 196 25 171 Other Income 60 4,095 (4,035) 268 4,199 (3,931) Interest Expense on Long-Term Debt (274) (426) 152 (592) (909) 317 Other Interest Expense (1,093) (1,308) 215 (2,389) (2,666) 277 -------------------------- --------------------------- Income Before Income Taxes 27,681 31,143 (3,462) 53,922 51,979 1,943 Income Tax Expense 10,789 12,686 (1,897) 21,180 21,245 (65) -------------------------- --------------------------- Net Income $ 16,892 $ 18,457 $(1,565) $ 32,742 $ 30,734 $ 2,008 ========================== =========================== Net Income Per Share (Diluted)$ 0.20 $ 0.22 $ (0.02) $ 0.38 $ 0.36 $ 0.02 ========================== =========================== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended Six Months Ended amounts) March 31, March 31, -------------------------- --------------------------- EXPLORATION AND PRODUCTION SEGMENT 2006 2005 Variance 2006 2005 Variance --------------- -------------------------- --------------------------- Operating Revenues $88,719 $70,319 $18,400 $170,806 $142,157 $28,649 -------------------------- --------------------------- Operating Expenses: Purchased Gas 4 (116) 120 98 (344) 442 Operation and Maintenance: General and Admini- strative Expense 6,381 5,426 955 12,682 10,603 2,079 Lease Operating Expense 13,155 11,069 2,086 26,694 21,526 5,168 All Other Operation and Maintenance Expense 2,021 1,548 473 3,992 3,275 717 Property, Franchise and Other Taxes (Lease Operating Expense) 1,528 1,475 53 2,736 2,732 4 Depreciation, Depletion and Amortization 23,118 22,300 818 44,658 44,128 530 -------------------------- --------------------------- 46,207 41,702 4,505 90,860 81,920 8,940 -------------------------- --------------------------- Operating Income 42,512 28,617 13,895 79,946 60,237 19,709 Other Income (Expense): Interest Income 1,940 1,036 904 3,781 1,893 1,888 Other Interest Expense (12,521) (12,104) (417) (24,950) (24,132) (818) -------------------------- --------------------------- Income Before Income Taxes 31,931 17,549 14,382 58,777 37,998 20,779 Income Tax Expense 6,086 6,319 (233) 15,497 12,845 2,652 -------------------------- --------------------------- Net Income $ 25,845 $ 11,230 $14,615 $ 43,280 $ 25,153 $18,127 ========================== =========================== Net Income Per Share (Diluted)$ 0.30 $ 0.13 $ 0.17 $ 0.50 $ 0.30 $ 0.20 ========================= =========================== Three Months Ended Six Months Ended March 31, March 31, ------------------------- --------------------------- ENERGY MARKETING SEGMENT 2006 2005 Variance 2006 2005 Variance --------------- ------------------------- --------------------------- Operating Revenues $206,061 $124,565 $81,496 $351,620 $188,059 $163,561 ------------------------- --------------------------- Operating Expenses: Purchased Gas 198,562 119,241 79,321 341,391 180,829 160,562 Operation and Maintenance 1,259 1,120 139 2,489 1,889 600 Property, Franchise and Other Taxes (249) 25 (274) (240) 71 (311) Depreciation, Depletion and Amortization 16 22 (6) 37 43 (6) ------------------------- --------------------------- 199,588 120,408 79,180 343,677 182,832 160,845 ------------------------- --------------------------- Operating Income 6,473 4,157 2,316 7,943 5,227 2,716 Other Income (Expense): Interest Income 43 150 (107) 169 284 (115) Other Income 121 67 54 219 119 100 Other Interest Expense (129) (3) (126) (191) (5) (186) ------------------------- --------------------------- Income Before Income Taxes 6,508 4,371 2,137 8,140 5,625 2,515 Income Tax Expense 2,631 1,759 872 3,276 2,264 1,012 ------------------------- --------------------------- Net Income $ 3,877 $ 2,612 $ 1,265 $ 4,864 $ 3,361 $ 1,503 ========================= =========================== Net Income Per Share (Diluted)$ 0.04 $ 0.03 $ 0.01 $ 0.06 $ 0.04 $ 0.02 ========================= =========================== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per Three Months Ended Six Months Ended share amounts) March 31, March 31, ------------------------ ------------------------ TIMBER SEGMENT 2006 2005 Variance 2006 2005 Variance -------------------- ------- ------ -------- ------- ------ -------- Revenues from External Customers $19,157 $18,971 $ 186 $36,066 $31,966 $ 4,100 Intersegment Revenues (23) 1 (24) - 1 (1) ------- ------- ------- ------- ------- ------- Total Operating Revenues 19,134 18,972 162 36,066 31,967 4,099 ------- ------- ------- ------- ------- ------- Operating Expenses: Operation and Maintenance 12,746 11,709 1,037 24,430 21,267 3,163 Property, Franchise and Other Taxes 478 366 112 859 695 164 Depreciation, Depletion and Amortization 1,627 1,720 (93) 3,638 3,197 441 ------- ------- ------- ------- ------- ------- 14,851 13,795 1,056 28,927 25,159 3,768 ------- ------- ------- ------- ------- ------- Operating Income 4,283 5,177 (894) 7,139 6,808 331 Other Income (Expense): Interest Income 164 100 64 301 192 109 Other Income 35 1 34 52 18 34 Other Interest Expense (758) (683) (75) (1,521) (1,268) (253) ------- ------- ------- ------- ------- ------- Income Before Income Taxes 3,724 4,595 (871) 5,971 5,750 221 Income Tax Expense 1,482 1,702 (220) 2,265 2,104 161 ------- ------- ------- ------- ------- ------- Net Income $ 2,242 $ 2,893 $ (651) $ 3,706 $ 3,646 $ 60 ======= ======= ======= ======= ======= ======= Net Income Per Share (Diluted) $ 0.03 $ 0.03 $ - $ 0.04 $ 0.04 $ - ======= ======= ======= ======= ======= ======= Three Months Ended Six Months Ended March 31, March 31, ------------------------ ------------------------ ALL OTHER 2006 2005 Variance 2006 2005 Variance -------------------- ------- ------ -------- ------- ------ -------- Revenues from External Customers $ 1,075 $ 311 $ 764 $ 1,058 $ 2,994 $(1,936) Intersegment Revenues 2,057 3,263 (1,206) 6,584 4,342 2,242 ------- ------- ------- ------- ------- ------- Total Operating Revenues 3,132 3,574 (442) 7,642 7,336 306 ------- ------- ------- ------- ------- ------- Operating Expenses: Purchased Gas 1,866 1,698 168 4,972 3,768 1,204 Operation and Maintenance 922 902 20 1,795 1,792 3 Property, Franchise and Other Taxes 23 27 (4) 42 47 (5) Depreciation, Depletion and Amortization 197 193 4 397 386 11 ------- ------- ------- ------- ------- ------- 3,008 2,820 188 7,206 5,993 1,213 ------- ------- ------- ------- ------- ------- Operating Income 124 754 (630) 436 1,343 (907) Other Income (Expense): Income from Unconsolidated Subsidiaries 720 455 265 1,985 1,239 746 Interest Income 7 4 3 13 9 4 Other Income 14 281 (267) 16 282 (266) Other Interest Expense (616) (391) (225) (1,206) (743) (463) ------- ------- ------- ------- ------- ------- Income Before Income Taxes 249 1,103 (854) 1,244 2,130 (886) Income Tax Expense 203 451 (248) 628 878 (250) ------- ------- ------- ------- ------- ------- Net Income $ 46 $ 652 $ (606) $ 616 $ 1,252 $ (636) ======= ======= ======= ======= ======= ======= Net Income Per Share (Diluted) $ - $ 0.01 $ (0.01) $ 0.01 $ 0.02 $ (0.01) ======= ======= ======= ======= ======= ======= NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended Six Months Ended amounts) March 31, March 31, -------------------------- -------------------------- CORPORATE 2006 2005 Variance 2006 2005 Variance --------- -------- ------- -------- -------- ------- -------- Revenues from External Customers $ 388 $ - $ 388 $ 388 $ - $ 388 Intersegment Revenues 782 692 90 1,475 1,321 154 -------- -------- ------- -------- -------- ------- Total Operating Revenues 1,170 692 478 1,863 1,321 542 -------- -------- ------- -------- -------- ------- Operating Expenses: Operation and Maintenance 1,582 1,611 (29) 3,450 3,561 (111) Property, Franchise and Other Taxes 71 37 34 166 205 (39) Depreciation, Depletion and Amortization 117 118 (1) 231 233 (2) -------- -------- ------- -------- -------- ------- 1,770 1,766 4 3,847 3,999 (152) -------- -------- ------- -------- -------- ------- Operating Loss (600) (1,074) 474 (1,984) (2,678) 694 Other Income (Expense): Interest Income 23,009 20,219 2,790 45,662 39,771 5,891 Other Income (174) 223 (397) 30 477 (447) Interest Expense on Long-Term Debt (17,875) (17,893) 18 (35,775) (35,785) 10 Other Interest Expense (3,989) (2,934) (1,055) (7,784) (5,793) (1,991) -------- -------- ------- -------- -------- ------- Income (Loss) Before Income Taxes 371 (1,459) 1,830 149 (4,008) 4,157 Income Tax Expense (667) (714) 47 (249) (1,718) 1,469 -------- -------- ------- -------- -------- ------- Net Income (Loss) $ 1,038 $ (745)$ 1,783 $ 398 $ (2,290)$ 2,688 ======== ======== ======= ======== ======== ======= Net Income (Loss) Per Share (Diluted) $ 0.01 $ (0.01)$ 0.02 $ 0.01 $ (0.03)$ 0.04 ======== ======== ======= ======== ======== ======= Three Months Ended Six Months Ended March 31, March 31, INTERSEGMENT -------------------------- -------------------------- ELIMINATIONS 2006 2005 Variance 2006 2005 Variance ------------- -------- ------- -------- -------- ------- -------- Intersegment Revenues $(28,208)$(31,166)$ 2,958 $(58,868)$(57,778)$(1,090) -------- -------- ------- -------- -------- ------- Operating Expenses: Purchased Gas (28,773) (30,199) 1,426 (58,566) (56,109) (2,457) Operation and Maintenance 565 (967) 1,532 (302) (1,669) 1,367 -------- -------- ------- -------- -------- ------- (28,208) (31,166) 2,958 (58,868) (57,778) (1,090) -------- -------- ------- -------- -------- ------- Operating Income - - - - - - Other Income (Expense): Interest Income (24,521) (20,721) (3,800) (48,404) (41,096) (7,308) Other Interest Expense 24,521 20,721 3,800 48,404 41,096 7,308 -------- -------- ------- -------- -------- ------- Net Income $ - $ - $ - $ - $ - $ - ======== ======== ======= ======== ======== ======= Net Income Per Share (Diluted) $ - $ - $ - $ - $ - $ - ======== ======== ======= ======== ======== ======= NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Continued) (Thousands of Dollars) Three Months Ended Six Months Ended March 31, March 31, (Unaudited) (Unaudited) -------------------------- ---------------------------- Increase Increase 2006 2005 (Decrease) 2006 2005 (Decrease) -------- ------ ---------- -------- ------- ---------- Capital Expenditures: -------------- Utility $13,006 $10,939 $ 2,067 $ 25,360 $ 22,274 $ 3,086 Pipeline and Storage 4,165 3,318 847 10,328 8,205 2,123 Exploration and Production 45,401 40,866 4,535 96,324 61,874 34,450 Energy Marketing 1 23 (22) 6 34 (28) Timber 257 17,844 (17,587) 752 18,696 (17,944) ------- ------- --------- -------- -------- --------- Total Reportable Segments 62,830 72,990 (10,160) 132,770 111,083 21,687 All Other 56 96 (40) 56 103 (47) Corporate 1,707 67 1,640 2,135 86 2,049 ------- ------- --------- -------- -------- --------- Total Expenditures from Continuing Operations $64,593 $73,153 $ (8,560) $134,961 $111,272 $ 23,689 ======= ======= ========= ======== ======== ========= DEGREE DAYS ----------- Percent Colder Three Months Ended (Warmer) Than: March 31 Normal 2006 2005 Normal Last Year ------------------- --------- --------- --------- --------- --------- Buffalo, NY 3,327 2,875 3,468 (13.6) (17.1) Erie, PA 3,142 2,705 3,266 (13.9) (17.2) Six Months Ended March 31 ------------------- Buffalo, NY 5,587 5,085 5,640 (9.0) (9.8) Erie, PA 5,223 4,753 5,263 (9.0) (9.7) NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES EXPLORATION AND PRODUCTION INFORMATION -------------------------------------- Three Months Ended March 31, -------------------------------- Increase 2006 2005 (Decrease) --------- --------- ---------- Gas Production/Prices: ---------------------- Production (MMcf) Gulf Coast 2,752 2,844 (92) West Coast 933 986 (53) Appalachia 1,246 1,137 109 Canada 1,761 2,160 (399) --------- --------- --------- 6,692 7,127 (435) ========= ========= ========= Average Prices (Per Mcf) Gulf Coast $ 8.47 $ 6.75 $ 1.72 West Coast 8.02 6.20 1.82 Appalachia 10.03 6.76 3.27 Canada 7.21 5.52 1.69 Weighted Average 8.37 6.30 2.07 Weighted Average after Hedging 7.39 5.97 1.42 Oil Production/Prices: ---------------------- Production (Thousands of Barrels) Gulf Coast 181 261 (80) West Coast 639 634 5 Appalachia 12 9 3 Canada 68 78 (10) --------- --------- --------- 900 982 (82) ========= ========= ========= Average Prices (Per Barrel) Gulf Coast $ 58.69 $ 46.42 $ 12.27 West Coast 53.65 37.67 15.98 Appalachia 60.28 42.28 18.00 Canada 48.63 41.08 7.55 Weighted Average 54.37 40.31 14.06 Weighted Average after Hedging 40.30 26.10 14.20 Total Production (Mmcfe) 12,092 13,019 (927) ------------------------ ========= ========= ========= Selected Operating Performance Statistics: ------------------------------ General & Administrative Expense per Mcfe (1) $ 0.53 $ 0.42 $ 0.11 Lease Operating Expense per Mcfe (1) $ 1.21 $ 0.96 $ 0.25 Depreciation, Depletion & Amortization per Mcfe (1) $ 1.91 $ 1.71 $ 0.20 Six Months Ended March 31, -------------------------------- Increase 2006 2005 (Decrease) --------- --------- ---------- Gas Production/Prices: ---------------------- Production (MMcf) Gulf Coast 4,419 6,069 (1,650) West Coast 1,951 2,025 (74) Appalachia 2,499 2,343 156 Canada 3,672 3,825 (153) --------- --------- --------- 12,541 14,262 (1,721) ========= ========= ========= Average Prices (Per Mcf) Gulf Coast $ 9.33 $ 6.61 $ 2.72 West Coast 9.62 6.38 3.24 Appalachia 11.83 7.26 4.57 Canada 9.06 5.49 3.57 Weighted Average 9.79 6.38 3.41 Weighted Average after Hedging 7.88 5.98 1.90 Oil Production/Prices: ---------------------- Production (Thousands of Barrels) Gulf Coast 288 550 (262) West Coast 1,324 1,287 37 Appalachia 22 12 10 Canada 155 154 1 --------- --------- --------- 1,789 2,003 (214) ========= ========= ========= Average Prices (Per Barrel) Gulf Coast $ 58.39 $ 46.77 $ 11.62 West Coast 52.46 37.40 15.06 Appalachia 60.84 42.85 17.99 Canada 45.57 39.78 5.79 Weighted Average 52.92 40.19 12.73 Weighted Average after Hedging 36.70 26.22 10.48 Total Production (Mmcfe) 23,275 26,280 (3,005) ------------------------ ========= ========= ========= Selected Operating Performance Statistics: ------------------------------ General & Administrative Expense per Mcfe (1) $ 0.54 $ 0.40 $ 0.14 Lease Operating Expense per Mcfe (1) $ 1.26 $ 0.92 $ 0.34 Depreciation, Depletion & Amortization per Mcfe (1) $ 1.92 $ 1.68 $ 0.24 (1) Refer to page 16 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 0.9 MMBBL $35.33 / BBL Gas 4.7 BCF $6.20 / MCF Weighted Average --------------------------------- No-cost Collars Volume Floor Price Ceiling Price --------------- ------ ------------------ -------------- Gas 2.8 BCF $8.37 / MCF $15.00 / 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 Weighted Average --------------------------------- No-cost Collars Volume Floor Price Ceiling Price --------------- ------ ------------------ -------------- Gas 3.5 BCF $8.12 / MCF $19.73 / MCF Drilling Program Six Months Ended March 31, 2006: ------------------------------------------------- Gross Wells Drilled ------------------- Gulf West East Canada Total ------- ------- ------- ------- ------- Exploratory Successful 0 0 1 12 13 Unsuccessful 0 0 0 2 2 Developmental Successful 0 59 52 2 113 Unsuccessful 0 1 0 0 1 Total Successful 0 59 53 14 126 Unsuccessful 0 1 0 2 3 Success Ratio N/A 98% 100% 88% 98% NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES Utility Throughput - (millions of cubic feet - MMcf) Three Months Ended Six Months Ended March 31, March 31, -------------------------- ------------------------- Increase Increase 2006 2005 (Decrease) 2006 2005 (Decrease) ------- ------- ---------- ------ ------- ---------- Retail Sales: Residential Sales 26,807 32,559 (5,752) 46,331 52,428 (6,097) Commercial Sales 5,038 6,072 (1,034) 8,481 9,526 (1,045) Industrial Sales 459 425 34 786 601 185 ------- ------- ---------- ------ ------- ---------- 32,304 39,056 (6,752) 55,598 62,555 (6,957) Transportation 22,119 22,465 (346) 36,461 36,568 (107) ------- ------- ---------- ------ ------- ---------- 54,423 61,521 (7,098) 92,059 99,123 (7,064) ======= ======= ========== ====== ======= ========== Pipeline & Storage Throughput- (MMcf) Three Months Ended Six Months Ended March 31, March 31, -------------------------- ------------------------- Increase Increase 2006 2005 (Decrease) 2006 2005 (Decrease) ------- ------- ---------- ------ ------- ---------- Firm Transportation - Affiliated 43,637 52,703 (9,066) 76,862 84,905 (8,043) Firm Transportation - Non-Affiliated 71,191 77,148 (5,957)140,788 128,688 12,100 Interruptible Transportation 1,831 1,180 651 5,554 2,842 2,712 ------- ------- ---------- ------ ------- ---------- 116,659 131,031 (14,372)223,204 216,435 6,769 ======= ======= ========== ====== ======= ========== Energy Marketing Volumes Three Months Ended Six Months Ended March 31, March 31, -------------------------- ------------------------- Increase Increase 2006 2005 (Decrease) 2006 2005 (Decrease) ------- ------- ---------- ------ ------- ---------- Natural Gas (MMcf) 17,332 15,184 2,148 27,306 23,191 4,115 ======= ======= ========== ====== ======= ========== Timber Board Feet (Thousands) Three Months Ended Six Months Ended March 31, March 31, -------------------------- ------------------------- Increase Increase 2006 2005 (Decrease) 2006 2005 (Decrease) ------- ------- ---------- ------ ------- ---------- Log Sales 3,282 2,570 712 5,774 4,315 1,459 Green Lumber Sales 2,982 2,538 444 4,956 4,702 254 Kiln Dry Lumber Sales 4,512 3,897 615 8,998 7,263 1,735 ------- ------- ---------- ------ ------- ---------- 10,776 9,005 1,771 19,728 16,280 3,448 ======= ======= ========== ====== ======= ========== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES FISCAL 2006 SEGMENT EARNINGS GUIDANCE AND SENSITIVITIES Fiscal 2006 (Diluted earnings per share guidance by segment*) ---------------------------------------------------------------------- Previous Guidance Revised Guidance Segment Range Range -------------------------------- ------------------ ------------------ Utility $0.52 - $0.59 $0.54 - $0.60 Pipeline & Storage $0.60 - $0.63 $0.61 - $0.65 Exploration & Production $1.10 - $1.20 $1.00 - $1.10 All Other $0.08 - $0.08 $0.12 - $0.12 Consolidated $2.30 - $2.50 $2.27 - $2.47 Earnings per share sensitivity to changes from NYMEX prices used in guidance* # ---------------------------------------------------------------------- $1 change per $1 change per Bbl MMBtu gas oil ----------------- ----------------- Segment Increase Decrease Increase Decrease ---------------------------------- ----------------- ----------------- Utility - - - - Pipeline & Storage + $0.01 - $0.01 - - Exploration & Production +$0.06 - $0.06 + $0.01 - $0.01 All Other - - - - Consolidated + $0.07 - $0.07 + $0.01 - $0.01 NYMEX prices used in guidance ---------------------------------------------------------------------- Natural Gas Oil ($ per MMBtu) ($ per Bbl) ------------------ ------------------ Apr-06 $7.233 $70.00 May-06 $7.558 $73.00 Jun-06 $7.786 $73.33 Jul-06 $8.031 $74.56 Aug-06 $8.246 $75.26 Sep-06 $8.448 $75.66 April 06/Sept-06 Average $7.884 $73.64 * Please refer to forward looking statement footnote at page 8 of this document. # This sensitivity table is current as of May 4, 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 March 31 (unaudited) 2006 2005 ---------------------------------- -------------- -------------- Operating Revenues $ 890,981,000 $ 735,842,000 ============== ============== Income from Continuing Operations $ 78,594,000 $ 63,981,000 Income from Discontinued Operations, Net of Tax - 6,702,000 -------------- -------------- Net Income Available for Common Stock $ 78,594,000 $ 70,683,000 ============== ============== Earnings Per Common Share: Basic: Income from Continuing Operations $ 0.93 $ 0.77 Income from Discontinued Operations - 0.08 -------------- -------------- Net Income Available for Common Stock $ 0.93 $ 0.85 ============== ============== Diluted: Income from Continuing Operations $ 0.91 $ 0.75 Income from Discontinued Operations - 0.08 -------------- -------------- Net Income Available for Common Stock $ 0.91 $ 0.83 ============== ============== Weighted Average Common Shares: Used in Basic Calculation 84,346,733 83,313,191 ============== ============== Used in Diluted Calculation 86,253,597 84,770,068 ============== ============== Six Months Ended March 31 (unaudited) ------------------------------------- Operating Revenues $1,601,737,000 $1,236,126,000 ============== ============== Income from Continuing Operations $ 136,013,000 $ 108,810,000 Income from Discontinued Operations, Net of Tax - 12,310,000 -------------- -------------- Net Income Available for Common Stock $ 136,013,000 $ 121,120,000 ============== ============== Earnings Per Common Share: Basic: Income from Continuing Operations $ 1.61 $ 1.31 Income from Discontinued Operations - 0.15 -------------- -------------- Net Income Available for Common Stock $ 1.61 $ 1.46 ============== ============== Diluted: Income from Continuing Operations $ 1.58 $ 1.28 Income from Discontinued Operations - 0.15 -------------- -------------- Net Income Available for Common Stock $ 1.58 $ 1.43 ============== ============== Weighted Average Common Shares: Used in Basic Calculation 84,385,140 83,231,435 ============== ============== Used in Diluted Calculation 86,256,515 84,711,134 ============== ============== Twelve Months Ended March 31 (unaudited) ---------------------------------------- Operating Revenues $2,289,160,000 $1,900,504,000 ============== ============== Income from Continuing Operations 180,717,000 155,463,000 Income from Discontinued Operations, Net of Tax 23,663,000 5,974,000 -------------- -------------- Net Income Available for Common Stock $ 204,380,000 $ 161,437,000 ============== ============== Earnings Per Common Share: Basic: Income from Continuing Operations $ 2.15 $ 1.88 Income from Discontinued Operations 0.28 0.07 -------------- -------------- Net Income Available for Common Stock $ 2.43 $ 1.95 ============== ============== Diluted: Income from Continuing Operations $ 2.11 $ 1.85 Income from Discontinued Operations 0.27 0.07 -------------- -------------- Net Income Available for Common Stock $ 2.38 $ 1.92 ============== ============== Weighted Average Common Shares: Used in Basic Calculation 84,116,896 82,818,252 ============== ============== Used in Diluted Calculation 85,810,270 84,143,995 ============== ============== *T