National Fuel’s top executive, in the company’s first response to a major shareholder’s suggestion that the company split its utility business from its pipeline and drilling operations, defended the Amherst energy company’s current makeup but indicated that he is open to new ideas about its structure.
The comments of Ronald J. Tanski, National Fuel’s president and chief executive officer, were not significantly different than remarks he has made on several occasions since last summer.
But they took on added weight Friday because they were the first statement any top National Fuel executive has made since investor Mario Gabelli began pushing the company last month to split its low-risk, but slow-growing utility business off from its riskier, but faster-growing pipeline and oil and natural gas drilling operations.
“We continue to examine our operating model,” Tanski said during a conference call to discuss the company’s second-quarter earnings, which increased by 11 percent.
“We always look to maximize the value of our assets,” he said. “There are always new ideas to consider. We do, and we will, look at them on a regular basis.”
None of the analysts who participated in the conference call asked about Gabelli’s push to split off the utility business, which the investor has said he may try to bring up for a shareholder vote at National Fuel’s next annual meeting in March.
But Tanski said each of the company’s businesses benefit from their ties to the other units under National Fuel’s umbrella. “One of the main drivers of those efficiencies is our integrated model,” Tanski said. “I firmly believe our integrated model has added value for both shareholders and ratepayers.”
Tanski’s comments came as strong growth in its pipeline businesses bolstered National Fuel’s profits. The strengthening pipeline businesses offset lower earnings at National Fuel’s oil and natural gas drilling unit. With National Fuel’s utility unit’s earnings also inching higher, the company hiked its earnings forecast for the entire fiscal year by about 5 percent from its previous prediction. The company said it now expects its profits this year to range between $3.40 and $3.55 per share, up from its earlier guidance of $3.20 to $3.40 per share.
Tanski described the company’s second-quarter profits as outstanding, with operating profits rising by almost 13 percent during the quarter that ended in March.
Overall, National Fuel’s profits improved to $95.2 million, or $1.12 per share, from $85.7 million, or $1.02 per share, a year earlier. Those earnings included nearly $1.8 million in one-time expenses, ranging from the well-plugging costs to an increase in state tax deferrals. Excluding those expenses, National Fuel’s operating profits rose to $97 million, or $1.15 per share.
The biggest jump in earnings came from National Fuel’s pipeline business, which is benefitting from recent expansions and rising natural gas production in Pennsylvania. Profits from the company’s pipeline and storage business jumped by 27 percent to $21.4 million.
The company’s business that operates smaller-capacity gas pipelines used to move gas from drilling sites to larger interstate pipelines grew rapidly, with its profits more than doubling to $7.3 million.
The company’s oil and gas drilling business’ profits fell by 12 percent because of the $2.4 million in well-plugging costs. Excluding that expense, the drilling unit’s operating profits strengthened, with production jumping by 28 percent as the company’s wells in Pennsylvania produced 31 percent more gas than they did a year ago.
That increased production helped offset a 4 percent drop in the price National Fuel received for the natural gas it produced and a 2 percent dip in oil prices, after hedging.
National Fuel also said it expects its oil and gas production to grow faster than it previously predicted.
The company boosted its production forecast for the fiscal year that ends in September by 3 percent to the equivalent of between 155 billion and 165 billion cubic feet of natural gas, up from its previous guidance of between 145 billion to 165 billion cubic feet.
Earnings from National Fuel’s utility business inched up by 3 percent as the unusually cold winter bolstered the company’s earnings in its Pennsylvania service territory.