National Fuel Gas Co.’s fourth-quarter profits dipped by 2 percent as the Amherst energy company set aside money to potentially cover a settlement in the company’s ongoing rate case in New York, partially offsetting what otherwise was a 46 percent surge in the earnings from its operations.
While the company’s reported earnings were lower, the drop was caused entirely by the $4.7 million reserve set up by the utility business and a one-time gain that inflated the profits from its pipeline business by nearly $13 million a year ago.
Excluding those one-time costs, the company’s earnings from its operations easily topped analyst forecasts. The company also hiked its earnings guidance for the fiscal year that started last month by 2 percent as the company’s oil and natural gas business continues to grow rapidly.
Ronald J. Tanski, National Fuel’s president and chief executive officer, called the growth in its oil and gas drilling business, which boosted its profits by 33 percent during the quarter, “particularly impressive” as the company increased its natural gas production by 44 percent in the Marcellus Shale region in Pennsylvania.
With the company’s pipeline business also growing rapidly as National Fuel expands its network of lower-capacity lines that bring natural gas from wells to higher-volume interstate pipelines, Tanski said he expects the growth to continue.
“We had a great year. We project that next year will be even better,” he said during a conference call Friday.
Overall, National Fuel’s profits slipped to $47.8 million, or 57 cents per share, from $48.8 million, or 58 cents per share, a year ago, when the company’s earnings were inflated by a $12.8 million gain stemming from the elimination of a regulatory liability for postretirement benefits in its pipeline business.
Excluding that charge and the reserve it set up in its utility business, earnings from National Fuel’s operations jumped to $52.5 million, or 63 cents per share, compared with $36 million, or 43 cents per share, a year ago. That easily topped the 58 cents per share that analysts were expecting.
Earnings from National Fuel’s oil and gas drilling business remained strong, as surging production more than offset a 2 percent dip in the price it received for the natural gas it produced. The production business earned $29.3 million, or 35 cents per share, up from $22.1 million, or 26 cents per share, a year ago.
Total production of oil and gas jumped by 35 percent to the equivalent of 33.2 billion cubic feet of natural gas, led by a 44 percent jump in gas production in Appalachia and a 2 percent rise in oil production in California.
The company’s pipeline business reported a 38 percent drop in earnings because of last year’s benefit-related gain. Excluding that, operating profits rose by 12 percent to $28.2 million as National Fuel’s recently completed Northern Access and Line N 2012 expansion projects began carrying more gas from outside customers. Earnings from the company’s expanding network of lower capacity gathering systems that transport gas from the wellheads to interstate pipelines more than doubled to $4 million.
Earnings from National Fuel’s utility business tumbled by 88 percent to $700,000 as the company set aside $4.7 million in a reserve fund to cover potential costs in its New York rate case, where regulators are deciding whether National Fuel has earned excessive profits in recent years under the terms of its existing rate plan. If regulators determine the company has earned too much, it could order National Fuel to refund a portion of its past earnings to its customers.
The company currently is in settlement talks with the State Public Service Commission. “We are making progress and hope to reach a settlement in the near future,” said David Bauer, National Fuel’s treasurer, while declining to offer further details.
Excluding the reserve fund, earnings from the company’s utility business dipped by 8 percent, mainly because of higher operating expenses.
With oil and gas production expected to jump this year by around 29 percent to between 145 billion and 165 billion cubic feet of natural gas, up from 120.7 billion cubic feet during the fiscal year that just ended, National Fuel said its earnings this year should be slightly higher than it previously forecast.
The company currently has three rigs drilling wells in the Marcellus Shale, and executives said they believe the land it controls in Elk and Cameron counties in Pennsylvania could support as many as 2,000 natural gas wells if gas prices remain in the $4 per 1,000 cubic foot range.
“With this inventory, we expect to have years – or decades – of growth,” said Matthew D. Cabell, who runs National Fuel’s oil and gas drilling business.
The company said it now expects to earn between $3.10 and $3.40 per share, up from its earlier forecast of between $3.05 and $3.30 per share and on the high end of the $3.18 per share that analysts are forecasting.