NFG National Fuel Gas Co

National Fuel Gas Company ("National Fuel" or the "Company") (NYSE:NFG) today announced consolidated earnings for the quarter ended June 30, 2006 of $0.1 million, or less than $0.01 per share, a decrease of $19.0 million or $0.23 per share from the third 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). Please refer to the table below to view the impact of significant items for the quarterly and nine month comparative periods. -0- *T Three Months Nine Months Ended June 30, Ended June 30, 2006 2005 2006 2005 --------- --------- --------- --------- (in thousands except per share amounts) Reported GAAP earnings $111 $19,156 $136,123 $140,276 Less: Income (Loss) from discontinued operations of United Energy(1) (7,237) 5,073 --------- --------- --------- --------- Income from continuing operations 111 26,393 136,123 135,203 Exclude: Impairment of Canadian oil and gas producing properties(2) 39,502 39,502 Gain on sale of base gas(2) (2,636) --------- --------- --------- --------- Earnings excluding these items $39,613 $26,393 $175,625 $132,567 ========= ========= ========= ========= Reported GAAP earnings per share $0.00 $0.23 $1.58 $1.65 Less: Income (Loss) from discontinued operations of United Energy(1) (0.08) 0.06 --------- --------- --------- --------- Income from continuing operations 0.00 0.31 1.58 1.59 Exclude: Impairment of Canadian oil and gas producing properties(2) 0.46 0.46 Gain on sale of base gas(2) (0.03) --------- --------- --------- --------- Earnings excluding these items $0.46 $0.31 $2.04 $1.56 ========= ========= ========= ========= (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 these items below. *T Excluding the significant items discussed below, earnings from continuing operations increased $13.2 million or $0.15 per share from the prior year's third quarter earnings from continuing operations of $26.4 million or $0.31 per share. Earnings from continuing operations for the quarter ended June 30, 2006 were negatively affected by a $39.5 million or $0.46 per share non-cash impairment of Canadian oil and gas producing properties which caused earnings to decrease $26.3 million or $0.31 per share from the prior year's third quarter earnings from continuing operations of $26.4 million or $0.31 per share. See further discussion of the impairment later in this document. Philip C. Ackerman, Chairman and Chief Executive Officer of National Fuel Gas Company stated: "This quarter the consolidated performance of the Company is affected by certain accounting rules that may confuse, rather than enlighten our investors. Under the 'full-cost' rules for oil and gas accounting, projected future revenue streams from our properties in Canada and the United States are each valued separately. When those projected revenue streams are compared to the book value of those properties at the end of each quarter, only shortfalls, not gains, are recorded. Thus our reported earnings reflect the $39.5 million decline in the value of our Canadian properties, but not a simultaneous $37.2 million gain in the value of our properties in the United States. "While performance in our Exploration and Production segment is not all that it might have been, particularly in Canada, exploration and production will easily be our largest contributor to cash flow this year, and the increasing value of our oil reserves, although not reflected under the accounting rules, is certainly building value for the shareholder."* Ackerman continued, "Absent the accounting adjustment, I am pleased that this quarter's earnings are up 50 percent from last year's third quarter and that our earnings guidance of $2.60 to $2.80 per share for 2007 is up significantly from our guidance for 2006."* DISCUSSION OF THIRD QUARTER EARNINGS CONTINUING OPERATIONS 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 approximately $0.8 million for the quarter ended June 30, 2006, were $2.5 million higher than the earnings in the prior year's third quarter. In Distribution's New York Division, a loss of $0.08 million improved from a loss of $4.0 million for the third quarter of 2005. In the third quarter of fiscal 2005, Distribution recorded two regulatory adjustments totaling $4.1 million (after tax). These adjustments did not recur in the third quarter of fiscal 2006. In Distribution's Pennsylvania Division, earnings for the quarter of approximately $0.9 million were down $1.4 million from the $2.3 million reported in the prior year's third quarter. This decrease is mainly the result of lower customer usage and weather that was 14.7 percent warmer than the prior year. Pipeline and Storage Segment The Pipeline and Storage segment operations are carried out by National Fuel Gas Supply Corporation ("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 $12.6 million for the quarter ended June 30, 2006, were up $1.8 million when compared with the same period in the prior fiscal year. Lower pension expense for the quarter and lower expense for preliminary project costs associated with the Empire Connector project were the primary contributors to the increase. 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 loss in the third quarter of fiscal 2006 of $15.13 million is a decrease of $28.96 million from earnings of $13.83 million in the prior year's quarter. The decrease was mainly due to the non-cash charge of $39.5 million (after tax) to write down the value of Seneca's Canadian oil and natural gas producing properties. Excluding this impairment, Seneca's earnings were $24.4 million, an increase of $10.5 million from the prior year's quarter. Seneca uses the full cost method of accounting for determining the book value of its oil and natural gas properties. This method requires that Seneca perform a quarterly "ceiling test" to compare, on a country-by-country basis, the present value of future revenues from its oil and natural gas reserves based on current market prices ("the ceiling") with the book value of those reserves at the balance sheet date. If the book value of the reserves in any country exceeds the ceiling, a non-cash charge must be recorded to reduce the book value of the reserves to the calculated ceiling. For purposes of calculating the ceiling, accounting rules require that Seneca's Canadian reserves (of which more than 80% are natural gas) are valued at commodity prices on the last day of the quarter. At June 30, 2006 the prompt month New York Mercantile Exchange ("NYMEX") price for natural gas was $6.10 per MMBtu of natural gas as compared to $7.21/MMBtu at the end of March (MMBtu is the designation for one million British Thermal Units, a measure of heating value; one MMBtu is approximately equivalent to one thousand cubic feet, or one Mcf, of natural gas). At July 31, 2006, however, the prompt month closing NYMEX price for natural gas had rebounded at $8.21/MMBtu and has varied by as much as $0.61/MMBtu during this past week. If prices were to remain at these levels at September 30, 2006, the accounting rules would not allow Seneca to recognize the benefit of this increase in pricing in the fourth quarter of 2006. The accounting rules also do not allow Seneca to offset the reduction in the value of our Canadian reserves with the increase in U.S. reserve values during the quarter of approximately $37.2 million. In the United States, Seneca had a ceiling test cushion (i.e. the present value of future net revenue exceeded the book value) of approximately $464.0 million at June 30, 2006. Natural gas prices received by Seneca were 6.3 percent higher and crude oil prices received by Seneca were 57.7 percent higher than the prior year's quarter. Production for the quarter of 12.0 billion cubic feet equivalent ("Bcfe") was in line with Seneca's expected production. For the quarter ended June 30, 2006, the weighted average natural gas price (after hedging) was $6.57/Mcf, an increase of $0.39/Mcf from the prior year's quarter, and the weighted average oil price (after hedging) was $45.13/barrel ("Bbl"), an increase of $16.51/Bbl from the prior year's quarter. Earnings increased by approximately $6.0 million as a result of higher commodity prices (after hedging) that more than offset the impact of a 1.4 Bcfe decline in production. During the quarter Seneca also recognized a $6.1 million benefit to earnings related to income taxes. The Company reversed a valuation allowance associated with the capital loss carryforward that resulted from the 2003 sale of certain Seneca oil properties. During the quarter the Company made the determination that it expects to be in a position to fully utilize the loss carryforward. As a result, a valuation allowance of $2.9 million that the Company had on its balance sheet is no longer necessary. Seneca also recognized a tax benefit of $3.2 million related to the favorable resolution of certain open tax issues. Seneca's higher production revenues were partially offset by higher depletion expense of approximately $2.6 million, which, on a per unit basis, increased $0.43/thousand cubic feet equivalent ("Mcfe") to $2.17/Mcfe. The increase in depletion expense resulted mainly from higher finding and development costs. Seneca drilled 80 wells during the third quarter. In Seneca's East division, 44 wells were drilled during this year's third quarter, bringing the total to 97 for the nine months ended June 30, 2006. In Seneca's West division, 31 wells were drilled this quarter for a total of 91 wells drilled year to date. In the Gulf of Mexico, construction of the Eugene Island 320 platform was completed in late June, and production commenced in mid July. The well is currently producing 8 million cubic feet ("Mmcf") per day. Seneca's working interest in this well is 100 percent. The Brazos 502 #2 well was drilled and encountered 97 feet of gas pay. Seneca has a 65 percent working interest in this well and production is expected to commence in mid fiscal 2007.* In June 2006, the National Fuel Board of Directors approved an increase in capital spending in the Exploration and Production segment for fiscal 2006, from $155 million to $207 million. Estimated capital spending will increase approximately $32 million, $16 million and $4 million in the Gulf of Mexico, West Coast region and Appalachian region, respectively.* The increase in the capital budget for the Gulf of Mexico is due to an increase in drilling and completion activity, higher working interests on new wells and construction of facilities for new wells. The increase in the West is due to the acquisition of reserves and the addition of new wells and construction of facilities for those wells. 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 decreased $0.5 million from $1.5 million in the third quarter last year. This decrease is primarily due to a slight decrease in margin and higher operating expense due to credits recorded in the prior year third quarter that did not recur in the current quarter. Timber Segment The Timber segment operations are carried out by Highland Forest Resources, Inc. ("Highland") and Seneca's Northeast Division. This segment primarily markets high quality hardwoods from its New York and Pennsylvania land holdings, and owns two sawmill/dry kiln operations in northwestern Pennsylvania. The Timber segment's third quarter earnings of $1.5 million were $1.0 million higher than the prior year's third quarter mainly due to higher kiln dry lumber sales and lower operating expenses. During the quarter Highland changed their cost accounting procedures so that certain costs associated with timber processing follow along with the produced lumber until it is removed from inventory. 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, processing, transportation and sale of landfill gas, and Horizon Power, Inc., a corporation that develops and owns independent electric generation facilities which are fueled with natural gas or landfill gas. Earnings in this category declined to a loss of $0.8 million from earnings of $1.3 million in the prior year's quarter. Earnings during last year's third quarter benefited from $1.3 million of reimbursed project development costs that did not recur in 2006. DISCUSSION OF NINE MONTH EARNINGS Consolidated earnings for the nine months ended June 30, 2006 were $136.1 million or $1.58 per share, a decrease of $4.2 million from the prior year's earnings of $140.3 million. Consolidated earnings for the nine months ended June 30, 2005 include earnings from discontinued operations from United Energy, the Company's former operations in the Czech Republic, of $5.1 million or $0.06 per share. There was no income from discontinued operations for the nine months ended June 30, 2006. Excluding the $2.6 million gain from the sale of base gas from Supply Corporation's jointly-owned Ellisburg Storage Field in the second quarter of 2005 and the $39.5 million impairment of Canadian oil and gas producing properties this quarter, earnings from continuing operations increased $43.1 million or $0.48 per share from the prior year's nine month earnings from continuing operations of $132.6 million or $1.56 per share. (See further discussion of the base gas sale below and the oil and gas impairment in this document). CONTINUING OPERATIONS In the Utility segment, earnings increased $6.0 million. The comparative consolidated earnings for the nine months ended June 30, 2005 include $4.1 million (after tax) in regulatory adjustments that reduced earnings in 2005 and did not recur in the current nine month period. In addition, a $2.6 million (after tax) adjustment (which increased earnings) was recorded in the first quarter of fiscal 2006 to correct Distribution's calculation of the symmetrical sharing component included in the New York gas adjustment rate. The positive impact of the most recent rate settlements in New York and Pennsylvania were more than offset by the impact of warmer weather in Pennsylvania, lower average usage per customer and higher bad debt and interest expense in both New York and Pennsylvania. In the Pipeline and Storage segment, earnings were up $3.8 million. The comparative consolidated earnings for the nine months ended June 30, 2005 include a $2.6 million (after tax) gain from the sale of base gas from Supply Corporation's jointly-owned Ellisburg Storage Field. Excluding this item earnings were up $6.4 million mainly due to higher transportation, storage and efficiency gas revenues. Lower project development costs associated with the Empire Connector project and lower interest and depreciation expense also contributed to the increase in earnings. Earnings in the Exploration and Production segment decreased $10.8 million mainly due to the non-cash charge of $39.5 million (after tax) to write down the value of Seneca's Canadian oil and natural gas producing properties described above. Excluding this item, earnings in this segment increased $28.7 million. This increase is mainly due to higher weighted average natural gas and oil prices after hedging and the tax adjustments described above and in the Company's second quarter earnings release. Partially offsetting the impact of these items were lower production volumes and higher depletion and operating expenses. The Energy Marketing segment's earnings were up $1.0 million primarily due to an increase in sales volumes. In the Timber segment, earnings increased $1.0 million mainly due to higher cherry kiln dry lumber and cherry export logs sales and lower operating expenses as a result of the change in cost accounting procedures noted above. SHARE REPURCHASES During the quarter, the Company repurchased in the open market 1,459,100 shares of its common stock pursuant to the authorization of the Company's Board of Directors that authorized the Company to repurchase up to 8,000,000 shares of its common stock. Through June 30, 2006, the Company has repurchased 2,284,350 shares pursuant to this authorization. Depending upon other investment opportunities, and subject to market conditions, such purchases may continue from time to time.* The Company estimates that the share repurchases had no meaningful impact upon the calculated diluted earnings per share for the quarter. For the nine months ended June 30, 2006, the Company estimates that the calculated diluted earnings per share were increased by $0.008 per share as a result of the share repurchases. With respect to the earnings guidance discussed below, the Company has not incorporated any additional share repurchases into its earnings per share guidance. The Company continues to view share repurchases as a good use of its cash, and will continue to consider repurchasing shares up to the full 8,000,000 repurchase authorization of its Board of Directors.* The Company cannot predict with any certainty the timing of those repurchases and the impact of those repurchases on the calculation of earnings per share. EARNINGS GUIDANCE Earnings guidance for the Company's fourth quarter of fiscal 2006 and the entire fiscal year are presented in the table below. The guidance is being revised to fully incorporate third quarter actual earnings and to show the impact of the impairment charge related to the Canadian properties in the Exploration and Production segment.* Guidance for the fourth quarter of fiscal 2006 includes production from the Exploration and Production segment in the range of 11 to 13 Bcfe.* -0- *T FISCAL 2006 EARNINGS GUIDANCE ----------------------------- Reported Guidance* ------------------------- ----------------------------- Six Months Three Months Three Months Fiscal Year Ended Ended Ended Ended March 31, June 30, September 30, September 30, 2006 2006 2006 2006 ----------- ------------- -------------- -------------- GAAP earnings $1.58 $0.00 $0.27 - $0.33 $1.85 - $1.91 Add: oil & gas $0.46 $0.46 impairment ----------- ------------- -------------- -------------- Earnings excluding $1.58 $0.46 $0.27 - $0.33 $2.31 - $2.37 impairment *T FISCAL 2007 EARNINGS GUIDANCE The Company's preliminary consolidated earnings guidance for fiscal 2007 is in the range of $2.60 to $2.80 per share.* This includes oil and gas production for the Exploration and Production segment in the range of 47 to 52 Bcfe.* Further details regarding the production guidance are included on page 22 of this document. EARNINGS TELECONFERENCE The Company will host a conference call on Friday, August 4, 2006 at 11 a.m. (Eastern Time) to discuss this announcement. There are two ways to access this call. For those with Internet access, visit 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, access is also provided by dialing (toll-free) 1-866-825-3354, and using the passcode "12960669." 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 "44573014." Both the webcast and telephonic replay will be available until the close of business on Friday, August 11, 2006. National Fuel is an integrated energy company with $3.8 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 Months Three Months Nine Months Nine Months (Thousands of Ended Ended Ended Ended Dollars) June 30, June 30, June 30, June 30, 2006 2005 2006 2005 (unaudited) (unaudited) (unaudited) (unaudited) ------------ ------------ ------------ ------------ Utility ------- ------------ ------------ ------------ ------------ Reported earnings $827 $(1,684) $51,234 $45,269 ------------ ------------ ------------ ------------ Pipeline and Storage -------------------- Reported earnings 12,642 10,843 45,384 41,577 Base gas sale - - - (2,636) ------------ ------------ ------------ ------------ Earnings excluding this item 12,642 10,843 45,384 38,941 ------------ ------------ ------------ ------------ Exploration and Production --------------- Reported earnings (15,127) 13,830 28,152 38,984 Impairment of oil and gas producing properties 39,502 - 39,502 - ------------ ------------ ------------ ------------ Earnings excluding this item 24,375 13,830 67,654 38,984 ------------ ------------ ------------ ------------ Energy Marketing ---------------- ------------ ------------ ------------ ------------ Reported earnings 1,045 1,548 5,909 4,909 ------------ ------------ ------------ ------------ Timber ------ ------------ ------------ ------------ ------------ Reported earnings 1,529 555 5,235 4,201 ------------ ------------ ------------ ------------ Corporate and All Other ----------------- ------------ ------------ ------------ ------------ Reported earnings (805) 1,301 209 263 ------------ ------------ ------------ ------------ Consolidated Earnings from Continuing Operations -------------- Reported earnings from continuing operations 111 26,393 136,123 135,203 Total excluded items 39,502 - 39,502 (2,636) ------------ ------------ ------------ ------------ Earnings from continuing operations excluding these items $39,613 $26,393 $175,625 $132,567 ============ ============ ============ ============ Discontinued Operations ------------ Reported earnings from discontinued operations - (7,237) - 5,073 ------------ ------------ ------------ ------------ Consolidated ------------ Reported earnings $111 $19,156 $136,123 $140,276 ============ ============ ============ ============ NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES RECONCILIATION TO REPORTED EARNINGS Three Months Three Months Nine Months Nine Months (Diluted Earnings Ended Ended Ended Ended Per Share) June 30, June 30, June 30, June 30, 2006 2005 2006 2005 (unaudited) (unaudited) (unaudited) (unaudited) ------------ ------------ ------------ ------------ Utility ------- ------------ ------------ ------------ ------------ Reported earnings $0.01 $(0.02) $0.59 $0.53 ------------ ------------ ------------ ------------ Pipeline and Storage -------------------- Reported earnings 0.15 0.13 0.53 0.49 Base gas sale - - - (0.03) ------------ ------------ ------------ ------------ Earnings excluding this item 0.15 0.13 0.53 0.46 ------------ ------------ ------------ ------------ Exploration and Production --------------- Reported earnings (0.18) 0.16 0.33 0.46 Impairment of oil and gas producing properties 0.46 - 0.46 - ------------ ------------ ------------ ------------ Earnings excluding this item 0.28 0.16 0.79 0.46 ------------ ------------ ------------ ------------ Energy Marketing ---------------- ------------ ------------ ------------ ------------ Reported earnings 0.01 0.02 0.07 0.06 ------------ ------------ ------------ ------------ Timber ------ ------------ ------------ ------------ ------------ Reported earnings 0.02 0.01 0.06 0.05 ------------ ------------ ------------ ------------ Corporate and All Other ----------------- ------------ ------------ ------------ ------------ Reported earnings (0.01) 0.01 - - ------------ ------------ ------------ ------------ Consolidated Earnings from Continuing Operations -------------- Reported earnings - 0.31 1.58 1.59 Impairment of oil and gas producing properties 0.46 - 0.46 (0.03) ------------ ------------ ------------ ------------ Earnings from continuing operations excluding these items $0.46 $0.31 $2.04 $1.56 ============ ============ ============ ============ Discontinued Operations ------------ Reported earnings from discontinued operations - (0.08) - 0.06 ------------ ------------ ------------ ------------ Consolidated ------------ Reported earnings $- $0.23 $1.58 $1.65 ============ ============ ============ ============ NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES (Thousands of Dollars, except per share amounts) Three Months Ended Nine Months Ended June 30, June 30, (Unaudited) (Unaudited) ----------------------- ----------------------- SUMMARY OF OPERATIONS 2006 2005 2006 2005 --------------------- ----------- ----------- ----------- ----------- Operating Revenues $415,452 $400,359 $2,017,189 $1,636,484 ----------- ----------- ----------- ----------- Operating Expenses: Purchased Gas 184,635 181,100 1,187,952 877,510 Operation and Maintenance 96,117 94,534 320,821 297,549 Property, Franchise and Other Taxes 16,845 16,598 54,147 53,551 Depreciation, Depletion and Amortization 46,943 45,099 134,267 132,438 Impairment of Oil and Gas Producing Properties 62,371 - 62,371 - ----------- ----------- ----------- ----------- 406,911 337,331 1,759,558 1,361,048 Operating Income 8,541 63,028 257,631 275,436 Other Income (Expense): Income from Unconsolidated Subsidiaries 215 675 2,199 1,914 Interest Income 2,203 492 4,301 1,783 Other Income 546 602 1,535 5,979 Interest Expense on Long-Term Debt (18,135) (18,294) (54,502) (54,989) Other Interest Expense (1,026) (4,557) (4,266) (8,911) ----------- ----------- ----------- ----------- Income (Loss) from Continuing Operations Before Income Taxes (7,656) 41,946 206,898 221,212 Income Tax Expense (Benefit) (7,767) 15,553 70,775 86,009 ----------- ----------- ----------- ----------- Income from Continuing Operations $111 $26,393 $136,123 $135,203 Income (Loss) from Discontinued Operations, Net of Tax - (7,237) - 5,073 ----------- ----------- ----------- ----------- Net Income Available for Common Stock $111 $19,156 $136,123 $140,276 =========== =========== =========== =========== Earnings Per Common Share: Basic: Income from Continuing Operations $- $0.32 $1.62 $1.62 Income (Loss) from Discontinued Operations - (0.09) - 0.06 ----------- ----------- ----------- ----------- Net Income Available for Common Stock $- $0.23 $1.62 $1.68 Diluted: Income from Continuing Operations $- $0.31 $1.58 $1.59 Income (Loss) from Discontinued Operations - (0.08) - 0.06 ----------- ----------- ----------- ----------- Net Income Available for Common Stock $- $0.23 $1.58 $1.65 =========== =========== =========== =========== Weighted Average Common Shares: Used in Basic Calculation 84,013,556 83,568,251 84,231,490 83,343,711 =========== =========== =========== =========== Used in Diluted Calculation 86,016,131 84,897,466 86,150,927 84,771,403 =========== =========== =========== =========== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, September 30, (Thousands of Dollars) 2006 2005 ---------------------------------------------------------------------- ASSETS Property, Plant and Equipment $4,638,247 $4,423,255 Less - Accumulated Depreciation, Depletion and Amortization 1,753,147 1,583,955 ---------------------------------------------------------------------- Net Property, Plant and Equipment $2,885,100 2,839,300 ------------------------------------------ --------------------------- Current Assets: Cash and Temporary Cash Investments 121,626 57,607 Hedging Collateral Accounts 14,684 77,784 Receivables - Net 233,150 155,064 Unbilled Utility Revenue 15,529 20,465 Gas Stored Underground 40,803 64,529 Materials and Supplies - at average cost 35,925 33,267 Unrecovered Purchased Gas Costs - 14,817 Prepayments and Other Current Assets 43,681 65,469 Deferred Income Taxes 51,239 83,774 ------------------------------------------ --------------------------- Total Current Assets 556,637 572,776 ------------------------------------------ --------------------------- Other Assets: Recoverable Future Taxes 84,667 85,000 Unamortized Debt Expense 16,000 17,567 Other Regulatory Assets 60,134 47,028 Deferred Charges 5,715 4,474 Other Investments 87,291 80,394 Investments in Unconsolidated Subsidiaries 10,206 12,658 Goodwill 5,476 5,476 Intangible Assets 40,305 42,302 Fair Value of Derivative Financial Instruments 8,266 - Other 5,728 15,677 ------------------------------------------ --------------------------- Total Other Assets 323,788 310,576 ------------------------------------------ --------------------------- Total Assets $3,765,525 $3,722,652 ------------------------------------------ --------------------------- CAPITALIZATION AND LIABILITIES Capitalization: Comprehensive Shareholders' Equity Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding - 83,309,093 Shares and 84,356,748 Shares, Respectively $83,309 $84,357 Paid in Capital 553,081 529,834 Earnings Reinvested in the Business 807,951 813,020 ------------------------------------------ --------------------------- Total Common Shareholder Equity Before Items of Other Comprehensive Loss 1,444,341 1,427,211 Accumulated Other Comprehensive Loss (102,611) (197,628) ------------------------------------------ --------------------------- Total Comprehensive Shareholders' Equity 1,341,730 1,229,583 Long-Term Debt, Net of Current Portion 1,111,746 1,119,012 ------------------------------------------ --------------------------- Total Capitalization 2,453,476 2,348,595 ------------------------------------------ --------------------------- Current and Accrued Liabilities: Notes Payable to Banks and Commercial Paper - - Current Portion of Long-Term Debt 9,502 9,393 Accounts Payable 131,540 155,485 Amounts Payable to Customers 31,576 1,158 Dividends Payable 24,978 24,445 Other Accruals and Current Liabilities 104,350 60,404 Fair Value of Derivative Financial Instruments 75,239 209,072 ---------------------------------------------------------------------- Total Current and Accrued Liabilities 377,185 459,957 ---------------------------------------------------------------------- Deferred Credits: Deferred Income Taxes 494,957 489,720 Taxes Refundable to Customers 11,073 11,009 Unamortized Investment Tax Credit 6,270 6,796 Cost of Removal Regulatory Liability 94,166 90,396 Other Regulatory Liabilities 58,376 66,339 Pension and Other Post-Retirement Liabilities 155,579 143,687 Asset Retirement Obligation 42,940 41,411 Other Deferred Credits 71,503 64,742 ------------------------------------------ --------------------------- Total Deferred Credits 934,864 914,100 ------------------------------------------ --------------------------- Commitments and Contingencies - - ------------------------------------------ --------------------------- Total Capitalization and Liabilities $3,765,525 3,722,652 ------------------------------------------ --------------------------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended June 30, (Thousands of Dollars) 2006 2005 ---------------------------------------------------------------------- Operating Activities: Net Income Available for Common Stock $136,123 $140,276 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Impairment of Oil and Gas Producing Properties 62,371 - Depreciation, Depletion and Amortization 134,267 145,814 Deferred Income Taxes (17,430) 1,994 Income from Unconsolidated Subsidiaries, Net of Cash Distributions 2,452 (374) Minority Interest in Foreign Subsidiaries - 2,899 Excess Tax Benefits Associated with Stock-Based Compensation Awards (6,515) - Other (6,493) (9,342) Change in: Hedging Collateral Deposits 63,100 (8,513) Receivables and Unbilled Utility Revenue (72,496) (91,223) Gas Stored Underground and Materials and Supplies 21,098 32,878 Unrecovered Purchased Gas Costs 14,817 7,532 Prepayments and Other Current Assets 21,800 1,524 Accounts Payable (24,650) 23,886 Amounts Payable to Customers 30,418 37,492 Other Accruals and Current Liabilities 49,950 63,749 Other Assets (15,753) (8,621) Other Liabilities 16,855 (5,573) ---------------------------------------------------------------------- Net Cash Provided by Operating Activities $409,914 $334,398 ---------------------------------------------------------------------- Investing Activities: Capital Expenditures ($218,658) ($157,401) Net Proceeds from Sale of Oil and Gas Producing Properties 4 90 Other (1,578) 4,001 ---------------------------------------------------------------------- Net Cash Used in Investing Activities ($220,232) ($153,310) ---------------------------------------------------------------------- Financing Activities: Change in Notes Payable to Banks and Commercial Paper - ($107,243) Excess Tax Benefits Associated with Stock-Based Compensation Awards $6,515 - Shares Repurchased under Repurchase Plan ($76,540) - Reduction of Long-Term Debt (7,157) (10,740) Dividends Paid on Common Stock (73,275) (69,847) Dividends Paid to Minority Interest - (12,676) Proceeds From Issuance of Common Stock 23,399 12,499 ---------------------------------------------------------------------- Net Cash Used In Financing Activities ($127,058) ($188,007) ---------------------------------------------------------------------- Effect of Exchange Rates on Cash 1,395 (40) ---------------------------------------------------------------------- Net Increase (Decrease) in Cash and Temporary Cash Investments 64,019 (6,959) Cash and Temporary Cash Investments at Beginning of Period 57,607 57,541 ---------------------------------------------------------------------- Cash and Temporary Cash Investments at June 30 $121,626 $50,582 ---------------------------------------------------------------------- NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended Nine Months Ended amounts) June 30, June 30, -------------------------- ------------------------------ UTILITY SEGMENT 2006 2005 Variance 2006 2005 Variance -------- -------------------------- ------------------------------ Revenues from External Customers $186,661 $189,175 $(2,514) $1,154,375 $991,651 $162,724 Intersegment Revenues 2,514 2,734 (220) 12,317 12,732 (415) -------------------------- ------------------------------ Total Operating Revenues 189,175 191,909 (2,734) 1,166,692 1,004,383 162,309 -------------------------- ------------------------------ Operating Expenses: Purchased Gas 115,463 119,615 (4,152) 830,823 687,225 143,598 Operation and Maintenance 45,889 46,174 (285) 163,098 155,344 7,754 Property, Franchise and Other Taxes 11,106 10,868 238 36,878 36,423 455 Depreciation, Depletion and Amortization 10,054 10,084 (30) 30,058 30,081 (23) -------------------------- ------------------------------ 182,512 186,741 (4,229) 1,060,857 909,073 151,784 -------------------------- ------------------------------ Operating Income (Loss) 6,663 5,168 1,495 105,835 95,310 10,525 Other Income (Expense): Interest Income 162 63 99 542 275 267 Other Income 205 202 3 609 485 124 Other Interest Expense (5,789) (7,911) 2,122 (19,392) (18,755) (637) -------------------------- ------------------------------ Income (Loss) Before Income Taxes 1,241 (2,478) 3,719 87,594 77,315 10,279 Income Tax Expense (Benefit) 414 (794) 1,208 36,360 32,046 4,314 -------------------------- ------------------------------ Net Income (Loss) $827 $(1,684) $2,511 $51,234 $45,269 $5,965 ========================== ============================== Net Income (Loss) Per Share (Diluted) $0.01 $(0.02) $0.03 $0.59 $0.53 $0.06 ========================== ============================== Three Months Twelve Months Ended Ended (Thousands of Dollars, except per share September 30, September 30, amounts) ---------------------------- UTILITY SEGMENT 2005 2005 --------------- ---------------------------- Revenues from External Customers $109,921 $1,101,572 Intersegment Revenues 2,763 15,495 ---------------------------- Total Operating Revenues 112,684 1,117,067 ---------------------------- Operating Expenses: Purchased Gas 52,060 739,286 Operation and Maintenance 55,674 211,019 Property, Franchise and Other Taxes 9,791 46,214 Depreciation, Depletion and Amortization 10,079 40,159 ---------------------------- 127,604 1,036,678 ---------------------------- Operating Income (Loss) (14,920) 80,389 Other Income (Expense): Interest Income 3,836 4,111 Other Income 213 699 Other Interest Expense (4,145) (22,900) ---------------------------- Income (Loss) Before Income Taxes (15,016) 62,299 Income Tax Expense (Benefit) (8,943) 23,102 ---------------------------- Net Income (Loss) $(6,073) $39,197 ============================ Net Income (Loss) Per Share (Diluted) $(0.07) $0.46 ============================ Three Months Ended Nine Months Ended June 30, June 30, ------------------------ ------------------------- PIPELINE AND STORAGE SEGMENT 2006 2005 Variance 2006 2005 Variance -------------------------------------------- ------------------------- Revenues from External Customers $30,750 $29,642 $1,108 $104,835 $98,117 $6,718 Intersegment Revenues 20,298 20,956 (658) 61,304 63,071 (1,767) ------------------------ ------------------------- Total Operating Revenues 51,048 50,598 450 166,139 161,188 4,951 ------------------------ ------------------------- Operating Expenses: Purchased Gas (80) (24) (56) (18) 631 (649) Operation and Maintenance 15,613 17,031 (1,418) 47,878 48,632 (754) Property, Franchise and Other Taxes 4,012 4,014 (2) 11,979 11,663 316 Depreciation, Depletion and Amortization 9,290 9,560 (270) 27,649 28,915 (1,266) ------------------------ ------------------------- 28,835 30,581 (1,746) 87,488 89,841 (2,353) ------------------------ ------------------------- Operating Income 22,213 20,017 2,196 78,651 71,347 7,304 Other Income (Expense): Interest Income 120 23 97 316 48 268 Other Income 116 70 46 384 4,269 (3,885) Interest Expense on Long-Term Debt (245) (402) 157 (837) (1,312) 475 Other Interest Expense (1,339) (1,405) 66 (3,728) (4,071) 343 ------------------------ ------------------------- Income Before Income Taxes 20,865 18,303 2,562 74,786 70,281 4,505 Income Tax Expense 8,223 7,460 763 29,402 28,704 698 ------------------------ ------------------------- Net Income $12,642 $10,843 $1,799 $45,384 $41,577 $3,807 ======================== ========================= Net Income Per Share (Diluted) $0.15 $0.13 $0.02 $0.53 $0.49 $0.04 ======================== ========================= Three Months Twelve Months Ended Ended September 30, September 30, ---------------------------- PIPELINE AND STORAGE SEGMENT 2005 2005 ---------------------------- ---------------------------- Revenues from External Customers $34,689 $132,805 Intersegment Revenues 19,982 83,054 ---------------------------- Total Operating Revenues 54,671 215,859 ---------------------------- Operating Expenses: Purchased Gas 5 636 Operation and Maintenance 16,766 65,397 Property, Franchise and Other Taxes 3,936 15,598 Depreciation, Depletion and Amortization 9,134 38,050 ---------------------------- 29,841 119,681 ---------------------------- Operating Income 24,830 96,178 Other Income (Expense): Interest Income 29 76 Other Income 6,128 10,396 Interest Expense on Long-Term Debt (363) (1,675) Other Interest Expense (1,383) (5,453) ---------------------------- Income Before Income Taxes 29,241 99,522 Income Tax Expense 10,364 39,068 ---------------------------- Net Income $18,877 $60,454 ============================ Net Income Per Share (Diluted) $0.22 $0.71 ============================ NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended Nine Months Ended amounts) June 30, June 30, -------------------------- --------------------------- EXPLORATION AND PRODUCTION SEGMENT 2006 2005 Variance 2006 2005 Variance --------------- -------------------------- --------------------------- Operating Revenues $86,600 $77,370 $9,230 $257,406 $219,527 $37,879 -------------------------- --------------------------- Operating Expenses: Purchased Gas - 62 (62) 98 (282) 380 Operation and Maintenance: General and Administrative Expense 5,783 6,285 (502) 18,465 16,888 1,577 Lease Operating Expense 11,485 11,826 (341) 38,179 33,353 4,826 All Other Operation and Maintenance Expense 1,976 1,758 218 5,968 5,032 936 Property, Franchise and Other Taxes (Lease Operating Expense) 1,236 1,170 66 3,972 3,902 70 Depreciation, Depletion and Amortization 25,997 23,416 2,581 70,655 67,544 3,111 Impairment of Oil and Gas Producing Properties 62,371 - 62,371 62,371 - 62,371 -------------------------- --------------------------- 108,848 44,517 64,331 199,708 126,437 73,271 -------------------------- --------------------------- Operating Income (Loss) (22,248) 32,853 (55,101) 57,698 93,090 (35,392) Other Income (Expense): Interest Income 2,332 1,285 1,047 6,113 3,179 2,934 Other Interest Expense (12,671)(12,253) (418) (37,622) (36,384) (1,238) -------------------------- --------------------------- Income (Loss) Before Income Taxes (32,587) 21,885 (54,472) 26,189 59,885 (33,696) Income Tax Expense (Benefit) (17,460) 8,055 (25,515) (1,963) 20,901 (22,864) -------------------------- --------------------------- Net Income (Loss) $(15,127)$13,830 $(28,957) $28,152 $38,984 $(10,832) ========================== =========================== Net Income (Loss) Per Share (Diluted) $(0.18) $0.16 $(0.34) $0.33 $0.46 $(0.13) ========================== =========================== Three Months Twelve Months Ended Ended (Thousands of Dollars, except per share September 30, September 30, amounts) EXPLORATION AND PRODUCTION SEGMENT 2005 2005 ---------------------------------- ---------------------------- Operating Revenues $73,898 $293,425 ---------------------------- Operating Expenses: Purchased Gas 106 (176) Operation and Maintenance: General and Administrative Expense 4,623 21,512 Lease Operating Expense 12,677 46,030 All Other Operation and Maintenance Expense 1,813 6,844 Property, Franchise and Other Taxes (Lease Operating Expense) 1,193 5,095 Depreciation, Depletion and Amortization 23,368 90,912 ---------------------------- Impairment of Oil and Gas Producing Properties ---------------------------- 43,780 170,217 ---------------------------- Operating Income (Loss) 30,118 123,208 Other Income (Expense): Interest Income 1,482 4,661 Other Interest Expense (12,472) (48,856) ---------------------------- Income (Loss) Before Income Taxes 19,128 79,013 Income Tax Expense (Benefit) 7,452 28,354 ---------------------------- Net Income (Loss) $11,676 $50,659 ============================ Net Income (Loss) Per Share (Diluted) $0.13 $0.60 ============================ Three Months Ended Nine Months Ended June 30, June 30, ------------------------ --------------------------- ENERGY MARKETING SEGMENT 2006 2005 Variance 2006 2005 Variance ---------------- ------------------------ --------------------------- Operating Revenues $94,747 $88,048 $6,699 $446,367 $276,106 $170,261 ------------------------ --------------------------- Operating Expenses: Purchased Gas 91,920 85,113 6,807 433,311 265,943 167,368 Operation and Maintenance 1,404 674 730 3,894 2,561 1,333 Property, Franchise and Other Taxes 8 8 - (232) 78 (310) Depreciation, Depletion and Amortization 10 22 (12) 46 66 (20) ------------------------ --------------------------- 93,342 85,817 7,525 437,019 268,648 168,371 ------------------------ --------------------------- Operating Income (Loss) 1,405 2,231 (826) 9,348 7,458 1,890 Other Income (Expense): Interest Income 132 300 (168) 301 584 (283) Other Income 143 60 83 363 180 183 Other Interest Expense (16) (2) (14) (207) (8) (199) ------------------------ --------------------------- Income Before Income Taxes 1,664 2,589 (925) 9,805 8,214 1,591 Income Tax Expense (Benefit) 619 1,041 (422) 3,896 3,305 591 ------------------------ --------------------------- Net Income $1,045 $1,548 $(503) $5,909 $4,909 $1,000 ======================== =========================== Net Income Per Share (Diluted) $0.01 $0.02 $(0.01) $0.07 $0.06 $0.01 ======================== =========================== Three Months Twelve Months Ended Ended September 30, September 30, ---------------------------- ENERGY MARKETING SEGMENT 2005 2005 ------------------------ ---------------------------- Operating Revenues $53,608 $329,714 ---------------------------- Operating Expenses: Purchased Gas 52,628 318,571 Operation and Maintenance 1,170 3,731 Property, Franchise and Other Taxes 4 83 Depreciation, Depletion and Amortization (24) 41 ---------------------------- 53,778 322,426 ---------------------------- Operating Income (Loss) (170) 7,288 Other Income (Expense): Interest Income 200 783 Other Income 47 227 Other Interest Expense (4) (11) ---------------------------- Income Before Income Taxes 73 8,287 Income Tax Expense (Benefit) (95) 3,210 ---------------------------- Net Income $168 $5,077 ============================ Net Income Per Share (Diluted) $- $0.06 ============================ NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per Three Months Ended Nine Months Ended share amounts) June 30, June 30, ------------------------ ------------------------ TIMBER SEGMENT 2006 2005 Variance 2006 2005 Variance -------------- ------------------------ ------------------------ Revenues from External Customers $15,311 $15,028 $283 $51,377 $46,994 $4,383 Intersegment Revenues 4 - 4 4 1 3 ------------------------ ------------------------ Total Operating Revenues 15,315 15,028 287 51,381 46,995 4,386 ------------------------ ------------------------ Operating Expenses: Operation and Maintenance 10,898 11,556 (658) 35,328 32,823 2,505 Property, Franchise and Other Taxes 382 375 7 1,241 1,069 172 Depreciation, Depletion and Amortization 1,275 1,707 (432) 4,913 4,904 9 ------------------------ ------------------------ 12,555 13,638 (1,083) 41,482 38,796 2,686 ------------------------ ------------------------ Operating Income 2,760 1,390 1,370 9,899 8,199 1,700 Other Income (Expense): Interest Income 217 116 101 518 308 210 Other Income - 50 (50) 52 68 (16) Other Interest Expense (778) (740) (38) (2,299) (2,008) (291) ------------------------ ------------------------ Income Before Income Taxes 2,199 816 1,383 8,170 6,567 1,603 Income Tax Expense (Benefit) 670 261 409 2,935 2,366 569 ------------------------ ------------------------ Net Income $1,529 $555 $974 $5,235 $4,201 $1,034 ======================== ======================== Net Income Per Share (Diluted) $0.02 $0.01 $0.01 $0.06 $0.05 $0.01 ======================== ======================== Three Months Twelve Months Ended Ended (Thousands of Dollars, except per share September 30, September 30, amounts) ---------------------------- TIMBER SEGMENT 2005 2005 -------------- ---------------------------- Revenues from External Customers $14,291 $61,285 Intersegment Revenues - 1 ---------------------------- Total Operating Revenues 14,291 61,286 ---------------------------- Operating Expenses: Operation and Maintenance 10,818 43,641 Property, Franchise and Other Taxes 418 1,488 Depreciation, Depletion and Amortization 1,697 6,601 ---------------------------- 12,933 51,730 ---------------------------- Operating Income 1,358 9,556 Other Income (Expense): Interest Income 131 438 Other Income 3 73 Other Interest Expense (757) (2,764) ---------------------------- Income Before Income Taxes 735 7,303 Income Tax Expense (Benefit) (95) 2,271 ---------------------------- Net Income $830 $5,032 ============================ Net Income Per Share (Diluted) $0.01 $0.06 ============================ Three Months Ended Nine Months Ended June 30, June 30, ---------------------- ---------------------- ALL OTHER 2006 2005 Variance 2006 2005 Variance --------- ---------------------- ---------------------- Revenues from External Customers $1,192 $1,096 $96 $2,250 $4,089 $(1,839) Intersegment Revenues 1,354 1,782 (428) 7,938 6,125 1,813 ---------------------- ---------------------- Total Operating Revenues 2,546 2,878 (332) 10,188 10,214 (26) ---------------------- ---------------------- Operating Expenses: Purchased Gas 1,395 1,528 (133) 6,366 5,296 1,070 Operation and Maintenance 803 872 (69) 2,598 2,664 (66) Property, Franchise and Other Taxes 33 19 14 75 66 9 Depreciation, Depletion and Amortization 196 194 2 593 580 13 ---------------------- ---------------------- 2,427 2,613 (186) 9,632 8,606 1,026 ---------------------- ---------------------- Operating Income (Loss) 119 265 (146) 556 1,608 (1,052) Other Income (Expense): Income from Unconsolidated Subsidiaries 215 675 (460) 2,199 1,914 285 Impairment of Investment in Partnership - - - - - - Interest Income 7 5 2 20 13 7 Other Income 27 5 22 42 285 (243) Other Interest Expense (668) (459) (209) (1,874)(1,201) (673) ---------------------- ---------------------- Income (Loss) Before Income Taxes (300) 491 (791) 943 2,619 (1,676) Income Tax Expense (Benefit) (88) 221 (309) 539 1,097 (558) ---------------------- ---------------------- Net Income (Loss) $(212) $270 $(482) $404 $1,522 $(1,118) ====================== ====================== Net Income (Loss) Per Share (Diluted) $- $- $- $- $0.02 $(0.02) ====================== ====================== Three Months Twelve Months Ended Ended September 30, September 30, ---------------------------- ALL OTHER 2005 2005 --------- ---------------------------- Revenues from External Customers $658 $4,748 Intersegment Revenues 2,482 8,606 ---------------------------- Total Operating Revenues 3,140 13,354 ---------------------------- Operating Expenses: Purchased Gas 2,580 7,876 Operation and Maintenance 1,187 3,850 Property, Franchise and Other Taxes 20 87 Depreciation, Depletion and Amortization 2,957 3,537 ---------------------------- 6,744 15,350 ---------------------------- Operating Income (Loss) (3,604) (1,996) Other Income (Expense): Income from Unconsolidated Subsidiaries 1,447 3,362 Impairment of Investment in Partnership (4,158) (4,158) Interest Income 6 19 Other Income 172 458 Other Interest Expense (523) (1,726) ---------------------------- Income (Loss) Before Income Taxes (6,660) (4,041) Income Tax Expense (Benefit) (2,523) (1,425) ---------------------------- Net Income (Loss) $(4,137) $(2,616) ============================ Net Income (Loss) Per Share (Diluted) $(0.05) $(0.03) ============================ NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per Three Months Ended Nine Months Ended share amounts) June 30, June 30, ------------------------ ------------------------ CORPORATE 2006 2005 Variance 2006 2005 Variance --------- ------------------------ ------------------------ Revenues from External Customers $191 $- $191 $579 $- $579 Intersegment Revenues 737 692 45 2,212 2,013 199 ------------------------ ------------------------ Total Operating Revenues 928 692 236 2,791 2,013 778 ------------------------ ------------------------ Operating Expenses: Operation and Maintenance 3,110 (672) 3,782 6,560 2,891 3,669 Property, Franchise and Other Taxes 68 144 (76) 234 350 (116) Depreciation, Depletion and Amortization 121 116 5 353 348 5 ------------------------ ------------------------ 3,299 (412) 3,711 7,147 3,589 3,558 ------------------------ ------------------------ Operating Income (Loss) (2,371) 1,104 (3,475) (4,356) (1,576) (2,780) Other Income (Expense): Interest Income 23,280 19,477 3,803 68,942 59,249 9,693 Other Income 55 215 (160) 85 692 (607) Interest Expense on Long-Term Debt (17,890)(17,892) 2 (53,665)(53,677) 12 Other Interest Expense (3,812) (2,564) (1,248) (11,595) (8,357) (3,238) ------------------------ ------------------------ Income (Loss) Before Income Taxes (738) 340 (1,078) (589) (3,669) 3,080 Income Tax Expense (Benefit) (145) (691) 546 (394) (2,410) 2,016 ------------------------ ------------------------ Net Income (Loss) $(593) $1,031 $(1,624) $(195)$(1,259) $1,064 ======================== ======================== Net Income (Loss) Per Share (Diluted) $(0.01) $0.01 $(0.02) $- $(0.02) $0.02 ======================== ======================== Three Months Twelve Months Ended Ended (Thousands of Dollars, except per share September 30, September 30, amounts) -------------- -------------- CORPORATE 2005 2005 --------- -------------- -------------- Revenues from External Customers $- $- Intersegment Revenues 811 2,824 -------------- -------------- Total Operating Revenues 811 2,824 -------------- -------------- Operating Expenses: Operation and Maintenance 3,216 6,107 Property, Franchise and Other Taxes 163 511 Depreciation, Depletion and Amortization 118 467 -------------- -------------- 3,497 7,085 -------------- -------------- Operating Income (Loss) (2,686) (4,261) Other Income (Expense): Interest Income 20,915 80,166 Other Income 201 891 Interest Expense on Long-Term Debt (17,892) (71,569) Other Interest Expense (2,759) (11,117) -------------- -------------- Income (Loss) Before Income Taxes (2,221) (5,890) Income Tax Expense (Benefit) 809 (1,602) -------------- -------------- Net Income (Loss) $(3,030) $(4,288) ============== ============== Net Income (Loss) Per Share (Diluted) $(0.03) $(0.05) ============== ============== Three Months Ended Nine Months Ended June 30, June 30, -------------------------- -------------------------- INTERSEGMENT ELIMINATIONS 2006 2005 Variance 2006 2005 Variance ------------- -------------------------- -------------------------- Intersegment Revenues $(24,907)$(26,164) $1,257 $(83,775)$(83,942) $167 -------------------------- -------------------------- Operating Expenses: Purchased Gas (24,063) (25,194) 1,131 (82,628) (81,303) (1,325) Operation and Maintenance (844) (970) 126 (1,147) (2,639) 1,492 -------------------------- -------------------------- (24,907) (26,164) 1,257 (83,775) (83,942) 167 -------------------------- -------------------------- Operating Income - - - - - - Other Income (Expense): Interest Income (24,047) (20,777) (3,270) (72,451) (61,873)(10,578) Other Interest Expense 24,047 20,777 3,270 72,451 61,873 10,578 -------------------------- -------------------------- Net Income $- $- $- $- $- $- ========================== ========================== Net Income Per Share (Diluted) $- $- $- $- $- $- ========================== ========================== Three Months Twelve Months Ended Ended September 30, September 30, -------------- -------------- INTERSEGMENT ELIMINATIONS 2005 2005 ------------------------- -------------- -------------- Intersegment Revenues $(26,039) $(109,980) -------------- -------------- Operating Expenses: Purchased Gas (25,063) (106,366) Operation and Maintenance (976) (3,614) -------------- -------------- (26,039) (109,980) -------------- -------------- Operating Income - - Other Income (Expense): Interest Income (21,885) (83,758) Other Interest Expense 21,885 83,758 -------------- -------------- Net Income $- $- ============== ============== Net Income Per Share (Diluted) $- $- ============== ============== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Continued) (Thousands of Dollars) Three Months Ended June 30, (Unaudited) ------------------------------- Increase 2006 2005 (Decrease) ----------- -------- ---------- Capital Expenditures: --------------------- Utility $14,012 $12,719 $1,293 Pipeline and Storage 5,033 4,917 116 Exploration and Production 63,999 24,174 39,825 Energy Marketing - 12 (12) Timber 378 5 373 ----------- -------- ---------- Total Reportable Segments 83,422 41,827 41,595 All Other 22 67 (45) Corporate 253 20 233 ----------- -------- ---------- Total Expenditures from Continuing Operations $83,697 $41,914 $41,783 =========== ======== ========== Nine Months Ended June 30, (Unaudited) -------------------------------- Increase 2006 2005 (Decrease) ----------- --------- ---------- Capital Expenditures: --------------------- Utility $39,372 $34,993 $4,379 Pipeline and Storage 15,361 13,122 2,239 Exploration and Production 160,323 86,048 74,275 Energy Marketing 6 46 (40) Timber 1,130 18,701 (17,571) ----------- --------- ---------- Total Reportable Segments 216,192 152,910 63,282 All Other 78 170 (92) Corporate 2,388 106 2,282 ----------- --------- ---------- Total Expenditures from Continuing Operations $218,658 $153,186 $65,472 =========== ========= ========== DEGREE DAYS ----------- Percent Colder (Warmer) Than: Last Three Months Ended June 30 Normal 2006 2005 Normal Year -------------------------- ------- ------ ------ ------ -------- Buffalo, NY 927 731 911 (21.1) (19.8) Erie, PA 885 812 952 (8.2) (14.7) Nine Months Ended June 30 ------------------------- Buffalo, NY 6,514 5,816 6,551 (10.7) (11.2) Erie, PA 6,108 5,565 6,215 (8.9) (10.5) NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES EXPLORATION AND PRODUCTION INFORMATION -------------------------------------- Three Months Ended Nine Months Ended June 30, June 30, -------------------------- -------------------------- Increase Increase 2006 2005 (Decrease) 2006 2005 (Decrease) ------- ------- ---------- ------- ------- ---------- Gas Production/ Prices: --------------- Production (MMcf) Gulf Coast 2,109 3,365 (1,256) 6,529 9,433 (2,904) West Coast 983 975 8 2,933 3,000 (67) Appalachia 1,267 1,156 111 3,766 3,499 267 Canada 2,158 2,134 24 5,830 5,959 (129) ------- ------- ---------- ------- ------- ---------- 6,517 7,630 (1,113) 19,058 21,891 (2,833) ======= ======= ========== ======= ======= ========== Average Prices (Per Mcf) Gulf Coast $6.97 $6.92 $0.05 $8.56 $6.72 $1.84 West Coast 6.06 6.87 (0.81) 8.42 6.54 1.88 Appalachia 7.26 6.97 0.29 10.29 7.16 3.13 Canada 5.54 6.08 (0.54) 7.75 5.70 2.05 Weighted Average 6.41 6.69 (0.28) 8.64 6.49 2.15 Weighted Average after Hedging 6.57 6.18 0.39 7.43 6.05 1.38 Oil Production/ Prices: --------------- Production (Thousands of Barrels) Gulf Coast 192 251 (59) 479 801 (322) West Coast 638 630 8 1,962 1,916 46 Appalachia 19 11 8 41 23 18 Canada 66 75 (9) 221 229 (8) ------- ------- ---------- ------- ------- ---------- 915 967 (52) 2,703 2,969 (266) ======= ======= ========== ======= ======= ========== Average Prices (Per Barrel) Gulf Coast $67.52 $49.83 $17.69 $62.04 $47.73 $14.31 West Coast 61.51 42.57 18.94 55.40 39.10 16.30 Appalachia 63.15 50.95 12.20 61.92 46.71 15.21 Canada 57.88 41.66 16.22 49.25 40.39 8.86 Weighted Average 62.54 44.48 18.06 56.17 41.59 14.58 Weighted Average after Hedging 45.13 28.62 16.51 39.56 27.00 12.56 Total Production (Mmcfe) 12,007 13,432 (1,425) 35,276 39,705 (4,429) ---------------- ======= ======= ========== ======= ======= ========== Selected Operating Performance Statistics: ------------ General & Administrative Expense per Mcfe (1) $0.48 $0.47 $0.01 $0.52 $0.43 $0.09 Lease Operating Expense per Mcfe (1) $1.06 $0.97 $0.09 $1.19 $0.94 $0.25 Depreciation, Depletion & Amortization per Mcfe (1) $2.17 $1.74 $0.43 $2.00 $1.70 $0.30 (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 Average SWAPS Volume Hedge Price ----- ------ ------------ Oil 0.5 MMBBL $35.33 / BBL Gas 2.3 BCF $6.20 / MCF No-cost Collars Volume Floor Price Ceiling Price --------------- ------ ----------- ------------- Gas 1.1 BCF $8.28 / MCF $15.47 / MCF Hedging Summary for Fiscal 2007 Average SWAPS Volume Hedge Price ----- ------ ----------- Oil 0.9 MMBBL $37.03 / BBL Gas 0.7 BCF $5.84 / MCF No-cost Collars Volume Floor Price Ceiling Price --------------- ------ ----------- ------------- Oil 0.2 MMBBL $70.00 / BBL $77.00 / BBL Gas 5.7 BCF $8.12 / MCF $17.45 / MCF Hedging Summary for Fiscal 2008 No-cost Collars Volume Floor Price Ceiling Price --------------- ------ ----------- ------------- Gas 1.4 BCF $8.83 / MCF $16.45 / MCF Drilling Program ---------------- Nine Months Ended June 30, 2006: -------------------------------- Gross Wells Drilled ------------------- Gulf West East Canada Total ------- ------ ------- ------ ----- Exploratory Successful 1 0 4 15 20 Unsuccessful 1 0 0 2 3 Developmental Successful 0 90 93 2 185 Unsuccessful 0 1 0 0 1 Total Successful 1 90 97 17 205 Unsuccessful 1 1 0 2 4 NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES EXPLORATION AND PRODUCTION INFORMATION -------------------------------------- Fiscal 2007 Financial & Operating Guidance Total Production (Bcfe) 47 - 52 Production by Division (Bcfe) Gulf 14 - 15.5 East 5.5 - 6.5 West 19 - 20 Canada 8.5 - 10 Crude Oil Average 2007 NYMEX ($/Bbl) as of July 12, 2006 (without hedges): $77.68 Forecast price differentials Gulf -$2.00 to -$5.00 East -$4.00 to -$6.00 West -$9.00 to -$13.00 Canada -$10.00 to -$13.00 Natural Gas Average 2007 NYMEX ($/Mmbtu) as of July 12, 2006 (without hedges): $8.60 Forecast price differentials Gulf -$0.50 to -$1.00 East -$0.25 to +$0.25 West -$1.50 to -$2.00 Canada -$1.25 to -$1.75 Cost and Expenses $ per Mcfe Lease Operating Expenses $1.10 - $1.30 Depreciation, Depletion and Amortization $2.10 - $2.30 Other Taxes (% of Revenue) $0.10 - $0.14 Other Operating Expenses $8.5M - $10.5M Administrative and General $24M - $26M Capital Investment by Division Number of Wells to be Drilled Gulf $99M - $100M 8 - 12 East $35M - $36M 145 - 165 West $42M - $43M 85 - 100 Canada $34M - $35M 17 - 21 Total $210M - $214M NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES Utility Throughput - (millions of cubic feet - MMcf) Three Months Ended Nine Months Ended June 30, June 30, -------------------------- ---------------------------- Increase Increase 2006 2005 (Decrease) 2006 2005 (Decrease) ------- ------- ---------- -------- -------- ---------- Retail Sales: Residential Sales 8,740 10,698 (1,958) 55,071 63,125 (8,054) Commercial Sales 1,459 1,814 (355) 9,940 11,340 (1,400) Industrial Sales 114 120 (6) 900 721 179 ------- ------- ---------- -------- -------- ---------- 10,313 12,632 (2,319) 65,911 75,186 (9,275) Transportation 12,185 13,776 (1,591) 48,646 50,345 (1,699) ------- ------- ---------- -------- -------- ---------- 22,498 26,408 (3,910) 114,557 125,531 (10,974) ======= ======= ========== ======== ======== ========== Pipeline & Storage Throughput- (MMcf) Three Months Ended June 30, -------------------------------- Increase 2006 2005 (Decrease) ---------- ---------- ---------- Firm Transportation - Affiliated 15,753 17,895 (2,142) Firm Transportation - Non-Affiliated 54,867 53,049 1,818 Interruptible Transportation 2,220 7,162 (4,942) ---------- ---------- ---------- 72,840 78,106 (5,266) ========== ========== ========== Nine Months Ended June 30, -------------------------------- Increase 2006 2005 (Decrease) ---------- ---------- ---------- Firm Transportation - Affiliated 92,615 102,801 (10,186) Firm Transportation - Non-Affiliated 195,655 181,736 13,919 Interruptible Transportation 7,774 10,004 (2,230) ---------- ---------- ---------- 296,044 294,541 1,503 ========== ========== ========== Energy Marketing Volumes Three Months Ended Nine Months Ended June 30, June 30, -------------------------- ---------------------------- Increase Increase 2006 2005 (Decrease) 2006 2005 (Decrease) ------- ------- ---------- --------- ------- ---------- Natural Gas (MMcf) 11,190 10,925 265 38,496 34,115 4,381 ======= ======= ========== ========= ======= ========== Timber Board Feet (Thousands) Three Months Ended Nine Months Ended June 30, June 30, -------------------------- ---------------------------- Increase Increase 2006 2005 (Decrease) 2006 2005 (Decrease) ------- ------- ---------- --------- ------- ---------- Log Sales 1,767 1,619 148 7,540 5,934 1,606 Green Lumber Sales 3,126 3,475 (349) 8,082 8,179 (97) Kiln Dry Lumber Sales 4,240 4,110 130 13,239 11,373 1,866 ------- ------- ---------- --------- ------- ---------- 9,133 9,204 (71) 28,861 25,486 3,375 ======= ======= ========== ========= ======= ========== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES FISCAL 2007 EARNINGS GUIDANCE AND SENSITIVITY Earnings per share sensitivity to Fiscal 2007 (Diluted earnings per changes from NYMEX prices used in share guidance*) guidance*(a) ---------------------------------- ----------------------------------- $1 change per $5 change per Bbl MMBtu gas oil ----------------- ----------------- Range Increase Decrease Increase Decrease -------------- ----------------- ----------------- Consolidated Earnings $2.60 - $2.80 + $0.22 - $0.22 + $0.10 - $0.10 NYMEX Settlement Prices at July 12, 2006 ---------------------------------------------------------------------- Natural Gas Oil ($ per MMBtu) ($ per Bbl) ------------- ----------- Oct-06 $6.382 $76.69 Nov-06 $7.737 $77.12 Dec-06 $9.307 $77.47 Jan-07 $10.077 $77.74 Feb-07 $10.122 $77.91 Mar-07 $9.932 $78.01 Apr-07 $8.262 $78.04 May-07 $8.097 $78.01 Jun-07 $8.182 $77.94 Jul-07 $8.292 $77.85 Aug-07 $8.382 $77.76 Sep-07 $8.487 $77.67 Average $8.600 $77.68 * Please refer to forward looking statement footnote at page 9 of this document. (a) This sensitivity table is current as of July 31, 2006, but will become obsolete with the passage of time, changes in Seneca's production forecast, change in basis differentials, 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 June 30 (unaudited) 2006 2005 --------------------------------- -------------- -------------- Operating Revenues $ 415,452,000 $ 400,359,000 ============== ============== Income from Continuing Operations $ 111,000 $ 26,393,000 Loss from Discontinued Operations, Net of Tax - (7,237,000) -------------- -------------- Net Income Available for Common Stock $ 111,000 $ 19,156,000 ============== ============== Earnings Per Common Share: Basic: Income from Continuing Operations $ - $ 0.32 Loss from Discontinued Operations - (0.09) -------------- -------------- Net Income Available for Common Stock $ - $ 0.23 ============== ============== Diluted: Income from Continuing Operations $ - $ 0.31 Loss from Discontinued Operations - (0.08) -------------- -------------- Net Income Available for Common Stock $ - $ 0.23 ============== ============== Weighted Average Common Shares: Used in Basic Calculation 84,013,556 83,568,251 ============== ============== Used in Diluted Calculation 86,016,131 84,897,466 ============== ============== Nine Months Ended June 30 (unaudited) ------------------------------------- Operating Revenues $2,017,189,000 $1,636,484,000 ============== ============== Income from Continuing Operations $ 136,123,000 $ 135,203,000 Income from Discontinued Operations, Net of Tax - 5,073,000 -------------- -------------- Net Income Available for Common Stock $ 136,123,000 $ 140,276,000 ============== ============== Earnings Per Common Share: Basic: Income from Continuing Operations $ 1.62 $ 1.62 Income from Discontinued Operations - 0.06 -------------- -------------- Net Income Available for Common Stock $ 1.62 $ 1.68 ============== ============== Diluted: Income from Continuing Operations $ 1.58 $ 1.59 Income from Discontinued Operations - 0.06 -------------- -------------- Net Income Available for Common Stock $ 1.58 $ 1.65 ============== ============== Weighted Average Common Shares: Used in Basic Calculation 84,231,490 83,343,711 ============== ============== Used in Diluted Calculation 86,150,927 84,771,403 ============== ============== Twelve Months Ended June 30 (unaudited) --------------------------------------- Operating Revenues $2,304,253,000 $1,903,979,000 ============== ============== Income from Continuing Operations $ 154,435,000 $ 149,035,000 Income (Loss) from Discontinued Operations, Net of Tax 30,900,000 (1,005,000) -------------- -------------- Net Income Available for Common Stock $ 185,335,000 $ 148,030,000 ============== ============== Earnings Per Common Share: Basic: Income from Continuing Operations $ 1.83 $ 1.79 Income (Loss) from Discontinued Operations 0.37 (0.01) -------------- -------------- Net Income Available for Common Stock $ 2.20 $ 1.78 ============== ============== Diluted: Income from Continuing Operations $ 1.79 $ 1.76 Income (Loss) from Discontinued Operations 0.36 (0.01) -------------- -------------- Net Income Available for Common Stock $ 2.15 $ 1.75 ============== ============== Weighted Average Common Shares: Used in Basic Calculation 84,205,652 83,164,757 ============== ============== Used in Diluted Calculation 86,063,076 84,559,840 ============== ============== *T