NFG National Fuel Gas Co

National Fuel Gas Company (�National Fuel� or the �Company�) (NYSE:NFG) today announced results for its fourth quarter and fiscal year ended September 30, 2006. HIGHLIGHTS Reported GAAP earnings for the quarter and fiscal year of $0.02 and $1.61 per share, respectively, were down $0.55 per share from the prior year�s fourth quarter and $0.62 from the prior year mostly due to the previously announced full cost ceiling test impairments. Quarterly operating results before items impacting comparability were $0.36 per share, a 125 percent increase over the prior year, mostly due to higher average commodity prices realized in the Exploration and Production segment. Fiscal year operating results before items impacting comparability were $2.25 per share, a 30 percent increase, also due to higher average commodity prices. Production of crude oil and natural gas volumes for the quarter and fiscal year were 12.1 billion cubic feet equivalent (�Bcfe�) and 47.4 Bcfe, respectively, and were in line with the Company�s guidance. The Company�s expected fiscal 2007 production remains at the previously announced level of 47 to 52 Bcfe.* Based on recent reductions in crude oil and natural gas pricing strips, the Company is revising its earnings guidance for fiscal 2007 to a range of $2.10 to $2.30 per share. Earnings guidance had previously been $2.60 to $2.80 per share.* A conference call is scheduled for Friday, November 10, 2006 at 11:00 am Eastern Standard Time. MANAGEMENT COMMENTS Philip C. Ackerman, Chairman and Chief Executive Officer of National Fuel Gas Company stated: �This year, the continued volatility of commodity prices caused us to experience non-cash write downs of our Canadian exploration and production properties in the third and fourth quarters. Absent these write downs, consolidated earnings improved dramatically. Similarly, cash provided by operating activities improved substantially, reaching $471 million, and was sufficient to fund an increase in capital spending, an increase in our dividend, and the repurchase of more than 2,000,000 shares of stock. Our balance sheet remains solid, with an equity component growing to more than 56 percent of our capital structure, and strong operational results in all of our business segments reflect the continued dedication of the Company�s employees.� SUMMARY OF RESULTS National Fuel had consolidated earnings for the quarter ended September 30, 2006 of $2.0 million, or $0.02 per share, a decrease of $47.2 million, or $0.55 per share, from the prior year�s fourth quarter of $49.2 million or $0.57 per share. (note: all references to earnings per share are to diluted earnings per share and all amounts are stated in U.S. dollars). Consolidated earnings for the fiscal year ended September 30, 2006 were $138.1 million, or $1.61 per share, a decrease of $51.4 million, or $0.62 per share, from the prior year�s earnings of $189.5 million or $2.23 per share. Please refer to the table below to view the effect of items impacting comparability for both the quarterly and twelve-month periods. Three Months Twelve Months Ended September 30, Ended September 30, 2006� 2005� 2006� 2005� (in thousands except per share amounts) Reported GAAP earnings $ 1,968� $ 49,211� $ 138,091� $ 189,488� Items impacting comparability: Income from discontinued operations1 (30,900) (35,973) Impairment of Canadian oil and gas producing properties2 29,144� 68,646� Income tax adjustments2 (11,202) Out-of-period symmetrical sharing adjustment2 (2,551) Gain associated with insurance proceeds2 (3,885) (3,885) Gain on sale of base gas2 � � � (2,636) Operating results $ 31,112� $ 14,426� $ 192,984� $ 146,994� � Reported GAAP earnings per share $ 0.02� $ 0.57� $ 1.61� $ 2.23� Items impacting comparability: Income from discontinued operations1 (0.36) (0.42) Impairment of Canadian oil and gas producing properties2 0.34� 0.80� Income tax adjustments2 (0.13) Out-of-period symmetrical sharing adjustment2 (0.03) Gain associated with insurance proceeds2 (0.05) (0.05) Gain on sale of base gas2 � � � (0.03) Operating results $ 0.36� $ 0.16� $ 2.25� $ 1.73� 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. As outlined in the table above, certain items included in GAAP earnings impacted the comparability of the Company�s operating results when comparing the fourth quarter of 2006 to the fourth quarter of 2005 and the annual results for fiscal 2006 to those for fiscal 2005. Excluding these items, operating results for the current fourth quarter were $31.1 million, or $0.36 per share, an increase of $16.7 million, or $0.20 per share, over the prior year�s quarter. Operating results for fiscal 2006 of $193.0 million, or $2.25 per share, increased $46.0 million, or $0.52 per share, compared to the prior year. Items impacting comparability will be discussed in more detail within the discussion of segment earnings below. DISCUSSION OF RESULTS BY SEGMENT (The following discussion of the earnings of each segment is summarized in a tabular form in this report. It may be helpful to refer to those tables while reviewing this discussion.) Utility Segment The Utility segment operations are carried out by National Fuel Gas Distribution Corporation (�Distribution�), which sells or transports natural gas to customers located in western New York and northwestern Pennsylvania. The Utility segment�s loss of approximately $1.4 million, or $0.02 per share, for the quarter ended September 30, 2006 improved from a loss of $6.1 million, or $0.07 per share, in the prior year�s fourth quarter. Annual earnings of $49.8 million, or $0.58 per share, for the Utility segment were up $10.6 million, or $0.12 per share, compared to $39.2 million, or $0.46 per share, in fiscal 2005. In the fourth quarter, Distribution�s New York Division recorded a loss of $0.6 million which represents an improvement from a loss of $2.9 million for the fourth quarter of 2005. In Distribution�s Pennsylvania Division, the loss for the quarter of approximately $0.8 million improved from a loss of $3.2 million in the prior year�s fourth quarter. The improvement in earnings in both Divisions was due primarily to lower bad debt expense. In the fourth quarter of 2005, Distribution increased the allowance for uncollectible accounts in its New York and Pennsylvania divisions to reflect the increase in final billed account balances and the increased age of outstanding active receivables heading into the heating season. A similar adjustment to the allowance balance was not required in 2006. In addition, in the New York Division, higher usage per account during the quarter and the impact of the last rate case also contributed to the improvement. These positive impacts were partially offset by a higher effective tax rate due to positive tax adjustments recorded in 2005 that did not recur in 2006. For the year ended September 30, 2006, earnings in Distribution�s New York Division of $40.0 million increased $9.2 million compared to the prior year. The comparability of the fiscal year results is impacted by a $2.6 million positive out-of-period adjustment recorded in the first quarter of fiscal 2006 to correct Distribution�s calculation of the symmetrical sharing component of New York�s gas adjustment rate. The increase in operating results is due to the impact of the last rate settlement and the absence of two negative adjustments recorded in 2005 to true-up regulatory liabilities that did not recur in 2006. Partially offsetting these increases to operating results were lower average usage per account overall for the year, higher bad debt (on an annual basis), pension, and interest expense, and a higher effective tax rate. For the fiscal year ended September 30, 2006, earnings in Distribution�s Pennsylvania Division of $9.8 million, increased $1.4 million, or $0.02 per share, compared to the prior year. Earnings increased mainly due to the positive impact of the last rate settlement combined with lower bad debt expense. Partially offsetting this increase was warmer weather and lower usage per account. In addition, a higher effective tax rate partially offset the increase in earnings. 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 $10.2 million, or $0.12 per share, for the quarter ended September 30, 2006, decreased $8.6 million, or $0.10 per share, when compared with the same period in the prior fiscal year. The comparability of the results for the quarter is impacted by a $3.9 million gain associated with insurance proceeds received in a prior year for which a contingency (related to possible migration of storage gas) was resolved during last year�s fourth quarter. Excluding that gain, operating results decreased $4.7 million mainly due to lower efficiency gas revenue resulting from a lower of cost or market adjustment of $4.7 million (after tax) to the value of efficiency gas held in inventory at the end of the quarter. The value of the efficiency gas inventory was adjusted to current market prices at September 30, 2006. In addition, higher pension and other operating expenses, partially offset by lower expenses for preliminary project costs associated with the Empire Connector project, contributed to the decrease in earnings. Earnings of $55.6 million, or $0.65 per share, for the fiscal year ended September 30, 2006, decreased $4.8 million, or $0.06 per share, when compared with the fiscal year ended September 30, 2005. The comparability of the fiscal year results is impacted by the $3.9 million gain in 2005 associated with insurance proceeds described above and a $2.6 million gain in 2005 on the sale of base gas from Supply Corporation�s jointly-owned Ellisburg Storage Field. The increase in operating results of $1.7 million, or $0.02 per share, is due to higher transportation and storage revenues and a lower effective tax rate that more than offset lower efficiency gas revenues (including the impact of the lower of cost or market adjustment). 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 fourth quarter of fiscal 2006 of $7.2 million, or $0.08 per share, is a decrease of $18.9 million, or $0.21 per share, when compared with the prior year�s fourth quarter. The decrease was mainly due to the previously announced non-cash charge of $29.1 million (after tax) to write down the value of Seneca�s Canadian oil and natural gas producing properties. 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 period-end spot 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, Seneca values its Canadian reserves (of which more than 80 percent are natural gas) at commodity prices on the last day of the quarter. Seneca determines this quarter-end price by reference to a Canadian current cash index price, a price quoted by Alberta Energy Company or �AECO.� That price had declined from approximately CDN $7.30/MMBtu at the end of March 2006 to CDN $5.50/MMBtu at the end of June 2006 and to CDN $3.70/MMBtu at September 30, 2006 (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 November 8, 2006, the AECO cash index price had rebounded to approximately CDN $7.50/MMBtu. If Seneca�s Canadian reserves had been valued at that price, no impairment would have been recorded. 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 $200.0 million at September 30, 2006. Excluding the impact of the ceiling test this quarter, Seneca�s earnings were $22.0 million, or $0.26 per share, an increase of $10.3 million, or $0.13 per share, compared to the fourth quarter of the prior year. The increase was primarily due to higher weighted average crude oil prices after hedging, as well as the impact of a mark-to-market adjustment recorded in the fourth quarter of 2005 that did not recur in 2006. That adjustment related to losses on certain derivatives contracts that no longer qualified as effective hedges due to anticipated delays in oil and gas production volumes caused by Hurricane Rita. This increase was partially offset by slightly lower natural gas prices and a 0.6 Bcfe decline in production. For the quarter ended September 30, 2006, the weighted average oil price (after hedging) was $45.73/barrel (�Bbl�), an increase of $15.03/Bbl from the prior year�s quarter and the weighted average natural gas price (after hedging) was $6.36/Mcf, a decrease of $0.41/Mcf from the prior year�s quarter. Earnings of $21.0 million, or $0.24 per share, for the fiscal year ended September 30, 2006 decreased $29.7 million, or $0.36 per share, when compared with the year ended September 30, 2005. The comparability of the fiscal year results is impacted by the two non-cash charges totaling $68.6 million (after tax) to write down the value of Seneca�s Canadian oil and natural gas producing properties described above and in the Company�s third quarter earnings release, and certain positive tax adjustments recorded in the second and third quarters of fiscal 2006. In the second quarter, 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 changing circumstances, Seneca increased its forecast of future taxable income in the Canadian division and, consequently, recorded a deferred tax asset for certain costs related to capital expenditures that it now expects to deduct on future income tax returns. In the third quarter, Seneca 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 and also recognized a tax benefit related to the favorable resolution of certain open tax issues. Excluding the items that impacted comparability, annual operating results in the Exploration and Production segment increased $27.8 million, or $0.31 per share, from the prior year. This increase is mainly due to higher weighted average natural gas and oil prices after hedging that were partially offset by lower production volumes. For the year ended September 30, 2006, the weighted average oil price (after hedging) was $41.10/Bbl, an increase of $13.24/Bbl, or 47.5 percent, from the prior year and the weighted average natural gas price (after hedging) was $7.15/Mcf, an increase of $0.92/Mcf, or 14.8 percent, from the prior year. These price increases more than offset a 5.0 Bcfe decline in production. More than 4.0 Bcfe of the decline was due to production shut-ins resulting from Hurricane Rita. The increase in annual operating results also reflects the positive impact of a mark-to-market adjustment recorded in the fourth quarter of 2005 for losses on certain derivatives contracts that no longer qualified as effective hedges that did not recur in 2006 as described above. 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 loss for the quarter of $0.1 million compares to earnings of $0.2 million in the fourth quarter last year. This decrease is mainly due to a slight decrease in margin. Earnings for the year ended September 30, 2006 in the Energy Marketing segment of $5.8 million, or $0.07 per share, increased $0.7 million, or $0.01 per share, from the prior year due to higher margins offset partially by higher operating expenses. Timber Segment The Timber segment operations are carried out by Highland Forest Resources, Inc. (�Highland�) and Seneca�s Northeast Division. This segment 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 fourth quarter earnings of $0.5 million compared to $0.8 million in the prior year�s fourth quarter. The decrease is due to lower margins during the quarter. Earnings for the year ended September 30, 2006 of $5.7 million, or $0.07 per share, increased $0.7 million, or $0.01 per share, from the prior year�s earnings. The increase is due to higher margins overall for the fiscal year. 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. (�Horizon Power�), a corporation that develops and owns independent electric generation facilities which are fueled by natural gas or landfill gas. Break-even earnings in the quarter for this category decreased $23.8 million or $0.29 per share when compared to the prior year�s fourth quarter. Excluding earnings from discontinued operations of $30.9 million, operating results improved from a loss of $7.2 million in the fourth quarter of 2005 to breakeven results for the fourth quarter of 2006. Annual earnings of $0.2 million decreased $28.9 million, or $0.34 per share, when compared to the prior year. Excluding earnings from discontinued operations of $36.0 million, operating results improved from a loss of $6.9 million in fiscal year 2005 to income of $0.2 million in fiscal year 2006. The loss during last year�s fourth quarter and fiscal year included an impairment in the value of the Horizon Power�s 50 percent investment in Energy Systems North East, LLC, a partnership that owns an 80-megawatt natural gas-fired combined cycle power plant, and an impairment of a gas-fired turbine Horizon Power had previously planned to use in the development of an independent power plant. SHARE REPURCHASES During the quarter, the Company repurchased in the open market 242,200 shares of its common stock pursuant to the authorization of the Company�s Board of Directors to repurchase up to 8,000,000 shares of its common stock. Through September 30, 2006, the Company has repurchased 2,526,550 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 year ended September 30, 2006, the Company estimates that the calculated diluted earnings per share were increased by $0.017 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 or the impact of those repurchases on the calculation of earnings per share. EARNINGS GUIDANCE The Company�s consolidated earnings guidance for fiscal 2007 is in the range of $2.10 to $2.30 per share.* This guidance includes a revision in New York Mercantile Exchange (�NYMEX�) futures pricing for the unhedged portion of Seneca�s projected production. The NYMEX futures closing prices on September 21, 2006 are incorporated into this current guidance on a consolidated basis, and are shown in this release. An earnings sensitivity is also shown in this release. Changes in actual prices from the NYMEX prices shown in the table, will affect earnings accordingly. Following a growing trend by other public companies, National Fuel will provide earnings guidance only on its consolidated earnings and will no longer provide earnings guidance by segment or by future quarterly periods. Based on certain corporate events, National Fuel will update its annual guidance as necessary. For its 2007 fiscal year, the $2.10 to $2.30 earnings guidance range includes: Exploration and Production segment Production between 47 and 52 Bcfe.* Pricing based on September 21, 2006 NYMEX futures pricing strip. No new 2007 production from the venture with EOG Resources, Inc. announced in the Company�s press release dated November 1, 2006. Pipeline and Storage segment Settlement of complaint proceeding brought by Joint State Agencies with new tariff rates in effect during fiscal 2007.* Utility segment Pennsylvania rate settlement in effect as of January 1, 2007.* EARNINGS TELECONFERENCE The Company will host a conference call on Friday, November 10, 2006, at 11 a.m. (Eastern Standard 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) 1-866-578-5771, and using the passcode �93603463.� 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 �91885312.� Both the webcast and telephonic replay will be available until the close of business on Friday, November 17, 2006. National Fuel is an integrated energy company with $3.7 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; 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. NATIONAL FUEL GAS COMPANY RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS QUARTER ENDED SEPTEMBER 30, 2006 � Pipeline & Storage Energy Marketing Corporate / All Other* Utility E&P Timber Consol-idated � Fourth quarter 2005 GAAP earnings $ (6,073) $ 18,877� $ 11,676� $ 168� $ 830� $ 23,733� $ 49,211� Items impacting compar-ability: Earnings from dis-continued operations (30,900) (30,900) Gain associated with insurance proceeds � (3,885) � � � � (3,885) Fourth quarter 2005 operating results (6,073) 14,992� 11,676� 168� 830� (7,167) 14,426� � Drivers of operating results Impact of NY rate settlement 967� 967� Higher normalized usage per account 1,755� 1,755� True-up of regulatory liabilities (1,724) (1,724) Routine regulatory adjustments 1,541� 1,541� � Higher transportation and storage revenues 638� 638� Lower efficiency gas revenues (4,598) (4,598) � Lower (higher) operating expenses 6,137� (1,101) 1,054� 6,090� � Higher crude oil and natural gas prices 7,045� 7,045� Lower crude oil and natural gas production (2,431) (2,431) Derivatives mark-to-market adjustment 3,343� 3,343� � Lower per unit margins (110) (110) � Lower margins (203) (203) � Asset impairment write-downs in 2005 4,499� 4,499� � Higher interest expense (1,081) (391) (1,472) Higher interest income 706� 1,350� 2,056� � Higher effective tax rate (3,754) (3,754) � All other / rounding 813� 317� 1,624� (168) (158) 616� 3,044� � Fourth quarter 2006 operating results (1,419) 10,248� 21,963� (110) 469� (39) 31,112� Items impacting comparability: Impairment of oil and gas properties � � (29,144) � � � (29,144) Fourth quarter 2006 GAAP earnings $ (1,419) $ 10,248� $ (7,181) $ (110) $ 469� $ (39) $ 1,968� � � * Includes discontinued operations NATIONAL FUEL GAS COMPANY RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE QUARTER ENDED SEPTEMBER 30, 2006 � Pipeline & Storage Energy Marketing Corporate / All Other* Utility E&P Timber Consol-idated � Fourth quarter 2005 GAAP earnings $ (0.07) $ 0.22� $ 0.13� $ -� $ 0.01� $ 0.28� $ 0.57� Items impacting comparability: Earnings from discontinued operations (0.36) (0.36) Gain associated with insurance proceeds � (0.05) � � � -� (0.05) Fourth quarter 2005 operating results (0.07) 0.17� 0.13� -� 0.01� (0.08) 0.16� � Drivers of operating results Impact of NY rate settlement 0.01� 0.01� Higher normalized usage per account 0.02� 0.02� True-up of regulatory liabilities (0.02) (0.02) Routine regulatory adjustments 0.02� 0.02� � Higher transportation and storage revenues 0.01� 0.01� Lower efficiency gas revenues (0.05) (0.05) � Lower (higher) operating expenses 0.07� (0.01) 0.01� 0.07� � Higher crude oil and natural gas prices 0.08� 0.08� Lower crude oil and natural gas production (0.03) (0.03) Derivatives mark-to-market adjustment 0.04� 0.04� � Lower per unit margins -� -� � Lower margins -� -� � Asset impairment write-downs in 2005 0.05� 0.05� -� Higher interest expense (0.01) (0.01) Higher interest income 0.01� 0.02� 0.03� -� Higher effective tax rate (0.04) (0.04) -� All other / rounding -� -� 0.03� -� -� (0.01) 0.02� � Fourth quarter 2006 operating results (0.02) 0.12� 0.26� -� 0.01� (0.01) 0.36� Items impacting comparability: Impairment of oil and gas properties � � (0.34) � � � (0.34) Fourth quarter 2006 GAAP earnings $ (0.02) $ 0.12� $ (0.08) $ -� $ 0.01� $ (0.01) $ 0.02� � � * Includes discontinued operations NATIONAL FUEL GAS COMPANY RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS YEAR ENDED SEPTEMBER 30, 2006 � Pipeline & Storage Energy Marketing Corporate / All Other* Utility E&P Timber Consoli-dated � Fiscal 2005 GAAP earnings $ 39,197� $ 60,454� $ 50,659� $ 5,077� $ 5,032� $ 29,069� $ 189,488� Items impacting comparability: Earnings from discontinued operations (35,973) (35,973) Gain associated with insurance proceeds (3,885) (3,885) Gain on sale of base gas � (2,636) � � � � (2,636) Fiscal 2005 operating results 39,197� 53,933� 50,659� 5,077� 5,032� (6,904) 146,994� � Drivers of operating results Impact of NY & PA rate settle-ments 18,640� 18,640� Warmer weather in PA (3,033) (3,033) Lower normalized usage per account (2,930) (2,930) True-up of regulatory liabilities 2,603� 2,603� Routine regulatory adjustments 1,433� 1,433� � Higher transportation and storage revenues 1,963� 1,963� Lower efficiency gas revenues (1,661) (1,661) � Higher operating expenses (712) (613) (1,969) (815) (1,290) (5,399) � Higher crude oil and natural gas prices 46,459� 46,459� Lower crude oil and natural gas production (18,529) (18,529) Derivatives mark-to-market adjustment 3,343� 3,343� Higher lifting costs (3,157) (3,157) Higher DD&A (2,487) (2,487) � � Higher per unit margins 1,679� 1,679� � Higher margins 989� 989� � Lower margins on landfill gas pipeline sales (530) (530) � Asset impairment write-downs in 2005 943� 4,499� 5,442� � Higher interest expense (3,490) (3,490) Higher interest income 2,614� 4,755� 7,369� � (Higher) lower effective tax rate (4,467) 1,674� (2,793) � All other / rounding 23� (606) 1,482� (143) (317) (360) 79� � Fiscal 2006 operating results 47,264� 55,633� 78,415� 5,798� 5,704� 170� 192,984� Items impacting comparability: Out-of-period adjustment to symmetrical sharing 2,551� 2,551� Income tax adjustments 11,202� 11,202� Impairment of oil and gas properties � � (68,646) � � � (68,646) Fiscal 2006 GAAP earnings $ 49,815� $ 55,633� $ 20,971� $ 5,798� $ 5,704� $ 170� $ 138,091� � � * Includes discontinued operations NATIONAL FUEL GAS COMPANY RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE YEAR ENDED SEPTEMBER 30, 2006 � Pipeline & Storage Energy Marketing Corporate / All Other* Utility E&P Timber Consoli-dated � Fiscal 2005 GAAP earnings $ 0.46� $ 0.71� $ 0.60� $ 0.06� $ 0.06� $ 0.34� $ 2.23� Items impacting comparability: Earnings from discontinued operations (0.42) (0.42) Gain associated with insurance proceeds (0.05) (0.05) Gain on sale of base gas � (0.03) � � � � (0.03) Fiscal 2005 operating results 0.46� 0.63� 0.60� 0.06� 0.06� (0.08) 1.73� � Drivers of operating results Impact of NY & PA rate settlements 0.21� 0.21� Warmer weather in PA (0.04) (0.04) Lower normalized usage per account (0.03) (0.03) True-up of regulatory liabilities 0.03� 0.03� Routine regulatory adjustments 0.02� 0.02� � Higher transportation and storage revenues 0.02� 0.02� Lower efficiency gas revenues (0.02) (0.02) � Higher operating expenses (0.01) (0.01) (0.02) (0.01) (0.02) (0.07) � Higher crude oil and natural gas prices 0.54� 0.54� Lower crude oil and natural gas production (0.22) (0.22) Derivatives mark-to-market adjustments 0.04� 0.04� Higher lifting costs (0.03) (0.03) Higher DD&A (0.04) (0.04) � � Higher per unit margins 0.02� 0.02� � Higher margins 0.01� 0.01� � Lower margins on landfill gas pipeline sales (0.01) (0.01) � Asset impairment write-downs in 2005 0.01� 0.05� 0.06� � Higher interest expense (0.04) -� (0.04) Higher interest income 0.03� 0.06� 0.09� � (Higher) lower effective tax rate (0.05) 0.02� (0.03) � All other / rounding -� -� 0.01� -� -� -� 0.01� � Fiscal 2006 operating results 0.55� 0.65� 0.91� 0.07� 0.07� 0.00� 2.25� Items impacting comparability: Out-of-period adjustment to symmetrical sharing 0.03� 0.03� Income tax adjustments 0.13� 0.13� Impairment of oil and gas properties � � (0.80) � � � (0.80) Fiscal 2006 GAAP earnings $ 0.58� $ 0.65� $ 0.24� $ 0.07� $ 0.07� $ 0.00� $ 1.61� � � * Includes discontinued operations NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � (Thousands of Dollars, except per share amounts) � Three Months Ended Twelve Months Ended September 30, September 30, (Unaudited) (Unaudited) SUMMARY OF OPERATIONS 2006� 2005� 2006� 2005� Operating Revenues $ 294,469� $ 287,064� $ 2,311,659� $ 1,923,549� Operating Expenses: Purchased Gas 79,609� 82,316� 1,267,562� 959,827� Operation and Maintenance 92,905� 106,968� 413,726� 404,517� Property, Franchise and Other Taxes 15,795� 15,525� 69,942� 69,076� Depreciation, Depletion and Amortization 45,348� 47,329� 179,615� 179,767� Impairment of Oil and Gas Producing Properties 42,368� -� 104,739� -� 276,025� 252,138� 2,035,584� 1,613,187� Operating Income 18,444� 34,926� 276,075� 310,362� Other Income (Expense): Income from Unconsolidated Subsidiaries 1,384� 1,447� 3,583� 3,362� Impairment of Investment in Partnership -� (4,158) -� (4,158) Other Income 1,291� 6,764� 2,825� 12,744� Interest Income 5,973� 4,714� 10,275� 6,496� Interest Expense on Long-Term Debt (18,127) (18,255) (72,629) (73,244) Other Interest Expense (1,686) (158) (5,952) (9,069) Income from Continuing Operations Before Income Taxes 7,279� 25,280� 214,177� 246,493� Income Tax Expense 5,311� 6,969� 76,086� 92,978� Income from Continuing Operations 1,968� 18,311� 138,091� 153,515� Discontinued Operations: Income from Operations, Net of Tax -� 5,126� -� 10,199� Gain on Disposal, Net of Tax -� 25,774� -� 25,774� Income from Discontinued Operations, Net of Tax -� 30,900� -� 35,973� Net Income Available for Common Stock $ 1,968� $ 49,211� $ 138,091� $ 189,488� Earnings Per Common Share: Basic: Income from Continuing Operations $ 0.02� $ 0.22� $ 1.64� $ 1.84� Income from Dis-continued Operations -� 0.36� -� 0.43� Net Income Available for Common Stock $ 0.02� $ 0.58� $ 1.64� $ 2.27� Diluted: Income from Continuing Operations $ 0.02� $ 0.21� $ 1.61� $ 1.81� Income from Discontinued Operations -� 0.36� -� 0.42� Net Income Available for Common Stock $ 0.02� $ 0.57� $ 1.61� $ 2.23� Weighted Average Common Shares: Used in Basic Calculation 83,432,553� 84,128,929� 84,030,118� 83,541,627� Used in Diluted Calculation 85,523,042� 85,784,654� 86,028,466� 85,029,131� NATIONAL FUEL GAS COMPANYAND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Unaudited) � September 30,2006 September 30,2005 (Thousands of Dollars) � � � ASSETS Property, Plant and Equipment $4,703,040� $4,423,255� Less - Accumulated Depreciation, Depletion and Amortization 1,825,314� � 1,583,955� Net Property, Plant and Equipment 2,877,726� � 2,839,300� � Current Assets: Cash and Temporary Cash Investments 69,611� 57,607� Hedging Collateral Deposits 19,676� 77,784� Receivables - Net 144,254� 141,408� Unbilled Utility Revenue 25,538� 20,465� Gas Stored Underground 59,461� 64,529� Materials and Supplies - at average cost 36,693� 33,267� Unrecovered Purchased Gas Costs 12,970� 14,817� Prepaid Pension and Post-Retirement Benefit Costs 64,125� 14,404� Other Current Assets 56,320� 64,721� Deferred Income Taxes 23,402� � 83,774� Total Current Assets 512,050� � 572,776� � Other Assets: Recoverable Future Taxes 79,511� 85,000� Unamortized Debt Expense 15,492� 17,567� Other Regulatory Assets 76,917� 47,028� Deferred Charges 3,558� 4,474� Other Investments 88,414� 80,394� Investments in Unconsolidated Subsidiaries 11,590� 12,658� Goodwill 5,476� 5,476� Intangible Assets 31,498� 42,302� Fair Value of Derivative Financial Instruments 11,305� -� Deferred Income Taxes 9,003� -� Other 4,388� � 15,677� Total Other Assets 337,152� � 310,576� Total Assets $3,726,928� � $3,722,652� � CAPITALIZATION AND LIABILITIES Capitalization: Comprehensive Shareholders' Equity Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding - 83,402,670 Shares and 84,356,748 Shares, Respectively $83,403� $84,357� Paid in Capital 563,746� 529,834� Earnings Reinvested in the Business 765,997� � 813,020� Total Common Shareholders' Equity Before Items of Other Comprehensive Income (Loss) 1,413,146� 1,427,211� Accumulated Other Comprehensive Income (Loss) 30,416� � (197,628) Total Comprehensive Shareholders' Equity 1,443,562� 1,229,583� Long-Term Debt, Net of Current Portion 1,109,109� � 1,119,012� Total Capitalization 2,552,671� � 2,348,595� � Current and Accrued Liabilities: Notes Payable to Banks and Commercial Paper -� -� Current Portion of Long-Term Debt 9,491� 9,393� Accounts Payable 133,034� 155,485� Amounts Payable to Customers 23,935� 1,158� Dividends Payable 25,008� 24,445� Other Accruals and Current Liabilities 38,057� 60,404� Fair Value of Derivative Financial Instruments 39,983� � 209,072� Total Current and Accrued Liabilities 269,508� � 459,957� � Deferred Credits: Deferred Income Taxes 544,502� 489,720� Taxes Refundable to Customers 10,426� 11,009� Unamortized Investment Tax Credit 6,094� 6,796� Cost of Removal Regulatory Liability 85,076� 90,396� Other Regulatory Liabilities 75,456� 66,339� Pension and Post-Retirement Liabilities 32,918� 143,687� Asset Retirement Obligation 77,392� 41,411� Other Deferred Credits 72,885� � 64,742� Total Deferred Credits 904,749� � 914,100� Commitments and Contingencies -� � -� Total Capitalization and Liabilities $ 3,726,928� � $ 3,722,652� NATIONAL FUEL GAS COMPANYAND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) � Twelve Months EndedSeptember 30, (Thousands of Dollars) � 2006� � 2005� � Operating Activities: Net Income Available for Common Stock $138,091� $189,488� Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Gain on Sale of Discontinued Operations -� (27,386) Impairment of Oil and Gas Producing Properties 104,739� -� Depreciation, Depletion and Amortization 179,615� 193,144� Deferred Income Taxes (5,231) 40,388� (Income) Loss from Unconsolidated Subsidiaries, Net of Cash Distributions 1,068� (1,372) Impairment of Investment in Partnership -� 4,158� Minority Interest in Foreign Subsidiaries -� 2,645� Excess Tax Benefits Associated with Stock-Based Compensation Awards (6,515) -� Other 4,829� 7,390� Change in: Hedging Collateral Deposits 58,108� (69,172) Receivables and Unbilled Utility Revenue (7,397) (21,857) Gas Stored Underground and Materials and Supplies 1,679� 1,934� Unrecovered Purchased Gas Costs 1,847� (7,285) Prepayments and Other Current Assets (34,799) (39,779) Accounts Payable (23,144) 48,089� Amounts Payable to Customers 22,777� (1,996) Other Accruals and Current Liabilities (22,527) 16,085� Other Assets (22,700) (13,461) Other Liabilities � 80,960� � (3,667) Net Cash Provided by Operating Activities � $471,400� � $317,346� � Investing Activities: Capital Expenditures ($294,159) ($219,530) Net Proceeds from Sale of Foreign Subsidiary -� 111,619� Net Proceeds from Sale of Oil and Gas Producing Properties 13� 1,349� Other � (3,230) � 3,238� Net Cash Used in Investing Activities � ($297,376) � ($103,324) � Financing Activities: Change in Notes Payable to Banks and Commercial Paper $ -� ($115,359) Excess Tax Benefits Associated with Stock-Based Compensation Awards 6,515� -� Shares Repurchased under Repurchase Plan (85,168) -� Reduction of Long-Term Debt (9,805) (13,317) Dividends Paid on Common Stock (98,266) (94,159) Dividends Paid to Minority Interest -� (12,676) Proceeds From Issuance of Common Stock � 23,339� � 20,279� Net Cash Used In Financing Activities � ($163,385) � ($215,232) Effect of Exchange Rates on Cash � 1,365� � 1,276� Net Increase in Cash and Temporary Cash Investments 12,004� 66� Cash and Temporary Cash Investments at Beginning of Period � 57,607� � 57,541� Cash and Temporary Cash Investments at September 30 � $69,611� � $57,607� NATIONAL FUEL GAS COMPANYAND SUBSIDIARIESSEGMENT OPERATING RESULTS AND STATISTICS(UNAUDITED) � Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, (Thousands of Dollars, except per share amounts) UTILITY SEGMENT 2006� 2005� Variance 2006� 2005� Variance Revenues from External Customers $ 111,320� $ 109,921� $ 1,399� $ 1,265,695� $ 1,101,572� $ 164,123� Intersegment Revenues 2,751� 2,763� (12) 15,068� 15,495� (427) Total Operating Revenues 114,071� 112,684� 1,387� 1,280,763� 1,117,067� 163,696� � Operating Expenses: Purchased Gas 52,440� 52,060� 380� 883,263� 739,286� 143,977� Operation and Maintenance 41,233� 55,674� (14,441) 204,330� 211,019� (6,689) Property, Franchise and Other Taxes 10,151� 9,791� 360� 47,029� 46,214� 815� Depreciation, Depletion and Amortization 10,113� 10,079� 34� 40,172� 40,159� 13� 113,937� 127,604� (13,667) 1,174,794� 1,036,678� 138,116� � Operating Income (Loss) 134� (14,920) 15,054� 105,969� 80,389� 25,580� � Other Income (Expense): Interest Income 4,347� 3,836� 511� 4,889� 4,111� 778� Other Income 221� 213� 8� 830� 699� 131� Other Interest Expense (6,782) (4,145) (2,637) (26,174) (22,900) (3,274) � Income (Loss) Before Income Taxes (2,080) (15,016) 12,936� 85,514� 62,299� 23,215� Income Tax Expense (Benefit) (661) (8,943) 8,282� 35,699� 23,102� 12,597� Net Income (Loss) $ (1,419) $ (6,073) $ 4,654� $ 49,815� $ 39,197� $ 10,618� � Net Income (Loss) Per Share (Diluted) $ (0.02) $ (0.07) $ 0.05� $ 0.58� $ 0.46� $ 0.12� Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, PIPELINE AND STORAGE SEGMENT 2006� 2005� Variance 2006� 2005� Variance Revenues from External Customers $ 28,086� $ 34,689� $ (6,603) $ 132,921� $ 132,805� $ 116� Intersegment Revenues 20,126� 19,982� 144� 81,431� 83,054� (1,623) Total Operating Revenues 48,212� 54,671� (6,459) 214,352� 215,859� (1,507) � Operating Expenses: Purchased Gas (48) 5� (53) (65) 636� (701) Operation and Maintenance 18,462� 16,766� 1,696� 66,340� 65,397� 943� Property, Franchise and Other Taxes 4,109� 3,936� 173� 16,088� 15,598� 490� Depreciation, Depletion and Amortization 9,227� 9,134� 93� 36,876� 38,050� (1,174) 31,750� 29,841� 1,909� 119,239� 119,681� (442) � Operating Income 16,462� 24,830� (8,368) 95,113� 96,178� (1,065) � Other Income (Expense): Interest Income 137� 29� 108� 454� 76� 378� Other Income 197� 6,128� (5,931) 582� 10,396� (9,814) Interest Expense on Long-Term Debt (241) (363) 122� (1,078) (1,675) 597� Other Interest Expense (1,813) (1,383) (430) (5,542) (5,453) (89) � Income Before Income Taxes 14,742� 29,241� (14,499) 89,529� 99,522� (9,993) Income Tax Expense 4,494� 10,364� (5,870) 33,896� 39,068� (5,172) Net Income $ 10,248� $ 18,877� $ (8,629) $ 55,633� $ 60,454� $ (4,821) � Net Income Per Share (Diluted) $ 0.12� $ 0.22� $ (0.10) $ 0.65� $ 0.71� $ (0.06) NATIONAL FUEL GAS COMPANYAND SUBSIDIARIESSEGMENT OPERATING RESULTS AND STATISTICS(UNAUDITED) � Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, (Thousands of Dollars, except per share amounts) EXPLORATION AND PRODUCTION SEGMENT 2006� 2005� Variance 2006� 2005� Variance Operating Revenues $ 89,474� $ 73,898� $ 15,576� $ 346,880� $ 293,425� $ 53,455� � Operating Expenses: Purchased Gas -� 106� (106) 98� (176) 274� Operation and Maintenance: General and Administrative Expense 4,888� 4,623� 265� 23,352� 21,512� 1,840� Lease Operating Expense 12,765� 12,677� 88� 50,944� 46,030� 4,914� All Other Operation and Maintenance Expense 2,065� 1,813� 252� 8,033� 6,844� 1,189� Property, Franchise and Other Taxes (Lease Operating Expense) 1,065� 1,193� (128) 5,038� 5,095� (57) Depreciation, Depletion and Amortization 24,083� 23,368� 715� 94,738� 90,912� 3,826� Impairment of Oil and Gas Producing Properties 42,368� -� 42,368� 104,739� -� 104,739� 87,234� 43,780� 43,454� 286,942� 170,217� 116,725� � Operating Income 2,240� 30,118� (27,878) 59,938� 123,208� (63,270) � Other Income (Expense): Interest Income 2,568� 1,482� 1,086� 8,682� 4,661� 4,021� Other Interest Expense (12,835) (12,472) (363) (50,457) (48,856) (1,601) � Income (Loss) Before Income Taxes (8,027) 19,128� (27,155) 18,163� 79,013� (60,850) Income Tax Expense (Benefit) (846) 7,452� (8,298) (2,808) 28,354� (31,162) Net Income (Loss) $ (7,181) $ 11,676� $ (18,857) $ 20,971� $ 50,659� $ (29,688) � Net Income (Loss) Per Share (Diluted) $ (0.08) $ 0.13� $ (0.21) $ 0.24� $ 0.60� $ (0.36) Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, ENERGY MARKETING SEGMENT 2006� 2005� Variance 2006� 2005� Variance Operating Revenues $ 50,702� $ 53,608� $ (2,906) $ 497,069� $ 329,714� $ 167,355� � Operating Expenses: Purchased Gas 49,939� 52,628� (2,689) 483,250� 318,571� 164,679� Operation and Maintenance 1,185� 1,170� 15� 5,079� 3,731� 1,348� Property, Franchise and Other Taxes 10� 4� 6� (222) 83� (305) Depreciation, Depletion and Amortization 7� (24) 31� 53� 41� 12� 51,141� 53,778� (2,637) 488,160� 322,426� 165,734� � Operating Income (Loss) (439) (170) (269) 8,909� 7,288� 1,621� � Other Income (Expense): Interest Income 144� 200� (56) 445� 783� (338) Other Income 57� 47� 10� 419� 227� 192� Other Interest Expense (20) (4) (16) (227) (11) (216) � Income (Loss) Before Income Taxes (258) 73� (331) 9,546� 8,287� 1,259� Income Tax Expense (Benefit) (148) (95) (53) 3,748� 3,210� 538� Net Income (Loss) $ (110) $ 168� $ (278) $ 5,798� $ 5,077� $ 721� � Net Income Per Share (Diluted) $ -� $ -� $ -� $ 0.07� $ 0.06� $ 0.01� NATIONAL FUEL GAS COMPANYAND SUBSIDIARIESSEGMENT OPERATING RESULTS AND STATISTICS(UNAUDITED) Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, (Thousands of Dollars, except per share amounts) TIMBER SEGMENT 2006� 2005� Variance 2006� 2005� Variance Revenues from External Customers $ 13,647� $ 14,291� $ (644) $ 65,024� $ 61,285� $ 3,739� Intersegment Revenues 1� -� 1� 5� 1� 4� Total Operating Revenues 13,648� 14,291� (643) 65,029� 61,286� 3,743� � Operating Expenses: Operation and Maintenance 10,383� 10,818� (435) 45,712� 43,641� 2,071� Property, Franchise and Other Taxes 370� 418� (48) 1,611� 1,488� 123� Depreciation, Depletion and Amortization 1,582� 1,697� (115) 6,495� 6,601� (106) 12,335� 12,933� (598) 53,818� 51,730� 2,088� � Operating Income 1,313� 1,358� (45) 11,211� 9,556� 1,655� � Other Income (Expense): Interest Income 229� 131� 98� 747� 438� 309� Other Income 66� 3� 63� 118� 73� 45� Other Interest Expense (796) (757) (39) (3,095) (2,764) (331) � Income Before Income Taxes 812� 735� 77� 8,981� 7,303� 1,678� Income Tax Expense (Benefit) 343� (95) 438� 3,277� 2,271� 1,006� Net Income $ 469� $ 830� $ (361) $ 5,704� $ 5,032� $ 672� � Net Income Per Share (Diluted) $ 0.01� $ 0.01� $ -� $ 0.07� $ 0.06� $ 0.01� Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, ALL OTHER 2006� 2005� Variance 2006� 2005� Variance Revenues from External Customers $ 1,053� $ 658� $ 395� $ 3,304� $ 4,748� $ (1,444) Intersegment Revenues 1,506� 2,482� (976) 9,444� 8,606� 838� Total Operating Revenues 2,559� 3,140� (581) 12,748� 13,354� (606) � Operating Expenses: Purchased Gas 1,541� 2,580� (1,039) 7,908� 7,876� 32� Operation and Maintenance 1,132� 1,187� (55) 3,731� 3,850� (119) Property, Franchise and Other Taxes 21� 20� 1� 95� 87� 8� Depreciation, Depletion and Amortization 196� 2,957� (2,761) 789� 3,537� (2,748) 2,890� 6,744� (3,854) 12,523� 15,350� (2,827) � Operating Income (Loss) (331) (3,604) 3,273� 225� (1,996) 2,221� � Other Income (Expense): Income from Unconsolidated Subsidiaries 1,384� 1,447� (63) 3,583� 3,362� 221� Impairment of Investment in Partnership -� (4,158) 4,158� -� (4,158) 4,158� Interest Income 3� 6� (3) 22� 19� 3� Other Income 11� 172� (161) 53� 458� (405) Other Interest Expense (681) (523) (158) (2,555) (1,726) (829) � Income (Loss) Before Income Taxes 386� (6,660) 7,046� 1,328� (4,041) 5,369� Income Tax Expense (Benefit) 430� (2,523) 2,953� 969� (1,425) 2,394� Net Income (Loss) $ (44) $ (4,137) $ 4,093� $ 359� $ (2,616) $ 2,975� � Net Income (Loss) Per Share (Diluted) $ (0.01) $ (0.05) $ 0.04� $ -� $ (0.03) $ 0.03� NATIONAL FUEL GAS COMPANYAND SUBSIDIARIESSEGMENT OPERATING RESULTS AND STATISTICS(UNAUDITED) Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, (Thousands of Dollars, except per share amounts) CORPORATE 2006� 2005� Variance 2006� 2005� Variance Revenues from External Customers $ 187� $ -� $ 187� $ 766� $ -� $ 766� Intersegment Revenues 737� 811� (74) 2,949� 2,824� 125� Total Operating Revenues 924� 811� 113� 3,715� 2,824� 891� � Operating Expenses: Operation and Maintenance 1,650� 3,216� (1,566) 8,210� 6,107� 2,103� Property, Franchise and Other Taxes 69� 163� (94) 303� 511� (208) Depreciation, Depletion and Amortization 140� 118� 22� 492� 467� 25� 1,859� 3,497� (1,638) 9,005� 7,085� 1,920� � Operating Loss (935) (2,686) 1,751� (5,290) (4,261) (1,029) � Other Income (Expense): Interest Income 22,360� 20,280� 2,080� 86,820� 79,508� 7,312� Other Income 739� 201� 538� 823� 891� (68) Interest Expense on Long-Term Debt (17,886) (17,892) 6� (71,551) (71,569) 18� Other Interest Expense (2,574) (2,124) (450) (9,686) (10,459) 773� � Income (Loss) Before Income Taxes 1,704� (2,221) 3,925� 1,116� (5,890) 7,006� Income Tax Expense (Benefit) 1,699� 809� 890� 1,305� (1,602) 2,907� Net Income (Loss) $ 5� $ (3,030) $ 3,035� $ (189) $ (4,288) $ 4,099� � Net Income (Loss) Per Share (Diluted) $ -� $ (0.03) $ 0.03� $ -� $ (0.05) $ 0.05� Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, INTERSEGMENT ELIMINATIONS 2006� 2005� Variance 2006� 2005� Variance Intersegment Revenues $ (25,121) $ (26,039) $ 918� $ (108,897) $ (109,980) $ 1,083� � Operating Expenses: Purchased Gas (24,263) (25,063) 800� (106,892) (106,366) (526) Operation and Maintenance (858) (976) 118� (2,005) (3,614) 1,609� (25,121) (26,039) 918� (108,897) (109,980) 1,083� � Operating Income -� -� -� -� -� -� � Other Income (Expense): Interest Income (23,815) (21,250) (2,565) (91,784) (83,100) (8,684) Other Interest Expense 23,815� 21,250� 2,565� 91,784� 83,100� 8,684� � Net Income $ -� $ -� $ -� $ -� $ -� $ -� � Net Income Per Share (Diluted) $ -� $ -� $ -� $ -� $ -� $ -� NATIONAL FUEL GAS COMPANYAND SUBSIDIARIESSEGMENT INFORMATION (Continued)(Thousands of Dollars) � � Three Months EndedSeptember 30,(Unaudited) Twelve Months EndedSeptember 30,(Unaudited) � Increase Increase 2006� 2005� (Decrease) 2006� 2005� (Decrease) � Capital Expenditures: Utility $ 15,042� $ 15,078� $ (36) $ 54,414� $ 50,071� $ 4,343� Pipeline and Storage 10,662� 7,977� 2,685� 26,023� 21,099� 4,924� Exploration and Production 47,980� 36,402� 11,578� 208,303� 122,450� 85,853� Energy Marketing 10� 12� (2) 16� 58� (42) Timber 1,193� 193� 1,000� 2,323� 18,894� (16,571) Total Reportable Segments 74,887� 59,662� 15,225� 291,079� 212,572� 78,507� All Other 7� 293� (286) 85� 463� (378) Corporate 607� 512� 95� 2,995� 618� 2,377� Total Expenditures from Continuing Operations $ 75,501� $ 60,467� $ 15,034� $ 294,159� $ 213,653� $ 80,506� DEGREE DAYS � Percent Colder(Warmer) Than: Three Months Ended September 30 Normal 2006� 2005� Normal Last Year � Buffalo, NY 178� 152� 36� (14.6) 322.2� Erie, PA 135� 123� 32� (8.9) 284.4� � Twelve Months Ended September 30 � Buffalo, NY 6,692� 5,968� 6,587� (10.8) (9.4) Erie, PA 6,243� 5,688� 6,247� (8.9) (8.9) � NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � EXPLORATION AND PRODUCTION INFORMATION � � Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, Increase(Decrease) Increase(Decrease) 2006� 2005� 2006� 2005� � Gas Production/Prices: Production (MMcf) Gulf Coast 2,582� 3,035� (453) 9,110� 12,468� (3,358) West Coast 947� 1,052� (105) 3,880� 4,052� (172) Appalachia 1,342� 1,150� 192� 5,108� 4,650� 458� Canada 1,842� 2,050� (208) 7,673� 8,009� (336) 6,713� 7,287� (574) 25,771� 29,179� (3,408) Average Prices (Per Mcf) Gulf Coast $ 6.62� $ 8.07� $ (1.45) $ 8.01� $ 7.05� $ 0.96� West Coast 6.40� 7.73� (1.33) 7.93� 6.85� 1.08� Appalachia 7.38� 8.93� (1.55) 9.53� 7.60� 1.93� Canada 5.22� 7.47� (2.25) 7.14� 6.15� 0.99� Weighted Average 6.36� 7.99� (1.63) 8.04� 6.86� 1.18� Weighted Average after Hedging 6.36� 6.77� (0.41) 7.15� 6.23� 0.92� � Oil Production/Prices: Production (Thousands of Barrels) Gulf Coast 206� 188� 18� 685� 989� (304) West Coast 620� 628� (8) 2,582� 2,544� 38� Appalachia 27� 13� 14� 69� 36� 33� Canada 51� 71� (20) 272� 300� (28) 904� 900� 4� 3,608� 3,869� (261) � Average Prices (Per Barrel) Gulf Coast $ 68.92� $ 58.53� $ 10.39� $ 64.10� $ 49.78� $ 14.32� West Coast 61.23� 54.52� 6.71� 56.80� 42.91� 13.89� Appalachia 70.37� 51.06� 19.31� 65.28� 48.28� 17.00� Canada 60.69� 51.29� 9.40� 51.40� 42.97� 8.43� Weighted Average 63.23� 55.06� 8.17� 57.94� 44.72� 13.22� Weighted Average after Hedging 45.73� 30.70� 15.03� 41.10� 27.86� 13.24� � Total Production (Mmcfe) 12,137� 12,687� (550) 47,419� 52,393� (4,974) � Selected Operating Performance Statistics: General & Administrative Expense per Mcfe (1) $ 0.40� $ 0.36� $ 0.04� $ 0.49� $ 0.41� $ 0.08� Lease Operating Expense per Mcfe (1) $ 1.14� $ 1.09� $ 0.05� $ 1.18� $ 0.98� $ 0.20� Depreciation, Depletion & Amortization per Mcfe (1) $ 1.98� $ 1.84� $ 0.14� $ 2.00� $ 1.74� $ 0.26� (1) Refer to page 18 for the General and Administrative Expense, Lease Operating Expense and Depreciation, Depletion, and Amortization Expense for the Exploration and Production segment. � NATIONAL FUEL GAS COMPANYAND SUBSIDIARIES � EXPLORATION AND PRODUCTION INFORMATION � � Hedging Summary for Fiscal 2007 � SWAPS Volume Average Hedge Price Oil 0.9 MMBBL $37.03 / BBL Gas 0.7 BCF $5.84 / MCF � AverageFloor Price Average Ceiling Price No-cost Collars Volume 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 � AverageFloor Price AverageCeiling Price No-cost Collars Volume Gas 1.4 BCF $8.83 / MCF $16.45 / MCF Drilling Program Twelve Months Ended September 30, 2006: Gross Wells Drilled Gulf West East Canada Total Exploratory Successful 3� 1� 7� 19� 30� Unsuccessful 2� 0� 2� 2� 6� Developmental Successful 0� 93� 143� 3� 239� Unsuccessful 0� 1� 0� 1� 2� Total Successful 3� 94� 150� 22� 269� Unsuccessful 2� 1� 2� 3� 8� � Success Ratio 60% 99% 99% 88% 97% NATIONAL FUEL GAS COMPANYAND SUBSIDIARIES � EXPLORATION AND PRODUCTION INFORMATION � Reserve Quantity Information � � Gas MMcf U.S. Gulf CoastRegion West CoastRegion AppalachianRegion TotalU.S. TotalCompany Canada Proved Developed and Undeveloped Reserves: September 30, 2005 38,470� 70,459� 83,125� 192,054� 46,086� 238,140� Extensions and Discoveries 11,763� 1,815� 11,132� 24,710� 6,229� 30,939� Revisions of Previous Estimates 679� 5,757� (7,776) (1,340) (11,096) (12,436) Production (9,110) (3,880) (5,108) (18,098) (7,673) (25,771) Purchases of Minerals in Place -� 1,715� -� 1,715� -� 1,715� Sales of Minerals in Place -� -� -� -� (12) (12) September 30, 2006 41,802� 75,866� 81,373� 199,041� 33,534� 232,575� � Proved Developed Reserves: � September 30, 2005 23,108� 58,692� 83,125� 164,925� 43,980� 208,905� September 30, 2006 32,345� 64,196� 81,373� 177,914� 33,534� 211,448� � � Oil Mbbl U.S. Gulf CoastRegion West CoastRegion AppalachianRegion TotalU.S. TotalCompany Canada Proved Developed and Undeveloped Reserves: September 30, 2005 1,295� 57,085� 177� 58,557� 1,700� 60,257� Extensions and Discoveries 39� 172� 108� 319� 128� 447� Revisions of Previous Estimates 595� (80) 57� 572� 101� 673� Production (685) (2,582) (69) (3,336) (272) (3,608) Purchases of Minerals in Place -� 274� -� 274� -� 274� Sales of Minerals in Place -� -� -� -� (25) (25) September 30, 2006 1,244� 54,869� 273� 56,386� 1,632� 58,018� � Proved Developed Reserves: � September 30, 2005 1,229� 41,701� 177� 43,107� 1,700� 44,807� September 30, 2006 1,217� 42,522� 273� 44,012� 1,632� 45,644� NATIONAL FUEL GAS COMPANYAND SUBSIDIARIES � � Utility Throughput - (millions of cubic feet - MMcf) � Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, Increase(Decrease) Increase(Decrease) 2006� 2005� 2006� 2005� Retail Sales: Residential Sales 4,372� 3,778� 594� 59,443� 66,903� (7,460) Commercial Sales 741� 643� 98� 10,681� 11,984� (1,303) Industrial Sales 85� 666� (581) 985� 1,387� (402) 5,198� 5,087� 111� 71,109� 80,274� (9,165) Transportation 9,701� 9,426� 275� 57,950� 59,770� (1,820) 14,899� 14,513� 386� 129,059� 140,044� (10,985) � Pipeline & Storage Throughput- (MMcf) � Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, Increase(Decrease) Increase(Decrease) 2006� 2005� 2006� 2005� Firm Transportation - Affiliated 10,608� 10,442� 166� 103,223� 113,242� (10,019) Firm Transportation - Non-Affiliated 64,501� 62,606� 1,895� 260,156� 244,343� 15,813� Interruptible Transportation 3,835� 4,790� (955) 11,609� 14,794� (3,185) 78,944� 77,838� 1,106� 374,988� 372,379� 2,609� � Energy Marketing Volumes Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, � Increase(Decrease) Increase(Decrease) 2006� 2005� 2006� 2005� Natural Gas (MMcf) 6,774� 6,567� 207� 45,270� 40,683� 4,587� � Timber Board Feet (Thousands) Three Months EndedSeptember 30, Twelve Months EndedSeptember 30, � Increase(Decrease) Increase(Decrease) 2006� 2005� 2006� 2005� Log Sales 1,986� 1,668� 318� 9,527� 7,601� 1,926� Green Lumber Sales 2,372� 2,310� 62� 10,454� 10,489� (35) Kiln Dry Lumber Sales 3,624� 4,118� (494) 16,862� 15,491� 1,371� 7,982� 8,096� (114) 36,843� 33,581� 3,262� NATIONAL FUEL GAS COMPANYAND SUBSIDIARIESFISCAL 2007 EARNINGS GUIDANCE AND SENSITIVITIES � Earnings per share sensitivity to changes from NYMEX prices used in guidance* ^ Fiscal 2007 (Diluted earnings per share guidance*) � $1 change per MMBtu gas $5 change per Bbl oil Range Increase Decrease Increase Decrease � Consolidated Earnings $2.10� -� $2.30� + $0.19� - $0.19� + $0.09� - $0.09� NYMEX Settlement Prices at September 21, 2006 � Natural Gas($ per MMBtu) Oil($ per Bbl) � Oct-06 $4.781� $61.59� Nov-06 $6.011� $61.59� Dec-06 $7.391� $62.53� Jan-07 $7.881� $63.32� Feb-07 $7.921� $64.03� Mar-07 $7.746� $64.65� Apr-07 $7.166� $65.18� May-07 $7.126� $65.61� Jun-07 $7.221� $65.96� Jul-07 $7.311� $66.25� Aug-07 $7.391� $66.49� Sep-07 $7.476� $66.67� � Average $7.119� $64.49� * Please refer to forward looking statement footnote at page 9 of this document. � ^ This sensitivity table is current as of November 6, 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 COMPANYAND SUBSIDIARIES � � Quarter Ended September 30 (unaudited) 2006� 2005� � Operating Revenues $ 294,469,000� $ 287,064,000� � Income from Continuing Operations $ 1,968,000� $ 18,311,000� Income (Loss) from Discontinued Operations, Net of Tax -� 30,900,000� Net Income Available for Common Stock $ 1,968,000� $ 49,211,000� � Earnings Per Common Share: Basic: Income from Continuing Operations $ 0.02� $ 0.22� Income (Loss) from Discontinued Operations -� 0.36� Net Income Available for Common Stock $ 0.02� $ 0.58� � Diluted: Income from Continuing Operations $ 0.02� $ 0.21� Income (Loss) from Discontinued Operations -� 0.36� Net Income Available for Common Stock $ 0.02� $ 0.57� � Weighted Average Common Shares: Used in Basic Calculation 83,432,553� 84,128,929� Used in Diluted Calculation 85,523,042� 85,784,654� � � Twelve Months Ended September 30 (unaudited) � Operating Revenues $ 2,311,659,000� $ 1,923,549,000� � Income from Continuing Operations $ 138,091,000� $ 153,515,000� Income from Discontinued Operations, Net of Tax -� 35,973,000� Net Income Available for Common Stock $ 138,091,000� $ 189,488,000� � Earnings Per Common Share: Basic: Income from Continuing Operations $ 1.64� $ 1.84� Income from Discontinued Operations -� 0.43� Net Income Available for Common Stock $ 1.64� $ 2.27� � Diluted: Income from Continuing Operations $ 1.61� $ 1.81� Income from Discontinued Operations -� 0.42� Net Income Available for Common Stock $ 1.61� $ 2.23� � Weighted Average Common Shares: Used in Basic Calculation 84,030,118� 83,541,627� Used in Diluted Calculation 86,028,466� 85,029,131� National Fuel Gas Company ("National Fuel" or the "Company") (NYSE:NFG) today announced results for its fourth quarter and fiscal year ended September 30, 2006. HIGHLIGHTS -- Reported GAAP earnings for the quarter and fiscal year of $0.02 and $1.61 per share, respectively, were down $0.55 per share from the prior year's fourth quarter and $0.62 from the prior year mostly due to the previously announced full cost ceiling test impairments. -- Quarterly operating results before items impacting comparability were $0.36 per share, a 125 percent increase over the prior year, mostly due to higher average commodity prices realized in the Exploration and Production segment. -- Fiscal year operating results before items impacting comparability were $2.25 per share, a 30 percent increase, also due to higher average commodity prices. -- Production of crude oil and natural gas volumes for the quarter and fiscal year were 12.1 billion cubic feet equivalent ("Bcfe") and 47.4 Bcfe, respectively, and were in line with the Company's guidance. -- The Company's expected fiscal 2007 production remains at the previously announced level of 47 to 52 Bcfe.* Based on recent reductions in crude oil and natural gas pricing strips, the Company is revising its earnings guidance for fiscal 2007 to a range of $2.10 to $2.30 per share. Earnings guidance had previously been $2.60 to $2.80 per share.* -- A conference call is scheduled for Friday, November 10, 2006 at 11:00 am Eastern Standard Time. MANAGEMENT COMMENTS Philip C. Ackerman, Chairman and Chief Executive Officer of National Fuel Gas Company stated: "This year, the continued volatility of commodity prices caused us to experience non-cash write downs of our Canadian exploration and production properties in the third and fourth quarters. Absent these write downs, consolidated earnings improved dramatically. Similarly, cash provided by operating activities improved substantially, reaching $471 million, and was sufficient to fund an increase in capital spending, an increase in our dividend, and the repurchase of more than 2,000,000 shares of stock. Our balance sheet remains solid, with an equity component growing to more than 56 percent of our capital structure, and strong operational results in all of our business segments reflect the continued dedication of the Company's employees." SUMMARY OF RESULTS National Fuel had consolidated earnings for the quarter ended September 30, 2006 of $2.0 million, or $0.02 per share, a decrease of $47.2 million, or $0.55 per share, from the prior year's fourth quarter of $49.2 million or $0.57 per share. (note: all references to earnings per share are to diluted earnings per share and all amounts are stated in U.S. dollars). Consolidated earnings for the fiscal year ended September 30, 2006 were $138.1 million, or $1.61 per share, a decrease of $51.4 million, or $0.62 per share, from the prior year's earnings of $189.5 million or $2.23 per share. Please refer to the table below to view the effect of items impacting comparability for both the quarterly and twelve-month periods. -0- *T Three Months Twelve Months Ended September 30, Ended September 30, 2006 2005 2006 2005 ---------- -------- --------- --------- (in thousands except per share amounts) Reported GAAP earnings $1,968 $49,211 $138,091 $189,488 Items impacting comparability: Income from discontinued operations1 (30,900) (35,973) Impairment of Canadian oil and gas producing properties2 29,144 68,646 Income tax adjustments2 (11,202) Out-of-period symmetrical sharing adjustment2 (2,551) Gain associated with insurance proceeds2 (3,885) (3,885) Gain on sale of base gas2 (2,636) ---------- -------- --------- --------- Operating results $31,112 $14,426 $192,984 $146,994 ========== ======== ========= ========= Reported GAAP earnings per share $0.02 $0.57 $1.61 $2.23 Items impacting comparability: Income from discontinued operations1 (0.36) (0.42) Impairment of Canadian oil and gas producing properties2 0.34 0.80 Income tax adjustments2 (0.13) Out-of-period symmetrical sharing adjustment2 (0.03) Gain associated with insurance proceeds2 (0.05) (0.05) Gain on sale of base gas2 (0.03) ---------- -------- --------- --------- Operating results $0.36 $0.16 $2.25 $1.73 ========== ======== ========= ========= *T 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. As outlined in the table above, certain items included in GAAP earnings impacted the comparability of the Company's operating results when comparing the fourth quarter of 2006 to the fourth quarter of 2005 and the annual results for fiscal 2006 to those for fiscal 2005. Excluding these items, operating results for the current fourth quarter were $31.1 million, or $0.36 per share, an increase of $16.7 million, or $0.20 per share, over the prior year's quarter. Operating results for fiscal 2006 of $193.0 million, or $2.25 per share, increased $46.0 million, or $0.52 per share, compared to the prior year. Items impacting comparability will be discussed in more detail within the discussion of segment earnings below. DISCUSSION OF RESULTS BY SEGMENT (The following discussion of the earnings of each segment is summarized in a tabular form in this report. It may be helpful to refer to those tables while reviewing this discussion.) Utility Segment The Utility segment operations are carried out by National Fuel Gas Distribution Corporation ("Distribution"), which sells or transports natural gas to customers located in western New York and northwestern Pennsylvania. The Utility segment's loss of approximately $1.4 million, or $0.02 per share, for the quarter ended September 30, 2006 improved from a loss of $6.1 million, or $0.07 per share, in the prior year's fourth quarter. Annual earnings of $49.8 million, or $0.58 per share, for the Utility segment were up $10.6 million, or $0.12 per share, compared to $39.2 million, or $0.46 per share, in fiscal 2005. In the fourth quarter, Distribution's New York Division recorded a loss of $0.6 million which represents an improvement from a loss of $2.9 million for the fourth quarter of 2005. In Distribution's Pennsylvania Division, the loss for the quarter of approximately $0.8 million improved from a loss of $3.2 million in the prior year's fourth quarter. The improvement in earnings in both Divisions was due primarily to lower bad debt expense. In the fourth quarter of 2005, Distribution increased the allowance for uncollectible accounts in its New York and Pennsylvania divisions to reflect the increase in final billed account balances and the increased age of outstanding active receivables heading into the heating season. A similar adjustment to the allowance balance was not required in 2006. In addition, in the New York Division, higher usage per account during the quarter and the impact of the last rate case also contributed to the improvement. These positive impacts were partially offset by a higher effective tax rate due to positive tax adjustments recorded in 2005 that did not recur in 2006. For the year ended September 30, 2006, earnings in Distribution's New York Division of $40.0 million increased $9.2 million compared to the prior year. The comparability of the fiscal year results is impacted by a $2.6 million positive out-of-period adjustment recorded in the first quarter of fiscal 2006 to correct Distribution's calculation of the symmetrical sharing component of New York's gas adjustment rate. The increase in operating results is due to the impact of the last rate settlement and the absence of two negative adjustments recorded in 2005 to true-up regulatory liabilities that did not recur in 2006. Partially offsetting these increases to operating results were lower average usage per account overall for the year, higher bad debt (on an annual basis), pension, and interest expense, and a higher effective tax rate. For the fiscal year ended September 30, 2006, earnings in Distribution's Pennsylvania Division of $9.8 million, increased $1.4 million, or $0.02 per share, compared to the prior year. Earnings increased mainly due to the positive impact of the last rate settlement combined with lower bad debt expense. Partially offsetting this increase was warmer weather and lower usage per account. In addition, a higher effective tax rate partially offset the increase in earnings. 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 $10.2 million, or $0.12 per share, for the quarter ended September 30, 2006, decreased $8.6 million, or $0.10 per share, when compared with the same period in the prior fiscal year. The comparability of the results for the quarter is impacted by a $3.9 million gain associated with insurance proceeds received in a prior year for which a contingency (related to possible migration of storage gas) was resolved during last year's fourth quarter. Excluding that gain, operating results decreased $4.7 million mainly due to lower efficiency gas revenue resulting from a lower of cost or market adjustment of $4.7 million (after tax) to the value of efficiency gas held in inventory at the end of the quarter. The value of the efficiency gas inventory was adjusted to current market prices at September 30, 2006. In addition, higher pension and other operating expenses, partially offset by lower expenses for preliminary project costs associated with the Empire Connector project, contributed to the decrease in earnings. Earnings of $55.6 million, or $0.65 per share, for the fiscal year ended September 30, 2006, decreased $4.8 million, or $0.06 per share, when compared with the fiscal year ended September 30, 2005. The comparability of the fiscal year results is impacted by the $3.9 million gain in 2005 associated with insurance proceeds described above and a $2.6 million gain in 2005 on the sale of base gas from Supply Corporation's jointly-owned Ellisburg Storage Field. The increase in operating results of $1.7 million, or $0.02 per share, is due to higher transportation and storage revenues and a lower effective tax rate that more than offset lower efficiency gas revenues (including the impact of the lower of cost or market adjustment). 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 fourth quarter of fiscal 2006 of $7.2 million, or $0.08 per share, is a decrease of $18.9 million, or $0.21 per share, when compared with the prior year's fourth quarter. The decrease was mainly due to the previously announced non-cash charge of $29.1 million (after tax) to write down the value of Seneca's Canadian oil and natural gas producing properties. 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 period-end spot 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, Seneca values its Canadian reserves (of which more than 80 percent are natural gas) at commodity prices on the last day of the quarter. Seneca determines this quarter-end price by reference to a Canadian current cash index price, a price quoted by Alberta Energy Company or "AECO." That price had declined from approximately CDN $7.30/MMBtu at the end of March 2006 to CDN $5.50/MMBtu at the end of June 2006 and to CDN $3.70/MMBtu at September 30, 2006 (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 November 8, 2006, the AECO cash index price had rebounded to approximately CDN $7.50/MMBtu. If Seneca's Canadian reserves had been valued at that price, no impairment would have been recorded. 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 $200.0 million at September 30, 2006. Excluding the impact of the ceiling test this quarter, Seneca's earnings were $22.0 million, or $0.26 per share, an increase of $10.3 million, or $0.13 per share, compared to the fourth quarter of the prior year. The increase was primarily due to higher weighted average crude oil prices after hedging, as well as the impact of a mark-to-market adjustment recorded in the fourth quarter of 2005 that did not recur in 2006. That adjustment related to losses on certain derivatives contracts that no longer qualified as effective hedges due to anticipated delays in oil and gas production volumes caused by Hurricane Rita. This increase was partially offset by slightly lower natural gas prices and a 0.6 Bcfe decline in production. For the quarter ended September 30, 2006, the weighted average oil price (after hedging) was $45.73/barrel ("Bbl"), an increase of $15.03/Bbl from the prior year's quarter and the weighted average natural gas price (after hedging) was $6.36/Mcf, a decrease of $0.41/Mcf from the prior year's quarter. Earnings of $21.0 million, or $0.24 per share, for the fiscal year ended September 30, 2006 decreased $29.7 million, or $0.36 per share, when compared with the year ended September 30, 2005. The comparability of the fiscal year results is impacted by the two non-cash charges totaling $68.6 million (after tax) to write down the value of Seneca's Canadian oil and natural gas producing properties described above and in the Company's third quarter earnings release, and certain positive tax adjustments recorded in the second and third quarters of fiscal 2006. In the second quarter, 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 changing circumstances, Seneca increased its forecast of future taxable income in the Canadian division and, consequently, recorded a deferred tax asset for certain costs related to capital expenditures that it now expects to deduct on future income tax returns. In the third quarter, Seneca 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 and also recognized a tax benefit related to the favorable resolution of certain open tax issues. Excluding the items that impacted comparability, annual operating results in the Exploration and Production segment increased $27.8 million, or $0.31 per share, from the prior year. This increase is mainly due to higher weighted average natural gas and oil prices after hedging that were partially offset by lower production volumes. For the year ended September 30, 2006, the weighted average oil price (after hedging) was $41.10/Bbl, an increase of $13.24/Bbl, or 47.5 percent, from the prior year and the weighted average natural gas price (after hedging) was $7.15/Mcf, an increase of $0.92/Mcf, or 14.8 percent, from the prior year. These price increases more than offset a 5.0 Bcfe decline in production. More than 4.0 Bcfe of the decline was due to production shut-ins resulting from Hurricane Rita. The increase in annual operating results also reflects the positive impact of a mark-to-market adjustment recorded in the fourth quarter of 2005 for losses on certain derivatives contracts that no longer qualified as effective hedges that did not recur in 2006 as described above. 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 loss for the quarter of $0.1 million compares to earnings of $0.2 million in the fourth quarter last year. This decrease is mainly due to a slight decrease in margin. Earnings for the year ended September 30, 2006 in the Energy Marketing segment of $5.8 million, or $0.07 per share, increased $0.7 million, or $0.01 per share, from the prior year due to higher margins offset partially by higher operating expenses. Timber Segment The Timber segment operations are carried out by Highland Forest Resources, Inc. ("Highland") and Seneca's Northeast Division. This segment 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 fourth quarter earnings of $0.5 million compared to $0.8 million in the prior year's fourth quarter. The decrease is due to lower margins during the quarter. Earnings for the year ended September 30, 2006 of $5.7 million, or $0.07 per share, increased $0.7 million, or $0.01 per share, from the prior year's earnings. The increase is due to higher margins overall for the fiscal year. 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. ("Horizon Power"), a corporation that develops and owns independent electric generation facilities which are fueled by natural gas or landfill gas. Break-even earnings in the quarter for this category decreased $23.8 million or $0.29 per share when compared to the prior year's fourth quarter. Excluding earnings from discontinued operations of $30.9 million, operating results improved from a loss of $7.2 million in the fourth quarter of 2005 to breakeven results for the fourth quarter of 2006. Annual earnings of $0.2 million decreased $28.9 million, or $0.34 per share, when compared to the prior year. Excluding earnings from discontinued operations of $36.0 million, operating results improved from a loss of $6.9 million in fiscal year 2005 to income of $0.2 million in fiscal year 2006. The loss during last year's fourth quarter and fiscal year included an impairment in the value of the Horizon Power's 50 percent investment in Energy Systems North East, LLC, a partnership that owns an 80-megawatt natural gas-fired combined cycle power plant, and an impairment of a gas-fired turbine Horizon Power had previously planned to use in the development of an independent power plant. SHARE REPURCHASES During the quarter, the Company repurchased in the open market 242,200 shares of its common stock pursuant to the authorization of the Company's Board of Directors to repurchase up to 8,000,000 shares of its common stock. Through September 30, 2006, the Company has repurchased 2,526,550 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 year ended September 30, 2006, the Company estimates that the calculated diluted earnings per share were increased by $0.017 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 or the impact of those repurchases on the calculation of earnings per share. EARNINGS GUIDANCE The Company's consolidated earnings guidance for fiscal 2007 is in the range of $2.10 to $2.30 per share.* This guidance includes a revision in New York Mercantile Exchange ("NYMEX") futures pricing for the unhedged portion of Seneca's projected production. The NYMEX futures closing prices on September 21, 2006 are incorporated into this current guidance on a consolidated basis, and are shown in this release. An earnings sensitivity is also shown in this release. Changes in actual prices from the NYMEX prices shown in the table, will affect earnings accordingly. Following a growing trend by other public companies, National Fuel will provide earnings guidance only on its consolidated earnings and will no longer provide earnings guidance by segment or by future quarterly periods. Based on certain corporate events, National Fuel will update its annual guidance as necessary. For its 2007 fiscal year, the $2.10 to $2.30 earnings guidance range includes: Exploration and Production segment -- Production between 47 and 52 Bcfe.* -- Pricing based on September 21, 2006 NYMEX futures pricing strip. -- No new 2007 production from the venture with EOG Resources, Inc. announced in the Company's press release dated November 1, 2006. Pipeline and Storage segment -- Settlement of complaint proceeding brought by Joint State Agencies with new tariff rates in effect during fiscal 2007.* Utility segment -- Pennsylvania rate settlement in effect as of January 1, 2007.* EARNINGS TELECONFERENCE The Company will host a conference call on Friday, November 10, 2006, at 11 a.m. (Eastern Standard 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) 1-866-578-5771, and using the passcode "93603463." 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 "91885312." Both the webcast and telephonic replay will be available until the close of business on Friday, November 17, 2006. National Fuel is an integrated energy company with $3.7 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; 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 RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS QUARTER ENDED SEPTEMBER 30, 2006 Pipeline Corporate & Energy / All Consol- Utility Storage E&P Marketing Timber Other* idated ---------------------------------- ----------------------- Fourth quarter 2005 GAAP earnings $(6,073)$18,877 $11,676 $168 $830 $23,733 $49,211 Items impacting compar- ability: Earnings from dis- continued operations (30,900)(30,900) Gain associated with insurance proceeds (3,885) (3,885) ---------------------------------- ----------------------- Fourth quarter 2005 operating results (6,073) 14,992 11,676 168 830 (7,167) 14,426 Drivers of operating results Impact of NY rate settlement 967 967 Higher normalized usage per account 1,755 1,755 True-up of regulatory liabilities (1,724) (1,724) Routine regulatory adjustments 1,541 1,541 Higher transportation and storage revenues 638 638 Lower efficiency gas revenues (4,598) (4,598) Lower (higher) operating expenses 6,137 (1,101) 1,054 6,090 Higher crude oil and natural gas prices 7,045 7,045 Lower crude oil and natural gas production (2,431) (2,431) Derivatives mark-to- market adjustment 3,343 3,343 Lower per unit margins (110) (110) Lower margins (203) (203) Asset impairment write-downs in 2005 4,499 4,499 Higher interest expense (1,081) (391) (1,472) Higher interest income 706 1,350 2,056 Higher effective tax rate (3,754) (3,754) All other / rounding 813 317 1,624 (168) (158) 616 3,044 ---------------------------------- ----------------------- Fourth quarter 2006 operating results (1,419) 10,248 21,963 (110) 469 (39) 31,112 Items impacting comparability: Impairment of oil and gas properties (29,144) (29,144) ---------------------------------- ----------------------- Fourth quarter 2006 GAAP earnings $(1,419)$10,248 $(7,181) $(110) $469 $(39) $1,968 ================================== ======================= * Includes discontinued operations *T -0- *T NATIONAL FUEL GAS COMPANY RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE QUARTER ENDED SEPTEMBER 30, 2006 Pipeline Corporate & Energy / All Consol Utility Storage E&P Marketing Timber Other* -idated -------------------------------- ---------------------- Fourth quarter 2005 GAAP earnings $(0.07) $0.22 $0.13 $- $0.01 $0.28 $0.57 Items impacting comparability: Earnings from discontinued operations (0.36) (0.36) Gain associated with insurance proceeds (0.05) - (0.05) -------------------------------- ---------------------- Fourth quarter 2005 operating results (0.07) 0.17 0.13 - 0.01 (0.08) 0.16 Drivers of operating results Impact of NY rate settlement 0.01 0.01 Higher normalized usage per account 0.02 0.02 True-up of regulatory liabilities (0.02) (0.02) Routine regulatory adjustments 0.02 0.02 Higher transportation and storage revenues 0.01 0.01 Lower efficiency gas revenues (0.05) (0.05) Lower (higher) operating expenses 0.07 (0.01) 0.01 0.07 Higher crude oil and natural gas prices 0.08 0.08 Lower crude oil and natural gas production (0.03) (0.03) Derivatives mark-to-market adjustment 0.04 0.04 Lower per unit margins - - Lower margins - - Asset impairment write-downs in 2005 0.05 0.05 - Higher interest expense (0.01) (0.01) Higher interest income 0.01 0.02 0.03 - Higher effective tax rate (0.04) (0.04) - All other / rounding - - 0.03 - - (0.01) 0.02 -------------------------------- ---------------------- Fourth quarter 2006 operating results (0.02) 0.12 0.26 - 0.01 (0.01) 0.36 Items impacting comparability: Impairment of oil and gas properties (0.34) (0.34) -------------------------------- ---------------------- Fourth quarter 2006 GAAP earnings $(0.02) $0.12 $(0.08) $- $0.01 $(0.01) $0.02 ================================ ====================== * Includes discontinued operations *T -0- *T NATIONAL FUEL GAS COMPANY RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS YEAR ENDED SEPTEMBER 30, 2006 Corporate Pipeline / & Energy All Consoli- Utility Storage E&P Marketing Timber Other* dated ---------------------------------------------------------- Fiscal 2005 GAAP earnings $39,197 $60,454 $50,659 $5,077 $5,032 $29,069 $189,488 Items impacting comparability: Earnings from discontinued operations (35,973) (35,973) Gain associated with insurance proceeds (3,885) (3,885) Gain on sale of base gas (2,636) (2,636) ---------------------------------------------------------- Fiscal 2005 operating results 39,197 53,933 50,659 5,077 5,032 (6,904) 146,994 Drivers of operating results Impact of NY & PA rate settle- ments 18,640 18,640 Warmer weather in PA (3,033) (3,033) Lower normalized usage per account (2,930) (2,930) True-up of regulatory liabilities 2,603 2,603 Routine regulatory adjustments 1,433 1,433 Higher transportation and storage revenues 1,963 1,963 Lower efficiency gas revenues (1,661) (1,661) Higher operating expenses (712) (613) (1,969) (815) (1,290) (5,399) Higher crude oil and natural gas prices 46,459 46,459 Lower crude oil and natural gas production (18,529) (18,529) Derivatives mark-to- market adjustment 3,343 3,343 Higher lifting costs (3,157) (3,157) Higher DD&A (2,487) (2,487) Higher per unit margins 1,679 1,679 Higher margins 989 989 Lower margins on landfill gas pipeline sales (530) (530) Asset impairment write-downs in 2005 943 4,499 5,442 Higher interest expense (3,490) (3,490) Higher interest income 2,614 4,755 7,369 (Higher) lower effective tax rate (4,467) 1,674 (2,793) All other / rounding 23 (606) 1,482 (143) (317) (360) 79 ---------------------------------------------------------- Fiscal 2006 operating results 47,264 55,633 78,415 5,798 5,704 170 192,984 Items impacting comparability: Out-of- period adjustment to symmetrical sharing 2,551 2,551 Income tax adjustments 11,202 11,202 Impairment of oil and gas properties (68,646) (68,646) ---------------------------------------------------------- Fiscal 2006 GAAP earnings $49,815 $55,633 $20,971 $5,798 $5,704 $170 $138,091 ========================================================== * Includes discontinued operations *T -0- *T NATIONAL FUEL GAS COMPANY RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE YEAR ENDED SEPTEMBER 30, 2006 Corporate Pipeline / & Energy All Consoli- Utility Storage E&P Marketing Timber Other* dated ------------------------------------------------------- Fiscal 2005 GAAP earnings $0.46 $0.71 $0.60 $0.06 $0.06 $0.34 $2.23 Items impacting comparability: Earnings from discontinued operations (0.42) (0.42) Gain associated with insurance proceeds (0.05) (0.05) Gain on sale of base gas (0.03) (0.03) ------------------------------------------------------- Fiscal 2005 operating results 0.46 0.63 0.60 0.06 0.06 (0.08) 1.73 Drivers of operating results Impact of NY & PA rate settlements 0.21 0.21 Warmer weather in PA (0.04) (0.04) Lower normalized usage per account (0.03) (0.03) True-up of regulatory liabilities 0.03 0.03 Routine regulatory adjustments 0.02 0.02 Higher transportation and storage revenues 0.02 0.02 Lower efficiency gas revenues (0.02) (0.02) Higher operating expenses (0.01) (0.01)(0.02) (0.01) (0.02) (0.07) Higher crude oil and natural gas prices 0.54 0.54 Lower crude oil and natural gas production (0.22) (0.22) Derivatives mark-to-market adjustments 0.04 0.04 Higher lifting costs (0.03) (0.03) Higher DD&A (0.04) (0.04) Higher per unit margins 0.02 0.02 Higher margins 0.01 0.01 Lower margins on landfill gas pipeline sales (0.01) (0.01) Asset impairment write-downs in 2005 0.01 0.05 0.06 Higher interest expense (0.04) - (0.04) Higher interest income 0.03 0.06 0.09 (Higher) lower effective tax rate (0.05) 0.02 (0.03) All other / rounding - - 0.01 - - - 0.01 ------------------------------------------------------- Fiscal 2006 operating results 0.55 0.65 0.91 0.07 0.07 0.00 2.25 Items impacting comparability: Out-of-period adjustment to symmetrical sharing 0.03 0.03 Income tax adjustments 0.13 0.13 Impairment of oil and gas properties (0.80) (0.80) ------------------------------------------------------- Fiscal 2006 GAAP earnings $0.58 $0.65 $0.24 $0.07 $0.07 $0.00 $1.61 ======================================================= * Includes discontinued operations *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES (Thousands of Dollars, except per share amounts) Three Months Ended Twelve Months Ended September 30, September 30, (Unaudited) (Unaudited) ----------------------- ----------------------- SUMMARY OF OPERATIONS 2006 2005 2006 2005 ---------------------- ----------- ----------- ----------- ----------- Operating Revenues $294,469 $287,064 $2,311,659 $1,923,549 ----------- ----------- ----------- ----------- Operating Expenses: Purchased Gas 79,609 82,316 1,267,562 959,827 Operation and Maintenance 92,905 106,968 413,726 404,517 Property, Franchise and Other Taxes 15,795 15,525 69,942 69,076 Depreciation, Depletion and Amortization 45,348 47,329 179,615 179,767 Impairment of Oil and Gas Producing Properties 42,368 - 104,739 - ----------- ----------- ----------- ----------- 276,025 252,138 2,035,584 1,613,187 Operating Income 18,444 34,926 276,075 310,362 Other Income (Expense): Income from Unconsolidated Subsidiaries 1,384 1,447 3,583 3,362 Impairment of Investment in Partnership - (4,158) - (4,158) Other Income 1,291 6,764 2,825 12,744 Interest Income 5,973 4,714 10,275 6,496 Interest Expense on Long-Term Debt (18,127) (18,255) (72,629) (73,244) Other Interest Expense (1,686) (158) (5,952) (9,069) ----------- ----------- ----------- ----------- Income from Continuing Operations Before Income Taxes 7,279 25,280 214,177 246,493 Income Tax Expense 5,311 6,969 76,086 92,978 ----------- ----------- ----------- ----------- Income from Continuing Operations 1,968 18,311 138,091 153,515 Discontinued Operations: Income from Operations, Net of Tax - 5,126 - 10,199 Gain on Disposal, Net of Tax - 25,774 - 25,774 ----------- ----------- ----------- ----------- Income from Discontinued Operations, Net of Tax - 30,900 - 35,973 ----------- ----------- ----------- ----------- Net Income Available for Common Stock $1,968 $49,211 $138,091 $189,488 =========== =========== =========== =========== Earnings Per Common Share: Basic: Income from Continuing Operations $0.02 $0.22 $1.64 $1.84 Income from Dis- continued Operations - 0.36 - 0.43 ----------- ----------- ----------- ----------- Net Income Available for Common Stock $0.02 $0.58 $1.64 $2.27 =========== =========== =========== =========== Diluted: Income from Continuing Operations $0.02 $0.21 $1.61 $1.81 Income from Discontinued Operations - 0.36 - 0.42 ----------- ----------- ----------- ----------- Net Income Available for Common Stock $0.02 $0.57 $1.61 $2.23 =========== =========== =========== =========== Weighted Average Common Shares: Used in Basic Calculation 83,432,553 84,128,929 84,030,118 83,541,627 =========== =========== =========== =========== Used in Diluted Calculation 85,523,042 85,784,654 86,028,466 85,029,131 =========== =========== =========== =========== *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) September September 30, 30, (Thousands of Dollars) 2006 2005 ---------------------------------------------------------------------- ASSETS Property, Plant and Equipment $4,703,040 $4,423,255 Less - Accumulated Depreciation, Depletion and Amortization 1,825,314 1,583,955 ---------------------------------------------------------------------- Net Property, Plant and Equipment 2,877,726 2,839,300 ---------------------------------------------- ----------------------- Current Assets: Cash and Temporary Cash Investments 69,611 57,607 Hedging Collateral Deposits 19,676 77,784 Receivables - Net 144,254 141,408 Unbilled Utility Revenue 25,538 20,465 Gas Stored Underground 59,461 64,529 Materials and Supplies - at average cost 36,693 33,267 Unrecovered Purchased Gas Costs 12,970 14,817 Prepaid Pension and Post-Retirement Benefit Costs 64,125 14,404 Other Current Assets 56,320 64,721 Deferred Income Taxes 23,402 83,774 ---------------------------------------------- ----------------------- Total Current Assets 512,050 572,776 ---------------------------------------------- ----------------------- Other Assets: Recoverable Future Taxes 79,511 85,000 Unamortized Debt Expense 15,492 17,567 Other Regulatory Assets 76,917 47,028 Deferred Charges 3,558 4,474 Other Investments 88,414 80,394 Investments in Unconsolidated Subsidiaries 11,590 12,658 Goodwill 5,476 5,476 Intangible Assets 31,498 42,302 Fair Value of Derivative Financial Instruments 11,305 - Deferred Income Taxes 9,003 - Other 4,388 15,677 ---------------------------------------------- ----------------------- Total Other Assets 337,152 310,576 ---------------------------------------------- ----------------------- Total Assets $3,726,928 $3,722,652 ---------------------------------------------- ----------------------- CAPITALIZATION AND LIABILITIES Capitalization: Comprehensive Shareholders' Equity Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding - 83,402,670 Shares and 84,356,748 Shares, Respectively $83,403 $84,357 Paid in Capital 563,746 529,834 Earnings Reinvested in the Business 765,997 813,020 ---------------------------------------------- ----------------------- Total Common Shareholders' Equity Before Items of Other Comprehensive Income (Loss) 1,413,146 1,427,211 Accumulated Other Comprehensive Income (Loss) 30,416 (197,628) ---------------------------------------------- ----------------------- Total Comprehensive Shareholders' Equity 1,443,562 1,229,583 Long-Term Debt, Net of Current Portion 1,109,109 1,119,012 ---------------------------------------------- ----------------------- Total Capitalization 2,552,671 2,348,595 ---------------------------------------------- ----------------------- Current and Accrued Liabilities: Notes Payable to Banks and Commercial Paper - - Current Portion of Long-Term Debt 9,491 9,393 Accounts Payable 133,034 155,485 Amounts Payable to Customers 23,935 1,158 Dividends Payable 25,008 24,445 Other Accruals and Current Liabilities 38,057 60,404 Fair Value of Derivative Financial Instruments 39,983 209,072 ---------------------------------------------- ----------------------- Total Current and Accrued Liabilities 269,508 459,957 ---------------------------------------------- ----------------------- Deferred Credits: Deferred Income Taxes 544,502 489,720 Taxes Refundable to Customers 10,426 11,009 Unamortized Investment Tax Credit 6,094 6,796 Cost of Removal Regulatory Liability 85,076 90,396 Other Regulatory Liabilities 75,456 66,339 Pension and Post-Retirement Liabilities 32,918 143,687 Asset Retirement Obligation 77,392 41,411 Other Deferred Credits 72,885 64,742 ---------------------------------------------- ----------------------- Total Deferred Credits 904,749 914,100 ---------------------------------------------- ----------------------- Commitments and Contingencies - - ---------------------------------------------- ----------------------- Total Capitalization and Liabilities $3,726,928 $3,722,652 ---------------------------------------------- ----------------------- *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Twelve Months Ended September 30, (Thousands of Dollars) 2006 2005 ---------------------------------------------------------------------- Operating Activities: Net Income Available for Common Stock $138,091 $189,488 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Gain on Sale of Discontinued Operations - (27,386) Impairment of Oil and Gas Producing Properties 104,739 - Depreciation, Depletion and Amortization 179,615 193,144 Deferred Income Taxes (5,231) 40,388 (Income) Loss from Unconsolidated Subsidiaries, Net of Cash Distributions 1,068 (1,372) Impairment of Investment in Partnership - 4,158 Minority Interest in Foreign Subsidiaries - 2,645 Excess Tax Benefits Associated with Stock-Based Compensation Awards (6,515) - Other 4,829 7,390 Change in: Hedging Collateral Deposits 58,108 (69,172) Receivables and Unbilled Utility Revenue (7,397) (21,857) Gas Stored Underground and Materials and Supplies 1,679 1,934 Unrecovered Purchased Gas Costs 1,847 (7,285) Prepayments and Other Current Assets (34,799) (39,779) Accounts Payable (23,144) 48,089 Amounts Payable to Customers 22,777 (1,996) Other Accruals and Current Liabilities (22,527) 16,085 Other Assets (22,700) (13,461) Other Liabilities 80,960 (3,667) ---------------------------------------------------------------------- Net Cash Provided by Operating Activities $471,400 $317,346 ---------------------------------------------------------------------- Investing Activities: Capital Expenditures ($294,159) ($219,530) Net Proceeds from Sale of Foreign Subsidiary - 111,619 Net Proceeds from Sale of Oil and Gas Producing Properties 13 1,349 Other (3,230) 3,238 ---------------------------------------------------------------------- Net Cash Used in Investing Activities ($297,376) ($103,324) ---------------------------------------------------------------------- Financing Activities: Change in Notes Payable to Banks and Commercial Paper $- ($115,359) Excess Tax Benefits Associated with Stock-Based Compensation Awards 6,515 - Shares Repurchased under Repurchase Plan (85,168) - Reduction of Long-Term Debt (9,805) (13,317) Dividends Paid on Common Stock (98,266) (94,159) Dividends Paid to Minority Interest - (12,676) Proceeds From Issuance of Common Stock 23,339 20,279 ---------------------------------------------------------------------- Net Cash Used In Financing Activities ($163,385) ($215,232) ---------------------------------------------------------------------- Effect of Exchange Rates on Cash 1,365 1,276 ---------------------------------------------------------------------- Net Increase in Cash and Temporary Cash Investments 12,004 66 Cash and Temporary Cash Investments at Beginning of Period 57,607 57,541 ---------------------------------------------------------------------- Cash and Temporary Cash Investments at September 30 $69,611 $57,607 ---------------------------------------------------------------------- *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended amounts) September 30, ---------------------------- UTILITY SEGMENT 2006 2005 Variance -------------------------------------------------------------------- Revenues from External Customers $111,320 $109,921 $1,399 Intersegment Revenues 2,751 2,763 (12) ---------------------------- Total Operating Revenues 114,071 112,684 1,387 ---------------------------- Operating Expenses: Purchased Gas 52,440 52,060 380 Operation and Maintenance 41,233 55,674 (14,441) Property, Franchise and Other Taxes 10,151 9,791 360 Depreciation, Depletion and Amortization 10,113 10,079 34 ---------------------------- 113,937 127,604 (13,667) ---------------------------- Operating Income (Loss) 134 (14,920) 15,054 Other Income (Expense): Interest Income 4,347 3,836 511 Other Income 221 213 8 Other Interest Expense (6,782) (4,145) (2,637) ---------------------------- Income (Loss) Before Income Taxes (2,080) (15,016) 12,936 Income Tax Expense (Benefit) (661) (8,943) 8,282 ---------------------------- Net Income (Loss) $(1,419) $(6,073) $4,654 ============================ Net Income (Loss) Per Share (Diluted) $(0.02) $(0.07) $0.05 ============================ NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per Twelve Months Ended share amounts) September 30, ---------------------------------- UTILITY SEGMENT 2006 2005 Variance ---------------------------------------------------------------------- Revenues from External Customers $1,265,695 $1,101,572 $164,123 Intersegment Revenues 15,068 15,495 (427) ---------------------------------- Total Operating Revenues 1,280,763 1,117,067 163,696 ---------------------------------- Operating Expenses: Purchased Gas 883,263 739,286 143,977 Operation and Maintenance 204,330 211,019 (6,689) Property, Franchise and Other Taxes 47,029 46,214 815 Depreciation, Depletion and Amortization 40,172 40,159 13 ---------------------------------- 1,174,794 1,036,678 138,116 ---------------------------------- Operating Income (Loss) 105,969 80,389 25,580 Other Income (Expense): Interest Income 4,889 4,111 778 Other Income 830 699 131 Other Interest Expense (26,174) (22,900) (3,274) ---------------------------------- Income (Loss) Before Income Taxes 85,514 62,299 23,215 Income Tax Expense (Benefit) 35,699 23,102 12,597 ---------------------------------- Net Income (Loss) $49,815 $39,197 $10,618 ================================== Net Income (Loss) Per Share (Diluted) $0.58 $0.46 $0.12 ================================== *T -0- *T Three Months Ended September 30, ----------------------------- PIPELINE AND STORAGE SEGMENT 2006 2005 Variance --------------------------------------------------- -------- -------- Revenues from External Customers $28,086 $34,689 $(6,603) Intersegment Revenues 20,126 19,982 144 ----------- -------- -------- Total Operating Revenues 48,212 54,671 (6,459) ----------- -------- -------- Operating Expenses: Purchased Gas (48) 5 (53) Operation and Maintenance 18,462 16,766 1,696 Property, Franchise and Other Taxes 4,109 3,936 173 Depreciation, Depletion and Amortization 9,227 9,134 93 ----------- -------- -------- 31,750 29,841 1,909 ----------- -------- -------- Operating Income 16,462 24,830 (8,368) Other Income (Expense): Interest Income 137 29 108 Other Income 197 6,128 (5,931) Interest Expense on Long-Term Debt (241) (363) 122 Other Interest Expense (1,813) (1,383) (430) ----------- -------- -------- Income Before Income Taxes 14,742 29,241 (14,499) Income Tax Expense 4,494 10,364 (5,870) ----------- -------- -------- Net Income $10,248 $18,877 $(8,629) =========== ======== ======== Net Income Per Share (Diluted) $0.12 $0.22 $(0.10) =========== ======== ======== Twelve Months Ended September 30, ------------------------------ PIPELINE AND STORAGE SEGMENT 2006 2005 Variance --------------------------------------------------- --------- -------- Revenues from External Customers $132,921 $132,805 $116 Intersegment Revenues 81,431 83,054 (1,623) ----------- --------- -------- Total Operating Revenues 214,352 215,859 (1,507) ----------- --------- -------- Operating Expenses: Purchased Gas (65) 636 (701) Operation and Maintenance 66,340 65,397 943 Property, Franchise and Other Taxes 16,088 15,598 490 Depreciation, Depletion and Amortization 36,876 38,050 (1,174) ----------- --------- -------- 119,239 119,681 (442) ----------- --------- -------- Operating Income 95,113 96,178 (1,065) Other Income (Expense): Interest Income 454 76 378 Other Income 582 10,396 (9,814) Interest Expense on Long-Term Debt (1,078) (1,675) 597 Other Interest Expense (5,542) (5,453) (89) ----------- --------- -------- Income Before Income Taxes 89,529 99,522 (9,993) Income Tax Expense 33,896 39,068 (5,172) ----------- --------- -------- Net Income $55,633 $60,454 $(4,821) =========== ========= ======== Net Income Per Share (Diluted) $0.65 $0.71 $(0.06) =========== ========= ======== *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended amounts) September 30, --------------------------- EXPLORATION AND PRODUCTION SEGMENT 2006 2005 Variance ------------------------------------------------- -------- --------- Operating Revenues $89,474 $73,898 $15,576 -------- -------- --------- Operating Expenses: Purchased Gas - 106 (106) Operation and Maintenance: General and Administrative Expense 4,888 4,623 265 Lease Operating Expense 12,765 12,677 88 All Other Operation and Maintenance Expense 2,065 1,813 252 Property, Franchise and Other Taxes (Lease Operating Expense) 1,065 1,193 (128) Depreciation, Depletion and Amortization 24,083 23,368 715 Impairment of Oil and Gas Producing Properties 42,368 - 42,368 -------- -------- --------- 87,234 43,780 43,454 -------- -------- --------- Operating Income 2,240 30,118 (27,878) Other Income (Expense): Interest Income 2,568 1,482 1,086 Other Interest Expense (12,835) (12,472) (363) -------- -------- --------- Income (Loss) Before Income Taxes (8,027) 19,128 (27,155) Income Tax Expense (Benefit) (846) 7,452 (8,298) -------- -------- --------- Net Income (Loss) $(7,181) $11,676 $(18,857) ======== ======== ========= Net Income (Loss) Per Share (Diluted) $(0.08) $0.13 $(0.21) ======== ======== ========= NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Twelve Months Ended amounts) September 30, ------------------------------ EXPLORATION AND PRODUCTION SEGMENT 2006 2005 Variance -------------------------------------------------- --------- --------- Operating Revenues $346,880 $293,425 $53,455 ---------- --------- --------- Operating Expenses: Purchased Gas 98 (176) 274 Operation and Maintenance: General and Administrative Expense 23,352 21,512 1,840 Lease Operating Expense 50,944 46,030 4,914 All Other Operation and Maintenance Expense 8,033 6,844 1,189 Property, Franchise and Other Taxes (Lease Operating Expense) 5,038 5,095 (57) Depreciation, Depletion and Amortization 94,738 90,912 3,826 Impairment of Oil and Gas Producing Properties 104,739 - 104,739 ---------- --------- --------- 286,942 170,217 116,725 ---------- --------- --------- Operating Income 59,938 123,208 (63,270) Other Income (Expense): Interest Income 8,682 4,661 4,021 Other Interest Expense (50,457) (48,856) (1,601) ---------- --------- --------- Income (Loss) Before Income Taxes 18,163 79,013 (60,850) Income Tax Expense (Benefit) (2,808) 28,354 (31,162) ---------- --------- --------- Net Income (Loss) $20,971 $50,659 $(29,688) ========== ========= ========= Net Income (Loss) Per Share (Diluted) $0.24 $0.60 $(0.36) ========== ========= ========= *T -0- *T Three Months Ended September 30, -------------------------- ENERGY MARKETING SEGMENT 2006 2005 Variance --------------------------------------------------- -------- -------- Operating Revenues $50,702 $53,608 $(2,906) -------- -------- -------- Operating Expenses: Purchased Gas 49,939 52,628 (2,689) Operation and Maintenance 1,185 1,170 15 Property, Franchise and Other Taxes 10 4 6 Depreciation, Depletion and Amortization 7 (24) 31 -------- -------- -------- 51,141 53,778 (2,637) -------- -------- -------- Operating Income (Loss) (439) (170) (269) Other Income (Expense): Interest Income 144 200 (56) Other Income 57 47 10 Other Interest Expense (20) (4) (16) -------- -------- -------- Income (Loss) Before Income Taxes (258) 73 (331) Income Tax Expense (Benefit) (148) (95) (53) -------- -------- -------- Net Income (Loss) $(110) $168 $(278) ======== ======== ======== Net Income Per Share (Diluted) $- $- $- ======== ======== ======== Twelve Months Ended September 30, ----------------------------- ENERGY MARKETING SEGMENT 2006 2005 Variance -------------------------------------------------- --------- --------- Operating Revenues $497,069 $329,714 $167,355 --------- --------- --------- Operating Expenses: Purchased Gas 483,250 318,571 164,679 Operation and Maintenance 5,079 3,731 1,348 Property, Franchise and Other Taxes (222) 83 (305) Depreciation, Depletion and Amortization 53 41 12 --------- --------- --------- 488,160 322,426 165,734 --------- --------- --------- Operating Income (Loss) 8,909 7,288 1,621 Other Income (Expense): Interest Income 445 783 (338) Other Income 419 227 192 Other Interest Expense (227) (11) (216) --------- --------- --------- Income (Loss) Before Income Taxes 9,546 8,287 1,259 Income Tax Expense (Benefit) 3,748 3,210 538 --------- --------- --------- Net Income (Loss) $5,798 $5,077 $721 ========= ========= ========= Net Income Per Share (Diluted) $0.07 $0.06 $0.01 ========= ========= ========= *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended amounts) September 30, ---------------------------- TIMBER SEGMENT 2006 2005 Variance -------------------------------------------------------------------- Revenues from External Customers $13,647 $14,291 $(644) Intersegment Revenues 1 - 1 ---------------------------- Total Operating Revenues 13,648 14,291 (643) ---------------------------- Operating Expenses: Operation and Maintenance 10,383 10,818 (435) Property, Franchise and Other Taxes 370 418 (48) Depreciation, Depletion and Amortization 1,582 1,697 (115) ---------------------------- 12,335 12,933 (598) ---------------------------- Operating Income 1,313 1,358 (45) Other Income (Expense): Interest Income 229 131 98 Other Income 66 3 63 Other Interest Expense (796) (757) (39) ---------------------------- Income Before Income Taxes 812 735 77 Income Tax Expense (Benefit) 343 (95) 438 ---------------------------- Net Income $469 $830 $(361) ============================ Net Income Per Share (Diluted) $0.01 $0.01 $- ============================ NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Twelve Months Ended amounts) September 30, ------------------------------ TIMBER SEGMENT 2006 2005 Variance ---------------------------------------------------------------------- Revenues from External Customers $65,024 $61,285 $3,739 Intersegment Revenues 5 1 4 ------------------------------ Total Operating Revenues 65,029 61,286 3,743 ------------------------------ Operating Expenses: Operation and Maintenance 45,712 43,641 2,071 Property, Franchise and Other Taxes 1,611 1,488 123 Depreciation, Depletion and Amortization 6,495 6,601 (106) ------------------------------ 53,818 51,730 2,088 ------------------------------ Operating Income 11,211 9,556 1,655 Other Income (Expense): Interest Income 747 438 309 Other Income 118 73 45 Other Interest Expense (3,095) (2,764) (331) ------------------------------ Income Before Income Taxes 8,981 7,303 1,678 Income Tax Expense (Benefit) 3,277 2,271 1,006 ------------------------------ Net Income $5,704 $5,032 $672 ============================== Net Income Per Share (Diluted) $0.07 $0.06 $0.01 ============================== *T -0- *T Three Months Ended September 30, ----------------------------- ALL OTHER 2006 2005 Variance --------------------------------------------------- -------- -------- Revenues from External Customers $1,053 $658 $395 Intersegment Revenues 1,506 2,482 (976) ----------- -------- -------- Total Operating Revenues 2,559 3,140 (581) ----------- -------- -------- Operating Expenses: Purchased Gas 1,541 2,580 (1,039) Operation and Maintenance 1,132 1,187 (55) Property, Franchise and Other Taxes 21 20 1 Depreciation, Depletion and Amortization 196 2,957 (2,761) ----------- -------- -------- 2,890 6,744 (3,854) ----------- -------- -------- Operating Income (Loss) (331) (3,604) 3,273 Other Income (Expense): Income from Unconsolidated Subsidiaries 1,384 1,447 (63) Impairment of Investment in Partnership - (4,158) 4,158 Interest Income 3 6 (3) Other Income 11 172 (161) Other Interest Expense (681) (523) (158) ----------- -------- -------- Income (Loss) Before Income Taxes 386 (6,660) 7,046 Income Tax Expense (Benefit) 430 (2,523) 2,953 ----------- -------- -------- Net Income (Loss) $(44) $(4,137) $4,093 =========== ======== ======== Net Income (Loss) Per Share (Diluted) $(0.01) $(0.05) $0.04 =========== ======== ======== Twelve Months Ended September 30, ------------------------------ ALL OTHER 2006 2005 Variance ---------------------------------------------------- -------- -------- Revenues from External Customers $3,304 $4,748 $(1,444) Intersegment Revenues 9,444 8,606 838 ------------ -------- -------- Total Operating Revenues 12,748 13,354 (606) ------------ -------- -------- Operating Expenses: Purchased Gas 7,908 7,876 32 Operation and Maintenance 3,731 3,850 (119) Property, Franchise and Other Taxes 95 87 8 Depreciation, Depletion and Amortization 789 3,537 (2,748) ------------ -------- -------- 12,523 15,350 (2,827) ------------ -------- -------- Operating Income (Loss) 225 (1,996) 2,221 Other Income (Expense): Income from Unconsolidated Subsidiaries 3,583 3,362 221 Impairment of Investment in Partnership - (4,158) 4,158 Interest Income 22 19 3 Other Income 53 458 (405) Other Interest Expense (2,555) (1,726) (829) ------------ -------- -------- Income (Loss) Before Income Taxes 1,328 (4,041) 5,369 Income Tax Expense (Benefit) 969 (1,425) 2,394 ------------ -------- -------- Net Income (Loss) $359 $(2,616) $2,975 ============ ======== ======== Net Income (Loss) Per Share (Diluted) $- $(0.03) $0.03 ============ ======== ======== *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Three Months Ended amounts) September 30, ---------------------------- CORPORATE 2006 2005 Variance -------------------------------------------------- -------- -------- Revenues from External Customers $187 $- $187 Intersegment Revenues 737 811 (74) ---------- -------- -------- Total Operating Revenues 924 811 113 ---------- -------- -------- Operating Expenses: Operation and Maintenance 1,650 3,216 (1,566) Property, Franchise and Other Taxes 69 163 (94) Depreciation, Depletion and Amortization 140 118 22 ---------- -------- -------- 1,859 3,497 (1,638) ---------- -------- -------- Operating Loss (935) (2,686) 1,751 Other Income (Expense): Interest Income 22,360 20,280 2,080 Other Income 739 201 538 Interest Expense on Long-Term Debt (17,886) (17,892) 6 Other Interest Expense (2,574) (2,124) (450) ---------- -------- -------- Income (Loss) Before Income Taxes 1,704 (2,221) 3,925 Income Tax Expense (Benefit) 1,699 809 890 ---------- -------- -------- Net Income (Loss) $5 $(3,030) $3,035 ========== ======== ======== Net Income (Loss) Per Share (Diluted) $- $(0.03) $0.03 ========== ======== ======== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) (Thousands of Dollars, except per share Twelve Months Ended amounts) September 30, ------------------------------ CORPORATE 2006 2005 Variance ---------------------------------------------------- -------- -------- Revenues from External Customers $766 $- $766 Intersegment Revenues 2,949 2,824 125 ------------ -------- -------- Total Operating Revenues 3,715 2,824 891 ------------ -------- -------- Operating Expenses: Operation and Maintenance 8,210 6,107 2,103 Property, Franchise and Other Taxes 303 511 (208) Depreciation, Depletion and Amortization 492 467 25 ------------ -------- -------- 9,005 7,085 1,920 ------------ -------- -------- Operating Loss (5,290) (4,261) (1,029) Other Income (Expense): Interest Income 86,820 79,508 7,312 Other Income 823 891 (68) Interest Expense on Long-Term Debt (71,551) (71,569) 18 Other Interest Expense (9,686) (10,459) 773 ------------ -------- -------- Income (Loss) Before Income Taxes 1,116 (5,890) 7,006 Income Tax Expense (Benefit) 1,305 (1,602) 2,907 ------------ -------- -------- Net Income (Loss) $(189) $(4,288) $4,099 ============ ======== ======== Net Income (Loss) Per Share (Diluted) $- $(0.05) $0.05 ============ ======== ======== *T -0- *T Three Months Ended September 30, ----------------------------- INTERSEGMENT ELIMINATIONS 2006 2005 Variance -------------------------------------------------- --------- -------- Intersegment Revenues $(25,121) $(26,039) $918 ---------- --------- -------- Operating Expenses: Purchased Gas (24,263) (25,063) 800 Operation and Maintenance (858) (976) 118 ---------- --------- -------- (25,121) (26,039) 918 ---------- --------- -------- Operating Income - - - Other Income (Expense): Interest Income (23,815) (21,250) (2,565) Other Interest Expense 23,815 21,250 2,565 ---------- --------- -------- Net Income $- $- $- ========== ========= ======== Net Income Per Share (Diluted) $- $- $- ========== ========= ======== Twelve Months Ended September 30, ------------------------------ INTERSEGMENT ELIMINATIONS 2006 2005 Variance -------------------------------------------------- ---------- -------- Intersegment Revenues $(108,897) $(109,980) $1,083 ---------- ---------- -------- Operating Expenses: Purchased Gas (106,892) (106,366) (526) Operation and Maintenance (2,005) (3,614) 1,609 ---------- ---------- -------- (108,897) (109,980) 1,083 ---------- ---------- -------- Operating Income - - - Other Income (Expense): Interest Income (91,784) (83,100) (8,684) Other Interest Expense 91,784 83,100 8,684 ---------- ---------- -------- Net Income $- $- $- ========== ========== ======== Net Income Per Share (Diluted) $- $- $- ========== ========== ======== *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Continued) (Thousands of Dollars) Three Months Ended September 30, (Unaudited) ---------------------------------------------- Increase 2006 2005 (Decrease) ------------------ ----------- --------------- Capital Expenditures: ---------------------- Utility $15,042 $15,078 $(36) Pipeline and Storage 10,662 7,977 2,685 Exploration and Production 47,980 36,402 11,578 Energy Marketing 10 12 (2) Timber 1,193 193 1,000 ------------------ ----------- --------------- Total Reportable Segments 74,887 59,662 15,225 All Other 7 293 (286) Corporate 607 512 95 ------------------ ----------- --------------- Total Expenditures from Continuing Operations $75,501 $60,467 $15,034 ================== =========== =============== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Continued) (Thousands of Dollars) Twelve Months Ended September 30, (Unaudited) ------------------------------------------------ Increase 2006 2005 (Decrease) ----------------------- ----------- ------------ Capital Expenditures: ---------------------- Utility $54,414 $50,071 $4,343 Pipeline and Storage 26,023 21,099 4,924 Exploration and Production 208,303 122,450 85,853 Energy Marketing 16 58 (42) Timber 2,323 18,894 (16,571) ----------------------- ----------- ------------ Total Reportable Segments 291,079 212,572 78,507 All Other 85 463 (378) Corporate 2,995 618 2,377 ----------------------- ----------- ------------ Total Expenditures from Continuing Operations $294,159 $213,653 $80,506 ======================= =========== ============ *T -0- *T DEGREE DAYS -------------------------------- Percent Colder (Warmer) Than: Last Three Months Ended September 30 Normal 2006 2005 Normal Year -------------------------------- ------- ------ ------ ------- ------ Buffalo, NY 178 152 36 (14.6) 322.2 Erie, PA 135 123 32 (8.9) 284.4 Twelve Months Ended September 30 --------------------------------- Buffalo, NY 6,692 5,968 6,587 (10.8) (9.4) Erie, PA 6,243 5,688 6,247 (8.9) (8.9) *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES EXPLORATION AND PRODUCTION INFORMATION ---------------------------------------------------------------------- Three Months Ended September 30, Increase 2006 2005 (Decrease) ------- ------- ---------- Gas Production/Prices: ----------------------------------------- Production (MMcf) Gulf Coast 2,582 3,035 (453) West Coast 947 1,052 (105) Appalachia 1,342 1,150 192 Canada 1,842 2,050 (208) ------- ------- ---------- 6,713 7,287 (574) ======= ======= ========== Average Prices (Per Mcf) Gulf Coast $6.62 $8.07 $(1.45) West Coast 6.40 7.73 (1.33) Appalachia 7.38 8.93 (1.55) Canada 5.22 7.47 (2.25) Weighted Average 6.36 7.99 (1.63) Weighted Average after Hedging 6.36 6.77 (0.41) Oil Production/Prices: ----------------------------------------- Production (Thousands of Barrels) Gulf Coast 206 188 18 West Coast 620 628 (8) Appalachia 27 13 14 Canada 51 71 (20) ------- ------- ---------- 904 900 4 ======= ======= ========== Average Prices (Per Barrel) Gulf Coast $68.92 $58.53 $10.39 West Coast 61.23 54.52 6.71 Appalachia 70.37 51.06 19.31 Canada 60.69 51.29 9.40 Weighted Average 63.23 55.06 8.17 Weighted Average after Hedging 45.73 30.70 15.03 Total Production (Mmcfe) 12,137 12,687 (550) ----------------------------------------- ======= ======= ========== Selected Operating Performance Statistics: ----------------------------------------- General & Administrative Expense per Mcfe (1) $0.40 $0.36 $0.04 Lease Operating Expense per Mcfe (1) $1.14 $1.09 $0.05 Depreciation, Depletion & Amortization per Mcfe (1) $1.98 $1.84 $0.14 NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES EXPLORATION AND PRODUCTION INFORMATION ---------------------------------------------------------------------- Twelve Months Ended September 30, Increase 2006 2005 (Decrease) ---------- ------- ---------- Gas Production/Prices: ----------------------------------------- Production (MMcf) Gulf Coast 9,110 12,468 (3,358) West Coast 3,880 4,052 (172) Appalachia 5,108 4,650 458 Canada 7,673 8,009 (336) ---------- ------- ---------- 25,771 29,179 (3,408) ========== ======= ========== Average Prices (Per Mcf) Gulf Coast $8.01 $7.05 $0.96 West Coast 7.93 6.85 1.08 Appalachia 9.53 7.60 1.93 Canada 7.14 6.15 0.99 Weighted Average 8.04 6.86 1.18 Weighted Average after Hedging 7.15 6.23 0.92 Oil Production/Prices: ----------------------------------------- Production (Thousands of Barrels) Gulf Coast 685 989 (304) West Coast 2,582 2,544 38 Appalachia 69 36 33 Canada 272 300 (28) ---------- ------- ---------- 3,608 3,869 (261) ========== ======= ========== Average Prices (Per Barrel) Gulf Coast $64.10 $49.78 $14.32 West Coast 56.80 42.91 13.89 Appalachia 65.28 48.28 17.00 Canada 51.40 42.97 8.43 Weighted Average 57.94 44.72 13.22 Weighted Average after Hedging 41.10 27.86 13.24 Total Production (Mmcfe) 47,419 52,393 (4,974) -----------------------------------------========== ======= ========== Selected Operating Performance Statistics: ----------------------------------------- General & Administrative Expense per Mcfe (1) $0.49 $0.41 $0.08 Lease Operating Expense per Mcfe (1) $1.18 $0.98 $0.20 Depreciation, Depletion & Amortization per Mcfe (1) $2.00 $1.74 $0.26 *T -0- *T (1) Refer to page 18 for the General and Administrative Expense, Lease Operating Expense and Depreciation, Depletion, and Amortization Expense for the Exploration and Production segment. *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES EXPLORATION AND PRODUCTION INFORMATION ---------------------------------------------------------------------- Hedging Summary for Fiscal 2007 SWAPS Volume Average Hedge Price -------------------------------------- ----------- ------------------- Oil 0.9 MMBBL $37.03 / BBL Gas 0.7 BCF $5.84 / MCF Average Average Floor Ceiling No-cost Collars Volume Price Price -------------------------------------- ----------- ---------- -------- Oil 0.2 MMBBL $70.00 / $77.00 / BBL BBL Gas 5.7 BCF $8.12 / $17.45 / MCF MCF Hedging Summary for Fiscal 2008 Average Average Floor Ceiling No-cost Collars Volume Price Price -------------------------------------- ----------- ---------- -------- Gas 1.4 BCF $8.83 / $16.45 / MCF MCF *T -0- *T Drilling Program ---------------------------------- Twelve Months Ended September 30, 2006: ---------------------------------- Gross Wells Drilled ---------------------------------- Gulf West East Canada Total ------- ------- ----- ------- ----- Exploratory Successful 3 1 7 19 30 Unsuccessful 2 0 2 2 6 Developmental Successful 0 93 143 3 239 Unsuccessful 0 1 0 1 2 Total Successful 3 94 150 22 269 Unsuccessful 2 1 2 3 8 Success Ratio 60% 99% 99% 88% 97% *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES EXPLORATION AND PRODUCTION INFORMATION ---------------------------------------------------------------------- Reserve Quantity Information Gas MMcf ------------------------------------------------- U.S. --------------------------------- Gulf West Coast Coast Appalachian Total Total Region Region Region U.S. Canada Company ------------------------------------------------- Proved Developed and Undeveloped Reserves: September 30, 2005 38,470 70,459 83,125 192,054 46,086 238,140 Extensions and Discoveries 11,763 1,815 11,132 24,710 6,229 30,939 Revisions of Previous Estimates 679 5,757 (7,776) (1,340)(11,096)(12,436) Production (9,110)(3,880) (5,108)(18,098) (7,673)(25,771) Purchases of Minerals in Place - 1,715 - 1,715 - 1,715 Sales of Minerals in Place - - - - (12) (12) ------------------------------------------------- September 30, 2006 41,802 75,866 81,373 199,041 33,534 232,575 Proved Developed Reserves: September 30, 2005 23,108 58,692 83,125 164,925 43,980 208,905 September 30, 2006 32,345 64,196 81,373 177,914 33,534 211,448 Oil Mbbl ------------------------------------------------- U.S. --------------------------------- Gulf West Coast Coast Appalachian Total Total Region Region Region U.S. Canada Company ------------------------------------------------- Proved Developed and Undeveloped Reserves: September 30, 2005 1,295 57,085 177 58,557 1,700 60,257 Extensions and Discoveries 39 172 108 319 128 447 Revisions of Previous Estimates 595 (80) 57 572 101 673 Production (685)(2,582) (69) (3,336) (272) (3,608) Purchases of Minerals in Place - 274 - 274 - 274 Sales of Minerals in Place - - - - (25) (25) ------------------------------------------------- September 30, 2006 1,244 54,869 273 56,386 1,632 58,018 Proved Developed Reserves: September 30, 2005 1,229 41,701 177 43,107 1,700 44,807 September 30, 2006 1,217 42,522 273 44,012 1,632 45,644 *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES Utility Throughput - (millions of cubic feet - MMcf) Three Months Ended September 30, ------------------------------ Increase 2006 2005 (Decrease) ---------- -------- ---------- Retail Sales: Residential Sales 4,372 3,778 594 Commercial Sales 741 643 98 Industrial Sales 85 666 (581) ---------- -------- ---------- 5,198 5,087 111 Transportation 9,701 9,426 275 ---------- -------- ---------- 14,899 14,513 386 ========== ======== ========== Pipeline & Storage Throughput- (MMcf) Three Months Ended September 30, ------------------------------ Increase 2006 2005 (Decrease) ---------- -------- ---------- Firm Transportation - Affiliated 10,608 10,442 166 Firm Transportation - Non- Affiliated 64,501 62,606 1,895 Interruptible Transportation 3,835 4,790 (955) ---------- -------- ---------- 78,944 77,838 1,106 ========== ======== ========== Energy Marketing Volumes Three Months Ended September 30, Increase 2006 2005 (Decrease) ---------- -------- ---------- Natural Gas (MMcf) 6,774 6,567 207 ========== ======== ========== Timber Board Feet (Thousands) Three Months Ended September 30, Increase 2006 2005 (Decrease) ---------- -------- ---------- Log Sales 1,986 1,668 318 Green Lumber Sales 2,372 2,310 62 Kiln Dry Lumber Sales 3,624 4,118 (494) ---------- -------- ---------- 7,982 8,096 (114) ========== ======== ========== NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES Utility Throughput - (millions of cubic feet - MMcf) Twelve Months Ended September 30, -------------------------------------- Increase 2006 2005 (Decrease) --------------- ---------- ----------- Retail Sales: Residential Sales 59,443 66,903 (7,460) Commercial Sales 10,681 11,984 (1,303) Industrial Sales 985 1,387 (402) --------------- ---------- ----------- 71,109 80,274 (9,165) Transportation 57,950 59,770 (1,820) --------------- ---------- ----------- 129,059 140,044 (10,985) =============== ========== =========== Pipeline & Storage Throughput- (MMcf) Twelve Months Ended September 30, -------------------------------------- Increase 2006 2005 (Decrease) --------------- ---------- ----------- Firm Transportation - Affiliated 103,223 113,242 (10,019) Firm Transportation - Non- Affiliated 260,156 244,343 15,813 Interruptible Transportation 11,609 14,794 (3,185) --------------- ---------- ----------- 374,988 372,379 2,609 =============== ========== =========== Energy Marketing Volumes Twelve Months Ended September 30, Increase 2006 2005 (Decrease) --------------- ---------- ----------- Natural Gas (MMcf) 45,270 40,683 4,587 =============== ========== =========== Timber Board Feet (Thousands) Twelve Months Ended September 30, Increase 2006 2005 (Decrease) --------------- ---------- ----------- Log Sales 9,527 7,601 1,926 Green Lumber Sales 10,454 10,489 (35) Kiln Dry Lumber Sales 16,862 15,491 1,371 --------------- ---------- ----------- 36,843 33,581 3,262 =============== ========== =========== *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES FISCAL 2007 EARNINGS GUIDANCE AND SENSITIVITIES Earnings per share sensitivity to Fiscal 2007 (Diluted earnings per changes from NYMEX prices used in share guidance*) guidance* (caret) ---------------------------------- ----------------------------------- $1 change per $5 change per Bbl MMBtu gas oil ----------------------------------- Range Increase Decrease Increase Decrease -------------- -------- -------- -------- -------- Consolidated Earnings $2.10 - $2.30 + $0.19 - $0.19 + $0.09 - $0.09 *T -0- *T NYMEX Settlement Prices at September 21, 2006 ----------------------------------------------- Natural Gas ($ per Oil MMBtu) ($ per Bbl) ----------- ------------ Oct-06 $4.781 $61.59 Nov-06 $6.011 $61.59 Dec-06 $7.391 $62.53 Jan-07 $7.881 $63.32 Feb-07 $7.921 $64.03 Mar-07 $7.746 $64.65 Apr-07 $7.166 $65.18 May-07 $7.126 $65.61 Jun-07 $7.221 $65.96 Jul-07 $7.311 $66.25 Aug-07 $7.391 $66.49 Sep-07 $7.476 $66.67 Average $7.119 $64.49 *T -0- *T * Please refer to forward looking statement footnote at page 9 of this document. (caret) This sensitivity table is current as of November 6, 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. *T -0- *T NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES Quarter Ended September 30 (unaudited) 2006 2005 -------------------------------------- --------------- --------------- Operating Revenues $294,469,000 $287,064,000 =============== =============== Income from Continuing Operations $1,968,000 $18,311,000 Income (Loss) from Discontinued Operations, Net of Tax - 30,900,000 --------------- --------------- Net Income Available for Common Stock $1,968,000 $49,211,000 --------------- --------------- Earnings Per Common Share: Basic: Income from Continuing Operations $0.02 $0.22 Income (Loss) from Discontinued Operations - 0.36 --------------- --------------- Net Income Available for Common Stock $0.02 $0.58 =============== =============== Diluted: Income from Continuing Operations $0.02 $0.21 Income (Loss) from Discontinued Operations - 0.36 --------------- --------------- Net Income Available for Common Stock $0.02 $0.57 =============== =============== Weighted Average Common Shares: Used in Basic Calculation 83,432,553 84,128,929 =============== =============== Used in Diluted Calculation 85,523,042 85,784,654 =============== =============== Twelve Months Ended September 30 (unaudited) -------------------------------------- Operating Revenues $2,311,659,000 $1,923,549,000 =============== =============== Income from Continuing Operations $138,091,000 $153,515,000 Income from Discontinued Operations, Net of Tax - 35,973,000 --------------- --------------- Net Income Available for Common Stock $138,091,000 $189,488,000 =============== =============== Earnings Per Common Share: Basic: Income from Continuing Operations $1.64 $1.84 Income from Discontinued Operations - 0.43 --------------- --------------- Net Income Available for Common Stock $1.64 $2.27 =============== =============== Diluted: Income from Continuing Operations $1.61 $1.81 Income from Discontinued Operations - 0.42 --------------- --------------- Net Income Available for Common Stock $1.61 $2.23 =============== =============== Weighted Average Common Shares: Used in Basic Calculation 84,030,118 83,541,627 =============== =============== Used in Diluted Calculation 86,028,466 85,029,131 =============== =============== *T