NFG National Fuel Gas Co

National Fuel Gas Company (�National Fuel� or the �Company�) (NYSE:NFG) today announced record earnings for the first quarter of fiscal 2008 (the quarter ended December 31, 2007) of $70.6 million or $0.82 per share. HIGHLIGHTS Quarterly operating results, before items impacting comparability, increased 41% to $0.82 per share, an increase of $0.24 per share. Increased earnings in the Exploration and Production segment provided the bulk of the increase. Higher average commodity prices realized and increased natural gas and crude oil production were the main drivers of the higher earnings. Production of crude oil and natural gas from continuing operations increased more than 7%, to 10.7 billion cubic feet equivalent (�Bcfe�). In Appalachia, production increased over 37% from the prior year�s first quarter. The Company�s expected total production for the entire 2008 fiscal year remains at the previously announced level of 38 to 44 Bcfe. The Company is increasing its earnings guidance range for fiscal 2008 by $0.10 per share. The revised guidance range for fiscal 2008 is $2.60 to $2.80 per share. A conference call is scheduled for Friday, February 8, 2008, at 11:00 am Eastern Standard Time. MANAGEMENT COMMENTS Philip C. Ackerman, Chairman and Chief Executive Officer of National Fuel Gas Company stated: �This quarter�s record earnings once again add to my satisfaction with our business mix. Record oil prices fueled our growth in profits, while the stability of our regulated operations and our strong dividend history tempered somewhat our stock price performance when compared to other exploration companies during the stock market�s steep decline in the last half of January. Under certain market conditions one might wish to be more concentrated in the utility segment, while other market conditions favor more investments in oil and gas, but over the long term, our combination of regulated utility and pipeline operations, and a strong dividend, topped off with the opportunities presented by oil and gas investments has proven to be a winner. Our continued focus to build our Exploration and Production segment, especially in Appalachia, where a steady stream of production and a solid base of reserves can be developed for the long term, should add to the stability of our consolidated structure.� SUMMARY OF RESULTS National Fuel had consolidated earnings for the quarter ended December 31, 2007, of $70.6 million, or $0.82 per share, an increase of $16.1 million, or $0.18 per share, from the prior year�s first quarter earnings of $54.5 million, or $0.64 per share. (note: all references to earnings per share are to diluted earnings per share and all amounts are stated in U.S. dollars). � Three Months Ended December 31, � 2007 � � 2006 � (in thousands except per share amounts) Reported GAAP earnings $ 70,604 $ 54,520 Items impacting comparability1: � Income from discontinued operations (3,832 ) Discontinuance of hedge accounting (1,888 ) � � Operating results $ 70,604 $ 48,800 � � Reported GAAP earnings per share $ 0.82 $ 0.64 Items impacting comparability1: � Income from discontinued operations (0.04 ) Discontinuance of hedge accounting (0.02 ) � � Operating results $ 0.82 $ 0.58 � 1 See discussion of these items below. As outlined in the table above, two items included in GAAP earnings in the first quarter of fiscal 2007 impacted the comparability of the Company�s operating results when comparing the first quarters of fiscal 2008 and fiscal 2007. Excluding these items, operating results for the current first quarter of $70.6 million or $0.82 per share increased $21.8 million, or $0.24 per share, from the prior year�s first quarter. 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. 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 mainly in California, in the Appalachian region and in the Gulf Coast region of Texas, Louisiana and Alabama. The Exploration and Production segment�s earnings in the first quarter of fiscal 2008 increased $13.3 million, or $0.15 per share, to $34.0 million, or $0.39 per share. On August 31, 2007, Seneca completed the sale of its Canadian subsidiary. As a result of this transaction, the Company has presented the Canadian operations as discontinued operations. Earnings in the first quarter of fiscal 2007 include earnings from discontinued operations of $3.8 million. The results of discontinued operations are discussed later in this document and are excluded from the remaining discussion of the Exploration and Production segment�s quarterly results below. Excluding discontinued operations, operating results in the Exploration and Production segment increased $17.1 million, or $0.19 per share. The increase was primarily due to higher natural gas and crude oil prices realized after hedging and was also significantly impacted by higher production. For the quarter ended December 31, 2007, the weighted average oil price received by Seneca (after hedging) was $72.59 per barrel (�Bbl�), an increase of $28.77 per Bbl, or 65.7 percent, from the prior year�s quarter. The weighted average natural gas price received by Seneca (after hedging) for the quarter ended December 31, 2007, was $7.90 per thousand cubic feet (�Mcf�), an increase of $0.78, or 11.0 percent. In addition, an increase of 0.7 Bcf, or 14 percent, in gas production and a slight increase in crude oil production contributed to the increase in operating results. Most of the production increase was in Appalachia where production increased 0.6 Bcfe, or 37 percent. Higher interest income and lower interest expense during the current quarter also contributed to the increase in operating results. Other items impacting operating results for the quarter were higher depletion expense, higher lease operating expenses and higher state income taxes. The increase in depletion expense, which on a per unit basis increased $0.39 per thousand cubic feet equivalent (�Mcfe�) to $2.25 per Mcfe, was mainly due to a 9.8 percent (39.7 Bcfe) reduction in proved reserves in California, primarily in the Midway Sunset field. The fiscal 2007 audit by Netherland Sewell & Associates determined that reduced performance from certain wells in this field supported a reduction in proved reserves. The increase in lease operating expenses (�LOE�) is due to higher workover costs in the West, an increase in the number of producing properties, especially in Appalachia and generally escalating costs compared to the prior year�s quarter. Seneca�s increase in production and operating results reflect the success of the Company�s Appalachian growth plan and other strategic initiatives. During the last six months, 146 new wells were brought on line in the East Division, boosting daily Appalachian gas production from approximately 15 million cubic feet (�MMcf�) per day to approximately 21 MMcf per day. In addition, results for the first quarter of fiscal 2008 reflect new production in the Gulf of Mexico from the High Island 24L field, which is producing 70 MMcf per day (19 MMcf per day net to Seneca). Pipeline and Storage Segment The Pipeline and Storage segment operations are carried out by National Fuel Gas Supply Corporation (�Supply Corporation�) and Empire State Pipeline (�Empire�). These companies provide natural gas transportation and storage services to affiliated and non-affiliated companies through an integrated system of pipelines and underground natural gas storage fields in western New York and western Pennsylvania. The Pipeline and Storage segment�s earnings of $12.8 million, or $0.15 per share, for the quarter ended December 31, 2007, decreased $0.9 million, or $0.01 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 $1.9 million gain associated with the prepayment in the first quarter of fiscal 2007 of the project financing debt for the Empire State Pipeline. Upon the repayment of that debt, the corresponding interest rate collar no longer qualified for hedge accounting, and a gain that had been deferred on the balance sheet was recognized when the repayment was made. Excluding that 2007 gain, operating results increased $1.0 million. The increase is mainly the result of higher transportation and storage revenues offset by lower efficiency gas revenues. The higher transportation and storage revenues were largely due to favorable market conditions that allowed Supply Corporation to renew expiring storage contracts at higher rates. Substantially all of Supply�s firm storage contracts are now at maximum tariff rates. The lower efficiency gas revenues were the result of a FERC-approved settlement involving Supply Corporation, which was generally effective as of December 1, 2006, and lowered the percentages of transported gas which Supply Corporation retains for fuel, company use, and surface operating losses. 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 earnings of approximately $20.2 million, or $0.24 per share, for the quarter ended December 31, 2007, increased $3.0 million, or $0.04 per share, compared to the prior year�s first quarter. Earnings increased $2.1 million in the Pennsylvania Division, primarily due to an increase in base rates and higher usage per customer. On January 1, 2007, Distribution implemented a Settlement Agreement approved by the Pennsylvania Public Utility Commission, which, among other things, provided for a $14.3 million (before tax) annual base rate increase. The impact of the rate increase was partially offset by weather that was warmer than in the prior year. In the New York Division, earnings increased $0.9 million mainly due to an increase in usage per customer during the quarter. 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 earnings for the quarter of $1.0 million increased $0.5 million from the first quarter last year. This increase is mainly due to higher margins. 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 first quarter earnings were $0.4 million versus $0.2 million in the prior year�s first quarter due to increased volumes of lumber and log sales. Corporate and All Other Other active, wholly owned subsidiaries of the Company include Horizon LFG, Inc., a corporation engaged, through subsidiaries, in the purchase, processing, transportation and sale of landfill gas, and Horizon Power, Inc., a corporation that develops and owns independent electric generation facilities which are fueled by natural gas or landfill gas. Earnings in the Corporate and All Other category for the first quarter of fiscal 2008 were flat at $2.2 million when compared to the prior year�s first quarter. Higher income from unconsolidated subsidiaries, higher interest income and lower interest expense were offset by higher operating expenses related to the proxy contest initiated by a shareholder. Discontinued Operations On August 31, 2007, Seneca completed the sale of its Canadian subsidiary. As a result of this transaction, the Company has presented the Canadian operations as discontinued operations. Earnings in the first quarter of fiscal 2007 include earnings from discontinued operations of $3.8 million. There were no earnings from discontinued operations in the first quarter of fiscal 2008. EARNINGS GUIDANCE The Company is increasing its consolidated earnings guidance for fiscal 2008 by $0.10 per share to the range of $2.60 to $2.80 per share. This increase is a result of higher than forecast crude oil prices realized by Seneca during the three months ended December 31, 2007, combined with Seneca having entered into additional hedge contracts covering production for the remainder of the fiscal year at prices that are higher than the prices assumed for unhedged production in the previous guidance. This current guidance still utilizes the July 24, 2007, NYMEX commodity pricing incorporated in the Company�s original guidance for unhedged production volumes. To the extent that actual pricing for unhedged volumes during the remainder of the fiscal year varies from those July 24, 2007, prices, the fiscal year earnings will be affected as detailed in the earnings sensitivity table in this release. EARNINGS TELECONFERENCE The Company will host a conference call on Friday, February 8, 2008, at 11 a.m. (Eastern Time) to discuss this announcement. There are two ways to access this call. For those with Internet access, visit National Fuel�s Web site at investor.nationalfuelgas.com. For those without Internet access, access is also provided by dialing (toll-free) 1-866-383-8009, and using the passcode �43320193.� 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) 1-888-286-8010 using passcode �59260259.� Both the webcast and telephonic replay will be available until the close of business on Friday, February 15, 2008. National Fuel is an integrated energy company with $4.0 billion in assets comprised of the following five operating segments: Exploration and Production, Pipeline and Storage, Utility, 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 regarding expected future natural gas and oil production and estimated future earnings, as well as statements that are identified by the use of the words �anticipates,� �estimates,� �expects,� �forecasts,� �intends,� �plans,� �predicts,� �projects,� �believes,� �seeks,� �will,� �may� 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 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 of derivative financial instruments or the valuation of the Company�s natural gas and oil reserves; uncertainty of oil and gas reserve estimates; 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; changes in the availability and/or price of derivative financial instruments; changes in the price differentials between various types of oil; inability to obtain new customers or retain existing ones; significant changes in competitive factors affecting the Company; changes in laws and regulations to which the Company is subject, including changes in tax, environmental, safety and employment laws and regulations; 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; the nature and projected profitability of pending and potential projects and other investments, and the ability to obtain necessary governmental approvals and permits; occurrences affecting the Company�s ability to obtain funds from operations, from borrowings under our credit lines or other credit facilities or from issuances of other short-term notes or debt or equity securities to finance needed capital expenditures and other investments, including any downgrades in the Company�s credit ratings; ability to successfully identify and finance acquisitions or other investments and ability to operate and integrate existing and any subsequently acquired business or properties; impairments under the SEC�s full cost ceiling test for natural gas and oil reserves; 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. NATIONAL FUEL GAS COMPANY RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS QUARTER ENDED DECEMBER 31, 2007 � � Exploration & � Pipeline & � � Energy � � Corporate / � (Thousands of Dollars) Production * � Storage � Utility � Marketing � Timber � All Other � Consolidated � First quarter 2007 GAAP earnings $ 20,723 $ 13,688 $ 17,174 $ 492 $ 217 $ 2,226 $ 54,520 Items impacting comparability: Income from discontinued operations (3,832 ) (3,832 ) Discontinuance of hedge accounting � � � (1,888 ) � � � � � � � � � � (1,888 ) First quarter 2007 operating results 16,891 11,800 17,174 492 217 2,226 48,800 � Drivers of operating results Higher crude oil prices 15,366 15,366 Higher natural gas prices 2,921 2,921 Higher natural gas production 3,282 3,282 Higher crude oil production 31 31 Higher lease operating costs (1,515 ) (1,515 ) Lower (higher) depreciation / depletion (3,545 ) 770 (2,775 ) � Higher transportation and storage revenues 1,425 1,425 Lower efficiency gas revenues (213 ) (213 ) Higher operating expenses (713 ) (2,370 ) (3,083 ) � Base rate increase in Pennsylvania 2,006 2,006 Warmer Weather in Pennsylvania (664 ) (664 ) Usage 1,877 1,877 � Higher margins 497 458 955 � Income from unconsolidated subsidiaries 679 679 � Higher AFUDC ** 358 358 Higher interest income 1,055 511 1,566 Lower (higher) interest expense 1,173 (465 ) 783 1,491 � (Higher) lower income tax expense (1,082 ) - 362 (720 ) � All other / rounding � (555 ) � � (184 ) � � (176 ) � � (35 ) � � (278 ) � � 45 � � � (1,183 ) � First quarter 2008 operating results 34,022 12,778 20,217 954 397 2,236 70,604 Items impacting comparability � - � � � - � � � - � � � - � � � - � � � - � � � - � First quarter 2008 GAAP earnings $ 34,022 � � $ 12,778 � � $ 20,217 � � $ 954 � � $ 397 � � $ 2,236 � � $ 70,604 � � * Includes discontinued operations ** AFUDC = Allowance for Funds Used During Construction NATIONAL FUEL GAS COMPANY RECONCILIATION OF CURRENT AND PRIOR YEAR GAAP EARNINGS PER SHARE QUARTER ENDED DECEMBER 31, 2007 � � Exploration & � Pipeline & � � Energy � � Corporate / � Production * � Storage � Utility � Marketing � Timber � All Other � Consolidated � First quarter 2007 GAAP earnings $ 0.24 $ 0.16 $ 0.20 $ 0.01 $ - $ 0.03 $ 0.64 Items impacting comparability: Income from discontinued operations (0.04 ) (0.04 ) Discontinuance of hedge accounting � � � (0.02 ) � � � � � � � � � � (0.02 ) First quarter 2007 operating results 0.20 0.14 0.20 0.01 - 0.03 0.58 � Drivers of operating results Higher crude oil prices 0.18 0.18 Higher natural gas prices 0.03 0.03 Higher natural gas production 0.04 0.04 Higher crude oil production - - Higher lease operating costs (0.02 ) (0.02 ) Lower (higher) depreciation / depletion (0.04 ) 0.01 (0.03 ) � Higher transportation and storage revenues 0.02 0.02 Lower efficiency gas revenues - - Higher operating expenses (0.01 ) (0.03 ) (0.04 ) � Base rate increase in Pennsylvania 0.02 0.02 Warmer Weather in Pennsylvania (0.01 ) (0.01 ) Usage 0.02 0.02 � Higher margins - - - � Income from unconsolidated subsidiaries 0.01 0.01 � Higher AFUDC ** - - Higher interest income 0.01 0.01 0.02 Lower (higher) interest expense 0.01 (0.01 ) 0.01 0.01 � (Higher) lower income tax expense (0.01 ) - - (0.01 ) � All other / rounding � (0.01 ) � � - � � � 0.01 � � � - � � - � � - � � � - � � First quarter 2008 operating results 0.39 0.15 0.24 0.01 - 0.03 0.82 Items impacting comparability � - � � � - � � � - � � � - � � - � � - � � � - � First quarter 2008 GAAP earnings $ 0.39 � � $ 0.15 � � $ 0.24 � � $ 0.01 � $ - � $ 0.03 � � $ 0.82 � � * Includes discontinued operations ** AFUDC = Allowance for Funds Used During Construction NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � � (Thousands of Dollars, except per share amounts) Three Months Ended December 31, (Unaudited) SUMMARY OF OPERATIONS � 2007 � � 2006 � Operating Revenues $ 568,268 � $ 490,659 � � Operating Expenses: Purchased Gas 278,010 242,939 Operation and Maintenance 102,455 94,704 Property, Franchise and Other Taxes 17,672 16,952 Depreciation, Depletion and Amortization � 44,121 � � 39,407 � 442,258 394,002 � Operating Income 126,010 96,657 � Other Income (Expense): Income from Unconsolidated Subsidiaries 2,275 1,231 Interest Income 3,093 1,085 Other Income 1,253 715 Interest Expense on Long-Term Debt (16,289 ) (16,043 ) Other Interest Expense � (724 ) � (1,849 ) � Income from Continuing Operations Before Income Taxes 115,618 81,796 � Income Tax Expense � 45,014 � � 31,108 � � Income from Continuing Operations 70,604 50,688 � Income from Discontinued Operations, Net of Tax � - � � 3,832 � � Net Income Available for Common Stock $ 70,604 � $ 54,520 � � Earnings Per Common Share: Basic: Income from Continuing Operations $ 0.84 $ 0.61 Income from Discontinued Operations � - � � 0.05 � Net Income Available for Common Stock $ 0.84 � $ 0.66 � � Diluted: Income from Continuing Operations $ 0.82 $ 0.60 Income from Discontinued Operations � - � � 0.04 � Net Income Available for Common Stock $ 0.82 � $ 0.64 � � Weighted Average Common Shares: Used in Basic Calculation � 83,611,177 � � 82,679,343 � Used in Diluted Calculation � 85,819,534 � � 84,730,910 � NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) � � � December 31, September 30, (Thousands of Dollars) � � 2007 � � � 2007 � � ASSETS Property, Plant and Equipment $ 4,525,608 $ 4,461,586 Less - Accumulated Depreciation, Depletion and Amortization � 1,616,488 � � � 1,583,181 � Net Property, Plant and Equipment � 2,909,120 � � � 2,878,405 � � Current Assets: Cash and Temporary Cash Investments 189,767 124,806 Cash Held in Escrow - 61,964 Hedging Collateral Deposits 1,996 4,066 Receivables - Net 242,440 172,380 Unbilled Utility Revenue 78,480 20,682 Gas Stored Underground 60,481 66,195 Materials and Supplies - at average cost 41,569 35,669 Unrecovered Purchased Gas Costs 12,186 14,769 Other Current Assets 32,453 45,057 Deferred Income Taxes � 17,468 � � � 8,550 � Total Current Assets � 676,840 � � � 554,138 � � Other Assets: Recoverable Future Taxes 83,787 83,954 Unamortized Debt Expense 11,586 12,070 Other Regulatory Assets 131,154 137,577 Deferred Charges 5,582 5,545 Other Investments 85,325 85,902 Investments in Unconsolidated Subsidiaries 17,825 18,256 Goodwill 5,476 5,476 Intangible Assets 28,170 28,836 Prepaid Pension and Post-Retirement Benefit Costs 63,188 61,006 Fair Value of Derivative Financial Instruments 6,026 9,188 Other � 7,344 � � � 8,059 � Total Other Assets � 445,463 � � � 455,869 � Total Assets $ 4,031,423 � � $ 3,888,412 � � CAPITALIZATION AND LIABILITIES Capitalization: Comprehensive Shareholders' Equity Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding - 83,946,575 Shares and 83,461,308 Shares, Respectively $ 83,947 $ 83,461 Paid in Capital 595,375 569,085 Earnings Reinvested in the Business � 1,027,951 � � � 983,776 � Total Common Shareholder Equity Before Items of Other Comprehensive Loss 1,707,273 1,636,322 Accumulated Other Comprehensive Loss � (16,286 ) � � (6,203 ) Total Comprehensive Shareholders' Equity 1,690,987 1,630,119 Long-Term Debt, Net of Current Portion � 799,000 � � � 799,000 � Total Capitalization � 2,489,987 � � � 2,429,119 � � Current and Accrued Liabilities: Notes Payable to Banks and Commercial Paper - - Current Portion of Long-Term Debt 200,000 200,024 Accounts Payable 152,155 109,757 Amounts Payable to Customers 9,181 10,409 Dividends Payable 26,023 25,873 Interest Payable on Long-Term Debt 13,541 18,158 Customer Advances 23,498 22,863 Other Accruals and Current Liabilities 50,207 36,062 Fair Value of Derivative Financial Instruments � 29,089 � � � 16,200 � Total Current and Accrued Liabilities � 503,694 � � � 439,346 � � Deferred Credits: Deferred Income Taxes 581,692 575,356 Taxes Refundable to Customers 14,031 14,026 Unamortized Investment Tax Credit 5,217 5,392 Cost of Removal Regulatory Liability 98,613 91,226 Other Regulatory Liabilities 78,374 76,659 Post-Retirement Liabilities 66,706 70,555 Asset Retirement Obligations 77,253 75,939 Other Deferred Credits � 115,856 � � � 110,794 � Total Deferred Credits � 1,037,742 � � � 1,019,947 � Commitments and Contingencies � - � � � - � Total Capitalization and Liabilities $ 4,031,423 � � $ 3,888,412 � NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) � � Three Months Ended December 31, (Thousands of Dollars) � � 2007 � � � 2006 � � Operating Activities: Net Income Available for Common Stock $ 70,604 $ 54,520 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation, Depletion and Amortization 44,121 42,825 Deferred Income Taxes 5,296 11,198 Income from Unconsolidated Subsidiaries, Net of Cash Distributions 431 (18 ) Excess Tax Benefits Associated with Stock-Based Compensation Awards (16,275 ) (13,717 ) Other 4,916 5,728 Change in: Hedging Collateral Deposits 2,070 9,916 Receivables and Unbilled Utility Revenue (127,894 ) (91,875 ) Gas Stored Underground and Materials and Supplies (186 ) 5,324 Unrecovered Purchased Gas Costs 2,583 (11,021 ) Prepayments and Other Current Assets 10,422 20,398 Accounts Payable 42,398 11,736 Amounts Payable to Customers (1,228 ) 3,166 Customer Advances 635 534 Other Accruals and Current Liabilities 25,400 (756 ) Other Assets 10,163 1,883 Other Liabilities � � 1,889 � � � (6,810 ) Net Cash Provided by Operating Activities � $ 75,345 � � $ 43,031 � � Investing Activities: Capital Expenditures ($69,744 ) ($65,302 ) Investment in Partnership - (1,650 ) Cash Held in Escrow 58,397 - Net Proceeds from Sale of Oil and Gas Producing Properties 1,500 2,141 Other � � (761 ) � � (316 ) Net Cash Used in Investing Activities � � ($10,608 ) � � ($65,127 ) � Financing Activities: Change in Notes Payable to Banks and Commercial Paper $ - $ 71,600 Excess Tax Benefits Associated with Stock-Based Compensation Awards 16,275 13,717 Share Repurchases under Repurchase Plan - (42,921 ) Reduction of Long-Term Debt (24 ) (23,005 ) Dividends Paid on Common Stock (25,873 ) (25,026 ) Proceeds From Issuance of Common Stock � � 9,846 � � � 6,743 � Net Cash Provided by Financing Activities � $ 224 � � $ 1,108 � Effect of Exchange Rates on Cash � � - � � � (1,025 ) Net Increase (Decrease) in Cash and Temporary Cash Investments 64,961 (22,013 ) Cash and Temporary Cash Investments at Beginning of Period � � 124,806 � � � 69,611 � Cash and Temporary Cash Investments at December 31 � $ 189,767 � � $ 47,598 � NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) � � � � � (Thousands of Dollars, except per share amounts) Three Months Ended December 31, EXPLORATION AND PRODUCTION SEGMENT � 2007 � � � � 2006 � � � Variance Operating Revenues $ 107,955 � � � $ 75,128 � � � $ 32,827 � � Operating Expenses: Operation and Maintenance: General and Administrative Expense 5,580 4,214 1,366 Lease Operating Expense 11,727 10,208 1,519 All Other Operation and Maintenance Expense 1,736 2,576 (840 ) Property, Franchise and Other Taxes (Lease Operating Expense) 1,801 990 811 Depreciation, Depletion and Amortization � 24,045 � � � � 18,590 � � � � 5,455 � � 44,889 � � � � 36,578 � � � � 8,311 � � Operating Income 63,066 38,550 24,516 � Other Income (Expense): Interest Income 3,888 2,265 1,623 Other Income 82 - 82 Other Interest Expense � (11,144 ) � � � (12,947 ) � � � 1,803 � � Income from Continuing Operations Before Income Taxes 55,892 27,868 28,024 Income Tax Expense � 21,870 � � � � 10,977 � � � � 10,893 � Income from Continuing Operations 34,022 16,891 17,131 � Income from Discontinued Operations, Net of Tax � - � � � � 3,832 � � � � (3,832 ) � Net Income $ 34,022 � � � $ 20,723 � � � $ 13,299 � � Income from Continuing Operations Per Share (Diluted) $ 0.39 $ 0.20 $ 0.19 Income from Discontinued Operations, Net of Tax, Per Share (Diluted) � - � � � � 0.04 � � � � (0.04 ) Net Income Per Share (Diluted) $ 0.39 � � � $ 0.24 � � � $ 0.15 � � � � Three Months Ended December 31, PIPELINE AND STORAGE SEGMENT � 2007 � � � � 2006 � � � Variance Revenues from External Customers $ 31,884 $ 29,809 $ 2,075 Intersegment Revenues � 20,347 � � � � 20,368 � � � � (21 ) Total Operating Revenues � 52,231 � � � � 50,177 � � � � 2,054 � � Operating Expenses: Purchased Gas 5 (13 ) 18 Operation and Maintenance 15,999 14,903 1,096 Property, Franchise and Other Taxes 4,273 4,277 (4 ) Depreciation, Depletion and Amortization � 8,109 � � � � 9,293 � � � � (1,184 ) � 28,386 � � � � 28,460 � � � � (74 ) � Operating Income 23,845 21,717 2,128 � Other Income (Expense): Interest Income 94 84 10 Other Income 690 184 506 Interest Expense on Long-Term Debt (16 ) 1,839 (1,855 ) Other Interest Expense � (3,035 ) � � � (2,287 ) � � � (748 ) � Income Before Income Taxes 21,578 21,537 41 Income Tax Expense � 8,800 � � � � 7,849 � � � � 951 � Net Income $ 12,778 � � � $ 13,688 � � � $ (910 ) � Net Income Per Share (Diluted) $ 0.15 � � � $ 0.16 � � � $ (0.01 ) NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) � � � Three Months Ended (Thousands of Dollars, except per share amounts) December 31, UTILITY SEGMENT � 2007 � � � 2006 � � Variance Revenues from External Customers $ 327,125 $ 288,782 $ 38,343 Intersegment Revenues � 4,299 � � � 4,029 � � � 270 � Total Operating Revenues � 331,424 � � � 292,811 � � � 38,613 � � Operating Expenses: Purchased Gas 219,123 186,361 32,762 Operation and Maintenance 50,981 50,767 214 Property, Franchise and Other Taxes 11,098 11,191 (93 ) Depreciation, Depletion and Amortization � 10,042 � � � 9,778 � � � 264 � � 291,244 � � � 258,097 � � � 33,147 � � Operating Income 40,180 34,714 5,466 � Other Income (Expense): Interest Income 198 284 (86 ) Other Income 345 286 59 Other Interest Expense � (7,251 ) � � (7,376 ) � � 125 � � Income Before Income Taxes 33,472 27,908 5,564 Income Tax Expense � 13,255 � � � 10,734 � � � 2,521 � Net Income $ 20,217 � � $ 17,174 � � $ 3,043 � � Net Income Per Share (Diluted) $ 0.24 � � $ 0.20 � � $ 0.04 � � � Three Months Ended December 31, ENERGY MARKETING SEGMENT � 2007 � � � 2006 � � Variance Operating Revenues $ 86,719 � � $ 83,318 � � $ 3,401 � � Operating Expenses: Purchased Gas 83,929 81,255 2,674 Operation and Maintenance 1,346 1,294 52 Property, Franchise and Other Taxes 10 11 (1 ) Depreciation, Depletion and Amortization � 11 � � � 7 � � � 4 � � 85,296 � � � 82,567 � � � 2,729 � � Operating Income 1,423 751 672 � Other Income (Expense): Interest Income 25 62 (37 ) Other Income 58 136 (78 ) Other Interest Expense � (84 ) � � (127 ) � � 43 � � Income Before Income Taxes 1,422 822 600 Income Tax Expense � 468 � � � 330 � � � 138 � Net Income $ 954 � � $ 492 � � $ 462 � � Net Income Per Share (Diluted) $ 0.01 � � $ 0.01 � � $ - � NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � � � SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) � Three Months Ended (Thousands of Dollars, except per share amounts) December 31, TIMBER SEGMENT � 2007 � � � 2006 � � Variance Operating Revenues $ 12,900 � � $ 11,763 � � $ 1,137 � � Operating Expenses: Operation and Maintenance 9,959 9,143 816 Property, Franchise and Other Taxes 397 393 4 Depreciation, Depletion and Amortization � 1,546 � � � 1,367 � � � 179 � � 11,902 � � � 10,903 � � � 999 � � Operating Income 998 860 138 � Other Income (Expense): Interest Income 390 316 74 Other Income 1 21 (20 ) Other Interest Expense � (860 ) � � (803 ) � � (57 ) � Income Before Income Taxes 529 394 135 Income Tax Expense � 132 � � � 177 � � � (45 ) Net Income $ 397 � � $ 217 � � $ 180 � � Net Income Per Share (Diluted) $ - � � $ - � � $ - � � � Three Months Ended December 31, ALL OTHER � 2007 � � � 2006 � � Variance Revenues from External Customers $ 1,550 $ 1,676 $ (126 ) Intersegment Revenues � 2,714 � � � 2,198 � � � 516 � Total Operating Revenues � 4,264 � � � 3,874 � � � 390 � � Operating Expenses: Purchased Gas 2,202 1,828 374 Operation and Maintenance 1,058 805 253 Property, Franchise and Other Taxes 23 20 3 Depreciation, Depletion and Amortization � 196 � � � 197 � � � (1 ) � 3,479 � � � 2,850 � � � 629 � � Operating Income 785 1,024 (239 ) � Other Income (Expense): Income from Unconsolidated Subsidiaries 2,275 1,231 1,044 Interest Income 15 3 12 Other Income 8 12 (4 ) Other Interest Expense � (287 ) � � (670 ) � � 383 � � Income Before Income Taxes 2,796 1,600 1,196 Income Tax Expense � 457 � � � 615 � � � (158 ) Net Income $ 2,339 � � $ 985 � � $ 1,354 � � Net Income Per Share (Diluted) $ 0.03 � � $ 0.01 � � $ 0.02 � NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � � � SEGMENT OPERATING RESULTS AND STATISTICS (UNAUDITED) � (Thousands of Dollars, except per share amounts) Three Months Ended December 31, CORPORATE � 2007 � � � 2006 � � Variance Revenues from External Customers $ 135 $ 183 $ (48 ) Intersegment Revenues � 961 � � � 851 � � � 110 � Total Operating Revenues $ 1,096 � � $ 1,034 � � $ 62 � � Operating Expenses: Operation and Maintenance 5,141 1,748 3,393 Property, Franchise and Other Taxes 70 70 - Depreciation, Depletion and Amortization � 172 � � � 175 � � � (3 ) � 5,383 � � � 1,993 � � � 3,390 � � Operating Loss (4,287 ) (959 ) (3,328 ) � Other Income (Expense): Interest Income 22,704 21,930 774 Other Income 69 76 (7 ) Interest Expense on Long-Term Debt (16,273 ) (17,882 ) 1,609 Other Interest Expense � (2,284 ) � � (1,498 ) � � (786 ) � Income (Loss) Before Income Taxes (71 ) 1,667 (1,738 ) Income Tax Expense � 32 � � � 426 � � � (394 ) Net (Loss) Income $ (103 ) � $ 1,241 � � $ (1,344 ) � Net Income (Loss) Per Share (Diluted) $ - � � $ 0.02 � � $ (0.02 ) � � Three Months Ended December 31, INTERSEGMENT ELIMINATIONS � 2007 � � � 2006 � � Variance Intersegment Revenues $ (28,321 ) � $ (27,446 ) � $ (875 ) � Operating Expenses: Purchased Gas (27,249 ) (26,492 ) (757 ) Operation and Maintenance � (1,072 ) � � (954 ) � � (118 ) � (28,321 ) � � (27,446 ) � � (875 ) � Operating Income - - - � Other Income (Expense): Interest Income (24,221 ) (23,859 ) (362 ) Other Interest Expense � 24,221 � � � 23,859 � � � 362 � � Net Income $ - � � $ - � � $ - � � Net Income Per Share (Diluted) $ - � � $ - � � $ - � NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � SEGMENT INFORMATION (Continued) (Thousands of Dollars) � � � � Three Months Ended December 31, (Unaudited) � Increase(Decrease) 2007 2006 � Capital Expenditures: Exploration and Production $ 30,666 $ 37,241 $ (6,575 ) Pipeline and Storage 25,371 4,952 20,419 Utility 12,709 12,879 (170 ) Energy Marketing 9 9 - Timber � 982 � 806 � 176 � Total Reportable Segments 69,737 55,887 13,850 All Other - 29 (29 ) Corporate � 7 � 38 � (31 ) Total Expenditures from Continuing Operations 69,744 55,954 13,790 Discontinued Operations � - � 9,348 � (9,348 ) Total Capital Expenditures $ 69,744 $ 65,302 $ 4,442 � DEGREE DAYS � � � � � � � Percent Colder (Warmer) Than: Three Months Ended December 31 Normal 2007 2006 Normal Last Year � Buffalo, NY 2,260 2,094 1,947 (7.3 ) 7.6 Erie, PA 2,081 1,871 1,878 (10.1 ) (0.4 ) NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � � � EXPLORATION AND PRODUCTION INFORMATION � � Three Months Ended December 31, Increase (Decrease) � 2007 � 2006 � Gas Production/Prices: Production (MMcf) Gulf Coast 2,826 2,723 103 West Coast 1,027 944 83 Appalachia � 1,917 � 1,394 � 523 � Total Production from Continuing Operations 5,770 5,061 709 Canada - Discontinued Operations � - � 1,721 � (1,721 ) Total Production � 5,770 � 6,782 � (1,012 ) � Average Prices (Per Mcf) Gulf Coast $ 7.14 $ 6.55 $ 0.59 West Coast 6.77 6.09 0.68 Appalachia 7.45 7.22 0.23 Weighted Average for Continuing Operations 7.18 6.65 0.53 Weighted Average after Hedging for Continuing Operations 7.90 7.12 0.78 Canada - Discontinued Operations - 6.39 (6.39 ) � Oil Production/Prices: Production (Thousands of Barrels) Gulf Coast 156 202 (46 ) West Coast 629 591 38 Appalachia � 37 � 27 � 10 � Total Production from Continuing Operations 822 820 2 Canada - Discontinued Operations � - � 56 � (56 ) Total Production � 822 � 876 � (54 ) � Average Prices (Per Barrel) Gulf Coast $ 89.84 $ 56.51 $ 33.33 West Coast 81.80 51.11 30.69 Appalachia 84.12 59.78 24.34 Weighted Average for Continuing Operations 83.43 52.73 30.70 Weighted Average after Hedging for Continuing Operations 72.59 43.82 28.77 Canada - Discontinued Operations - 42.58 (42.58 ) � Total Production (Mmcfe) � 10,702 � 12,038 � (1,336 ) � Selected Operating Performance Statistics: General & Administrative Expense per Mcfe(1) $ 0.52 $ 0.42 $ 0.10 Lease Operating Expense per Mcfe(1) $ 1.26 $ 1.12 $ 0.14 Depreciation, Depletion & Amortization per Mcfe(1) $ 2.25 $ 1.86 $ 0.39 � (1) Refer to page 13 for the General and Administrative Expense,Lease Operating Expense and Depreciation, Depletion, andAmortization Expense for the Exploration and Production segment.Amounts exclude discontinued operations of Canada. NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � EXPLORATION AND PRODUCTION INFORMATION � � � � � Hedging Summary for Fiscal 2008 � SWAPS Volume Average Hedge Price Oil 1.2 MMBBL $65.72 / BBL Gas 8.9 BCF $8.45 / MCF � No-cost Collars Volume Floor Price Ceiling Price Gas 0.7 BCF $9.12 / MCF $16.94 / MCF � Hedging Summary for Fiscal 2009 � SWAPS Volume Average Hedge Price Oil 0.7 MMBBL $68.35 / BBL Gas 5.7 BCF $8.95 / MCF Gross Wells in Process of Drilling � � � Quarter Ended December 31, 2007 � Total Gulf West East Company � Wells in Process - Beginning of Period Exploratory 2 .00 0 .00 21 .00 23 .00 Developmental 0 .00 4 .00 69 .00 73 .00 Wells Commenced Exploratory 1 .00 1 .00 4 .00 6 .00 Developmental 0 .00 5 .00 26 .00 31 .00 Wells Completed Exploratory 0 .00 0 .00 3 .00 3 .00 Developmental 0 .00 7 .00 52 .00 59 .00 Wells Plugged & Abandoned Exploratory 0 .00 0 .00 0 .00 0 .00 Developmental 0 .00 0 .00 0 .00 0 .00 Wells in Process - End of Period Exploratory 3 .00 1 .00 22 .00 26 .00 Developmental 0 .00 2 .00 43 .00 45 .00 � � Net Wells in Process of Drilling Quarter Ended December 31, 2007 Total Gulf West East Company � Wells in Process - Beginning of Period Exploratory 1 .30 0 .00 20 .00 21 .30 Developmental 0 .00 4 .00 68 .00 72 .00 Wells Commenced Exploratory 0 .29 1 .00 4 .00 5 .29 Developmental 0 .00 5 .00 26 .00 31 .00 Wells Completed Exploratory 0 .00 0 .00 3 .00 3 .00 Developmental 0 .00 7 .00 51 .00 58 .00 Wells Plugged & Abandoned Exploratory 0 .00 0 .00 0 .00 0 .00 Developmental 0 .00 0 .00 0 .00 0 .00 Wells in Process - End of Period Exploratory 1 .59 1 .00 21 .00 23 .59 Developmental 0 .00 2 .00 43 .00 45 .00 NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � � � � Pipeline & Storage Throughput- (millions of cubic feet - MMcf) � Three Months Ended December 31, Increase 2007 2006 (Decrease) Firm Transportation - Affiliated 31,336 29,730 1,606 Firm Transportation - Non-Affiliated 61,547 44,697 16,850 Interruptible Transportation 1,083 995 88 � 93,966 75,422 18,544 � � Utility Throughput - (MMcf) � Three Months Ended December 31, Increase 2007 2006 (Decrease) Retail Sales: Residential Sales 17,127 16,678 449 Commercial Sales 2,877 2,868 9 Industrial Sales 123 192 (69 ) 20,127 19,738 389 Off-System Sales 1,031 - 1,031 Transportation 17,827 15,853 1,974 � 38,985 35,591 3,394 � � Energy Marketing Volumes � Three Months Ended December 31, Increase 2007 2006 (Decrease) Natural Gas (MMcf) 10,841 11,116 (275 ) � Timber Board Feet (Thousands) � December 31, Increase 2007 2006 (Decrease) Log Sales 2,024 1,709 315 Green Lumber Sales 2,431 1,530 901 Kiln Dry Lumber Sales 3,747 3,157 590 � 8,202 6,396 1,806 � NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES FISCAL 2008 EARNINGS GUIDANCE AND SENSITIVITIES � � � � � � � � � � � � Fiscal 2008 (Diluted earnings per share guidance*) Earnings per share sensitivity to changesfrom NYMEX prices used in guidance* ^ � $1 change per MMBtu gas $5 change per Bbl oil Range Increase � � Decrease � Increase � � Decrease � Consolidated Earnings $ 2.60 - $ 2.80 + $ 0.05 - $ 0.05 � + $ 0.04 - $ 0.04 NYMEX Settlement Prices at July 24, 2007 � � Natural Gas Oil ($ per MMBtu) ($ per Bbl) � Jan-08 $8.468 $72.95 Feb-08 $8.488 $72.82 Mar-08 $8.338 $72.70 Apr-08 $7.713 $72.59 May-08 $7.678 $72.48 Jun-08 $7.768 $72.39 Jul-08 $7.866 $72.29 Aug-08 $7.939 $72.19 Sep-08 $7.994 $72.09 � Average $8.028 $72.50 � � � � * Please refer to forward looking statement footnote at page 6 of this document. � ^ This sensitivity table is current as of February 1, 2008 and onlyconsiders revenue from the Exploration and Production segment's crudeoil and natural gas sales. The sensitivities will become obsolete withthe passage of time, changes in Seneca's production forecast, changesin basis differential, as additional hedging contracts are enteredinto, and with the settling of NYMEX hedge contracts at their maturity. � NATIONAL FUEL GAS COMPANY AND SUBSIDIARIES � � � � � Quarter Ended December 31 (unaudited) � 2007 � 2006 � � Operating Revenues $ 568,268,000 $ 490,659,000 � � Income from Continuing Operations $ 70,604,000 $ 50,688,000 Income from Discontinued Operations, Net of Tax � - � 3,832,000 � Net Income Available for Common Stock $ 70,604,000 $ 54,520,000 � � Earnings Per Common Share: Basic: Income from Continuing Operations $ 0.84 $ 0.61 Income from Discontinued Operations � - � 0.05 � Net Income Available for Common Stock $ 0.84 $ 0.66 � � Diluted: Income from Continuing Operations $ 0.82 $ 0.60 Income from Discontinued Operations � - � 0.04 � Net Income Available for Common Stock $ 0.82 $ 0.64 � � Weighted Average Common Shares: Used in Basic Calculation � 83,611,177 � 82,679,343 � Used in Diluted Calculation � 85,819,534 � 84,730,910 � � � Twelve Months Ended December 31 (unaudited) � Operating Revenues $ 2,117,176,000 $ 2,043,073,000 � � Income from Continuing Operations $ 221,591,000 $ 186,542,000 Income (Loss) from Discontinued Operations, Net of Tax � 131,948,000 � (51,350,000 ) Net Income Available for Common Stock $ 353,539,000 $ 135,192,000 � � Earnings Per Common Share: Basic: Income from Continuing Operations $ 2.66 $ 2.23 Income (Loss) from Discontinued Operations � 1.58 � (0.61 ) Net Income Available for Common Stock $ 4.24 $ 1.62 � � Diluted: Income from Continuing Operations $ 2.59 $ 2.18 Income (Loss) from Discontinued Operations � 1.54 � (0.60 ) Net Income Available for Common Stock $ 4.13 $ 1.58 � � Weighted Average Common Shares: Used in Basic Calculation � 83,376,508 � 83,590,690 � Used in Diluted Calculation � 85,541,214 � 85,650,747 �