National Fuel Gas Q3 Earnings Call Highlights

Key Points

• Q3 adjusted EPS fell to $1.54, down $0.10 year over year, as lower production offset improved natural-gas pricing and hedge gains. National Fuel revised fiscal 2026 EPS guidance to $7.40–$7.60 and expects 7%–10% annual EPS growth through fiscal 2029.
• National Fuel remains on track to close its Ohio utility acquisition in the fourth quarter, supported by $1.5 billion of debt financing and new share issuance. Near-term free cash flow will prioritize debt reduction, with management targeting leverage of roughly 2–2.25 times within several years.
• The company is expanding pipeline capacity and refining its development strategy around the Lower Utica, including record-length laterals expected to begin production in early 2027. It also plans to invest $100 million–$200 million over several years to expand its Tioga County acreage.

National Fuel Gas NYSE: NFG reported third-quarter fiscal 2026 adjusted earnings of $1.54 per share, down $0.10 from a year earlier, as lower production in its integrated upstream and gathering operations more than offset stronger natural-gas price realizations and hedge gains.

President and Chief Executive Officer Dave Bauer said the quarter was generally in line with company expectations. The company also updated its long-term outlook, projecting average annual earnings-per-share growth of 7% to 10% through fiscal 2029, assuming the current natural-gas forward curve. National Fuel expects to generate $1 billion to $1.5 billion of free cash flow over that period.

“Each of our businesses is positioned to deliver meaningful growth in earnings and free cash flow,” Bauer said, citing regulated-business expansion opportunities, the pending Ohio utility acquisition and its Tioga County upstream acreage position.

Guidance Revised on Production Outlook

Treasurer and Chief Financial Officer Tim Silverstein said National Fuel revised its fiscal 2026 adjusted EPS guidance to a range of $7.40 to $7.60 per share. The change primarily reflects an updated production forecast for Seneca Resources of 420 billion to 430 billion cubic feet equivalent, or BCFE, for the year. The company maintained its NYMEX natural-gas price assumption of $3 per MMBtu.

National Fuel said it is hedged on 75% of its remaining fiscal-year production at prices above the current market strip. Silverstein said regulated operations continued to benefit from margin growth under New York’s multiyear rate plan and revenue from Pennsylvania’s Distribution Integrity and Safety, or DISC, mechanism. Those gains were largely offset by higher operating costs, including inflation, the absence of a prior-year New York bad-debt tracker benefit and the effects of a new Pennsylvania field-operations labor agreement.

For fiscal 2027, the company expects additional expansion revenue of nearly $30 million from the Tioga Pathway Project and Shippingport Lateral Project. It also anticipates earnings growth from its regulated businesses as rate proceedings conclude, the New York rate plan continues and the Ohio acquisition closes.

Ohio Acquisition and Financing Progress

National Fuel said it remains on track to close its acquisition of CenterPoint’s Ohio gas utilities during the calendar fourth quarter, targeting an Oct. 1 closing date. The Ohio Commission approved the transaction in June, and the company said its June debt issuance completed its financing needs for the acquisition.

The company raised $1.5 billion in a three-tranche debt offering with three-, five- and 10-year maturities and a weighted average interest rate of slightly more than 5%. National Fuel used part of the proceeds to redeem a $300 million note due in October, leaving $1.2 billion of incremental long-term debt intended to fund the acquisition at closing.

Silverstein said the acquisition financing also included the issuance of 4.4 million common shares and that the company will enter into a $1.2 billion promissory note with CenterPoint carrying a 6.5% coupon at closing. While current commodity prices are expected to pressure near-term credit metrics, he said National Fuel’s longer-term deleveraging path remains intact.

In response to an analyst question, Silverstein said the company’s near-term free cash flow priority will be debt reduction rather than share repurchases. He said National Fuel would like to return to leverage in the “low twos,” or roughly 2 to 2.25 times, within the first few years following the deal.

The board approved its 56th consecutive dividend increase in June, Silverstein said, extending the company’s dividend-payment streak to 124 consecutive years.

Pipeline Demand and Rate Proceedings

National Fuel expanded its Line N System Upgrade Project by 200,000 dekatherms per day. The revised project is expected to add a total of 294,000 dekatherms per day of capacity on the Supply Corporation system and has a target in-service date of November 2028.

The incremental capacity is contracted for 20 years and will support the initial phase of coal-to-gas conversion at the Shippingport power station, according to Bauer. National Fuel now has more than 400,000 dekatherms per day contracted to the Shippingport site for behind-the-meter generation and generation supplying the PJM Interconnection. Bauer said demand at the location could nearly double over time.

The company also said it is discussing further Line N expansion opportunities in southwestern Pennsylvania, including capacity to support data centers and power-generation facilities.

On the regulatory front, National Fuel expects settlement discussions in its Supply Corp. rate case to begin in September. In Pennsylvania, the company expects an administrative law judge’s recommended decision next month in its utility rate case, with new base rates expected to take effect in November. In New York, the company is seeking approval of a system modernization tracker that it said could allow it to earn returns on modernization investments without increasing customer rates or entering a full rate case in the near term.

Seneca Refines Utica Development Plans

Seneca Resources and National Fuel Midstream President Justin Loweth said the integrated upstream and gathering business produced 104 Bcf and recorded 117 Bcf of throughput during the quarter. While results did not fully meet expectations, Loweth said the period provided operational information that will influence future development plans.

The company’s first Upper and Lower Utica co-development pad showed no communication between wells in the two horizons, which Loweth said supports the effectiveness of the seismite formation as a fracture barrier. Upper Utica results were modestly below original expectations, but the company said the findings improved its understanding of reservoir quality, landing strategy, completion design and sequencing.

National Fuel is increasingly orienting its long-term program around Lower Utica-first development. Loweth said the company is evaluating when to use its more intensive Gen 4 completion design, which may produce estimated ultimate recoveries approaching 3 Bcf per 1,000 feet in its highest-quality rock, versus Gen 3 designs in other areas.

The company observed more fracture interactions than anticipated between offset Lower Utica wells using intensive completion designs. Loweth described the issue as “noise, not substance” for the broader development program and said teams are implementing practices intended to reduce future impacts.

National Fuel also drilled a four-well Lower Utica pad with its longest-ever laterals, including approximately 18,000 to 20,000 feet of treatable lateral per well. The company expects those wells to begin production in early 2027. It expects 14 wells to come online in the fiscal fourth quarter and forecasts exiting fiscal 2026 at record daily production rates.

Separately, National Fuel plans to spend approximately $100 million to $200 million over several years on discretionary leasing to expand its core Tioga County acreage position. The company said maintenance land spending of about $15 million annually is sufficient to support its five-year development plan.

About National Fuel Gas (NYSE:NFG)

National Fuel Gas Company NYSE: NFG is a diversified energy company engaged primarily in the production, gathering, transmission, distribution and marketing of natural gas. The company operates through four principal segments: Exploration & Production, Pipeline & Storage, Utilities, and Energy Marketing. Its integrated asset base spans upstream development in the Appalachian Basin, regional pipeline networks, underground storage facilities, and regulated utility distribution systems.

In its Exploration & Production segment, National Fuel Gas focuses on developing natural gas reserves in the Marcellus and Utica shales, leveraging modern drilling and completion techniques.

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