Low natural gas prices, especially in the prolific Marcellus Shale region in Pennsylvania, are squeezing National Fuel’s profits.
Despite fairly flat earnings from its oil and natural gas drilling business, higher earnings from its pipeline and gathering systems that transport natural gas helped National Fuel Gas Co. increase its third-quarter profits by 10 percent, the Amherst-based energy company said.
The earnings matched analyst forecasts. But with natural gas prices expected to remain low, the company revised its profit forecast for the current fiscal year to the lower end of its previously issued guidance. The company also said its earnings during the fiscal year that begins in October are expected to be virtually flat.
“Natural gas prices continue to be a significant headwind,” said David Bauer, National Fuel’s treasurer, during a conference call Friday.
National Fuel executives said earnings from its natural gas drilling business were hurt by low natural gas prices, which have been weak in the Pennsylvania markets where the company does most of its drilling because of limited pipeline capacity.
With spot prices for natural gas now hovering around $3.90 per 1,000 cubic feet, National Fuel said it expects to be paid about 20 percent less for the gas it produces in Pennsylvania because of the ample supply and the limited ability to transport gas to other markets.
“Pricing in the Marcellus continues to be weak,” Bauer said.
Even so, the company said it expects its oil and gas production this year to be about 3 percent higher than its previous forecast despite a move to curtail production at some wells in Lycoming County, Pa., because of low prices. It predicted its production would jump by another 18 percent next year.
Ronald J. Tanski, National Fuel’s president and chief executive officer, said the company plans to keep investing in new natural gas gathering and pipeline systems to move natural gas from the shale gas region in Pennsylvania to markets elsewhere, where demand is higher. That would help ease the pricing pressure now being felt by National Fuel and other drillers in the Marcellus Shale region by allowing more gas from Pennsylvania to be shipped to other markets.
National Fuel said its profits rose to $64.5 million, or 76 cents per share, from $58.5 million, or 69 cents per share, a year earlier. Excluding $3 million in expenses to plug and abandon a well in the Gulf of Mexico, the company earned $61.8 million, or 73 cents per share, which matched analyst forecasts.
Earnings from its oil and natural gas drilling business rose by 2 percent to $32.4 million because of one-time items that bolstered the unit’s earnings. Excluding those, operating profits from the oil and gas drilling business fell by 19 percent to $29.7 million, mainly because of lower natural gas prices.
Despite a 19 percent increase in production, which grew to 40.6 billion cubic feet of natural gas, the price that National Fuel received for its gas fell by 15 percent after hedging. The company’s oil production in California rose by 9 percent, while average prices fell by less than 1 percent after hedging, which the company uses to reduce the volatility of commodity prices.
Earnings from National Fuel’s pipeline and storage business jumped by 27 percent to $17.9 million as the company transported more gas from outside customers. The company’s expanding network of smaller natural gas gathering systems, which transport gas from drilling sites to larger pipeline systems, nearly doubled to $8.7 million, mostly because of rising revenues from its Trout Run gathering system in Lycoming County, Pa.
Earnings from the company’s utility business fell by 37 percent to $4.8 million, mainly because of higher pension costs in New York and rising bad debt expenses. Profits at the company’s energy marketing business dropped by 37 percent to $602,000.
National Fuel said it expects to earn $3.40 to $3.50 per share during the current fiscal year, at the lower end of its previous forecast of $3.40 to $3.55 per share. The company forecast that its profits would be fairly flat during the fiscal year that begins in October, ranging between $3.30 and $3.60 per share, which is on the low end of analyst forecasts of $3.57 per share.
The company predicted that its oil and gas production would rise to between 160 billion and 168 billion cubic feet of natural gas during the current fiscal year, up from its previous guidance of 155 billion to 165 billion cubic feet.