Good day and thank you for standing by and welcome to the Q3 2021 National Fuel Gas Company Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Ken Webster, Director of Investor Relations. Please go ahead.

Thank you, Celine, and good morning. We appreciate you joining us on today's conference call for a discussion of last evening's earnings release. With us on the call from National Fuel Gas Company are Dave Bauer, President and Chief Executive Officer; Karen Camiolo, Treasurer and Principal Financial Officer; and Justin Loweth, President of Seneca Resources. At the end of the prepared remarks, we will open the discussion to questions. The third quarter fiscal 2021 earnings release and August Investor Presentation have been posted on our Investor Relations website. We may refer to these materials during today's call. We would like to remind you that today's teleconference will contain forward-looking statements. While National Fuel's expectations, beliefs, and projections are made in good faith and are believed to have a reasonable basis, actual results may differ materially. These statements speak only as of the date on which they are made, and you may refer to last evening's earnings release for a listing of certain specific Risk Factors. With that, I'll turn it over to Dave Bauer.

Thanks, Ken. Good morning, everyone. The third quarter was another strong one for National Fuel with our Upstream and Midstream businesses continuing the positive momentum they established during the first half of the year. Seneca had a great quarter, with production up nearly 50% on the strength of last year's acquisition and its 2021 drilling program. That growth in production, along with higher commodity prices, grew over nearly 70% increase in EBITDA from our combining Upstream and Gathering operations. The acquisition continues to impress with both production and operating costs better than we expected. With the near-term run up in winter natural gas prices, along with increased confidence around the online date for Leidy South, we've decided to move up some completion connectivity at Seneca. This will allow us to more fully utilize our Leidy South capacity from the start and capture some of the valuable winter premiums in the Transco Zone 6 market. As a result, we expect them to shift forward a few months. And while we aren't raising the upper end of guidance, now it's likely Seneca's capital spending for 2021 will be closer to the high-end of our previous range. Justin will have a full update on Seneca's operations later on the call. At the pipeline storage business construction of the FM100 project has been going well despite a really rainy month of July. At this point, everything remains on schedule for a late calendar 2021 in-service date. Pipeline construction is well underway, almost 90% of the pipe has been strung on the right away and nearly 40% is in the ground. The two compressor stations are nearing mechanical completion and once automation and electrical work is complete, commissioning will begin. I took a tour of the construction site a couple weeks ago and was really…

Thanks, Dave, and good morning, everyone. Seneca had a strong third quarter with operational results slightly ahead of our expectations. We produced 83.1 Bcfe an almost 50% increase from last year, driven by increased Tioga County volumes from our acquisition, which closed in late July 2020, combined with solid results from our Appalachian development program. We continue to see the benefits of our increased scale. Per unit cash operating expenses dropping $0.06 per Mcfe versus the prior year to a $1.13 per Mcfe driven by a significant year-over-year decrease in our per unit G&A expense. During the quarter, we drilled 12 new wells, five in the WDA and another seven in the EDA. Notably this included the commencement of drilling on our first Tioga County pad from our acquisition. Similar to our activity in the WDA over the past few years, the Tioga pad will be a return trip. It's allows us to utilize existing roads, pads and gathering infrastructure, which significantly enhances our consolidated E&P and gathering returns. We have approximately 10 additional pads within the acquired acreage footprint, where we believe we can take advantage of similar capital efficiencies. Further given the continuous nature of this acreage and continued operational success, we expect most of our titles at Utica Wells will exceed 10,000 feet treated lateral link generating outstanding returns. For the remainder of the year, we were on track with our plans to ramp up production to fill Leidy South and capture premium winter pricing. We have begun the process of accelerating our completion phase, and now have two active completion crews, which is a level of activity we expect to continue throughout the first half of fiscal 2022. This will drive our production cadence in the coming quarters with most of our new production coming online…

Thank you, Justin, and good morning, everyone. National Fuel’s third quarter GAAP earnings were $0.94 per share and after adjusting for an unrealized gain on our non-qualified benefit plan investments, operating results were $0.92 per share. Last night's release explained the major drivers for the quarter. So I'll focus on our guidance updates for the remainder of the year and our initial projections for next year. Starting with fiscal 2021, we're increasing and tightening our earnings guidance to a range of $4.05 to $4.15 per share. In addition to the strong results from the third quarter, we've incorporated the significant strengthening of natural gas prices for the remainder of the year. Moving into fiscal 2022. We are projecting a 12% increase in earnings at the mid-point with our preliminary guidance in the range of $4.40 to $4.80 per share. At a high-level, the increase in earnings relative to fiscal 2021 can be boiled down to three main drivers. The first two are related to integrated upstream and midstream development tied to the FM100 expansion and modernization project. Starting first with the Pipeline and Storage segment, the direct benefit of the project will be approximately $50 million per year of incremental revenues. Given the late calendar [indiscernible] we expect approximately $30 million to $35 million of revenue from this project during fiscal 2022. A large portion of this revenue will flow through to the bottom line, but will be partially offset by the associated operating costs and depreciation expense. In addition, in fiscal 2022 we expect a decrease in AFUDC that was accrued during the FM100 construction period. Next, this project along with its companion Leidy South expansion will provide Seneca with a key outlet for growing natural gas production. Seneca’s expected production range for next year is 335 to 365…

Thank you. [Operator Instructions]. We have our first question coming from the line of Holly Stewart. Your line is open.

Maybe we'll start with either Dave or Karen just on the free cash flow guidance, appreciate the details that at different commodity prices. Maybe on that $250 million target since that's kind of where we're trending right now. Can you just give some of the detailed assumptions behind that, meaning which of the different business units are contributing what to that total?

Yes. So Holly, it's -- yes. If you want to split up maybe between our regulated and non-regulated stuff, 60% on the non-regulated side and about 40% on the regulated side, obviously on the regulated side. Our pipeline and storage is contributing a bigger amount than our utility, but that's pretty much the breakdown. Does that help?

Yes, thanks. Got it. Okay. If you think of sort of bringing on that production -- is it ramp up with the Leidy South project, how should we see that split here going forward between kind of WDA and EDA?

Holly, you cut out a fair amount while you're asking that second question. It might be best to say it again if you don't mind.

Okay. Is that better?

Much better. Thank you.

Yes.

Okay. Sorry about that.

Yes. All right.

Justin, the question is on -- just on Leidy South and bringing that volume online with the pipeline. So as we look at kind of 2022 and beyond, how should we think about that split between WDA and EDA?

Sure. So we've really one of the best benefits of the Leidy South project is we're able to utilize it with all three of our major operating production areas. So generally speaking, we intend to keep really pretty balanced plan between the EDA and the WDA. So I think you should expect that we're going to be utilizing that and our other capacity kind of from all three production areas, maybe weighted a little bit more between Tioga development and the WDA versus Lycoming, just given our significant inventory in both Tioga and the WDA. So that's how I would kind of best position it, but relatively balanced between EDA, WDA.

Okay. Okay. That's helpful. Maybe just a follow-up on your -- you made a comment within your prepared remarks on a non-op pack. That was I think you said 25% working interest, but a 100% working interest on the gathering side. Can I ask who that producer is and then is there a change in activity? I don't recall you guys talking about such a split in the past.

Sure. So this is something that we've been working on for a long time, great project for the company, where we had worked with Alta to extend our trout run and this is Lycoming County. It's our trout run gathering system, which extends into to some acreage that they have to the North and to the East of our existing track 100 area. And we were not only able to gather all of this and extend our gathering system to leverage that, but at Seneca, we executed a joint operating agreement and effectively farmed in to a chunk of acres there as well. And then similarly we have another area outside or adjacent to our track 100 gamble area where we're the operator. So it's a good relationship. And one, we expect to continue here with EQT and a great kind of synergy for two companies working together to kind of create a one plus one equals three type approach.

Yes, yes. Okay. That's great. And then maybe the last one for me, just one on California, you talked about trying to maintain production there. I think historically you've been able to do some bolt-ons as well, but obviously the environment kind of continues to become more difficult. Just wondering maybe this is even for Dave to just bigger picture, how you're thinking about Seneca's future in California.

Sure. So I mean a couple things. One is that we did successfully kind of farm-in/acquire areas in Coalinga, North Midway and South Midway over the last several years. And we've got quite a bit of development to still do across those three areas. It just takes a really long time to permit wells and get all that done. Fortunately, we've got a great team out there. They were able to navigate that process where we're planning out two or three years in advance for our activity levels. So it means we can't really ramp up quickly, but we can be kind of thoughtful and methodical about how we develop the assets and kind of approach those as longer-term developments. It's just doesn't have the cycle time. And then generally, as we think about the division, California has been a great business for us and we've got a great team out there that manages the day-to-day very autonomously. We've generated historically a tremendous amount of free cash flow. We're continuing to do that. And then we'll continue to look for opportunities to kind of help differentiate ourselves across other California operators with some of our sustainability initiatives, including our solar investments that we've been making since 2016. So that's how we're approaching that. It's been a good place for us.

[Operator Instructions]. We have our next question coming from the line of Umang Choudhary with Goldman Sachs & Co. Your line is open.

Appreciate all the details on 2022 and quarterly run rate which are expecting over the course of next fiscal year. I would -- I would -- I wonder if could talk a bit more about beyond 2022, would love to hear your thoughts on the projects which are evaluating right now, which can allow for sustained earnings growth and also would appreciate any thoughts on any organic opportunities include RNG or inorganic opportunities through consolidation?

Sure. So on the regulated side; I think we're going to be able to continue to grow both the pipeline and the utility albeit maybe not at the rate that we're going to grow from 2021 into 2022. But I think we still are going to have opportunities to do expansions on our pipeline system. As you know, we tend to wait until we have a project on file or announced before we include it in our IR decks. But the teams chasing a number of opportunities that range from further expansions of our Empire line, you recall we did the Empire North project this year or excuse me, last year. We think that there's the opportunity to do another expansion there. And we're also chasing a number of expansion opportunities on the line and a portion of our system. That's the line that goes North, South along the Ohio, PA order. And it's -- it ranges from the variety of opportunities there that that I expect we'll be announcing in the quarters to come. At the same time, we're going to have our modernization programs both at the pipeline companies and the utility. And that'll be a modest amount of capital that'll continue to grow rate base, albeit maybe more of the low-single-digit to mid-single-digit range, but still upward sloping. So long run, I'm confident the ability to grow the regulated side of the business. And as Justin said on the non-regulated side, we are -- once we have Leidy South filled, we'll be moving to more of a low -- maintenance to low growth mode that I think you can count on say low, mid, single-digit type growth rate. So that was one part of your question. You also asked about RNG, I think and whether we could -- would be interested in that business and the answer there is yes. I find RNG interesting. It's a good ESG story. It's good for the environment. And when you look at our service territory in Western New York and Northwestern Pennsylvania there's a lot of dairy farms. So there is the opportunity to do development there. It is something that we are considering. I'll be honest the biggest thing we've got to get our arms around is the fact that the entire investment is supported by low carbon fuel type credits that are really a bureaucratic fiat and could go away, just based on new regulations and trying to get our arms around the appropriate risk premium that we need for that type of investment. But it's something that we're interested in and pursuing. I'm not sure if there were other elements of your question. Sorry, I should have written it down.

Sorry about that. That was a long question. I also wanted to talk about any inorganic opportunities that you are also seeing or looking at which can further grow the business or improved the earnings part of the business?

Yes. I mean, we've certainly looked at assets as they come on the market. And yes, I don't want to comment on specific transactions that we've looked at. But we think on the upstream side that there's going to be opportunities for further consolidation within the basin. And then across the midstream and downstream side, it's likely in our mind that that assets will become available, that we chase. And if it's -- if it's additive to the company, we're certainly going to pursue it.

Great. Thank you.

Okay.

And my last question was around Appalachia, like, how do we see the Appalachia business with, how do you see that risk evolving over time? And one to two things which you are evaluating today beyond hedges to kind of mitigate that risk?

Sure. So I think our view on it, and I know I'd talked as a little bit in some of my prepared remarks, but that where we are at -- you really only have a minimal amount of new takeaway capacity coming into the basin. So of course, the FM100 Leidy South, which we're anticipating towards the end of this calendar year is one. We're really pleased to have such a large portion of that. And then the other one is MDP, which is still obviously has quite a few hurdles before it's put in service. And so our house view is that Appalachia will generally speaking the -- be somewhat constrained and the basis will largely depend on the behavior of the largest producers. And so if this capital discipline continues then I think basis will be wide, but not to the levels we've seen at different times where production got out ahead of the takeaway capacity in the basin. But if people try to grow, they're going to be growing in business spot prices. One thing I noted is that, at least our portfolio our fiscal 2022, we have 93% of our forecasted production lock-in through firm sales. That mitigates that risk for us and longer-term, our approach is absolutely going to be to utilize that diverse marketing portfolio that we have to continue to minimize that risk. We do -- we have been successful for many years and we'll continue to be successful at modest incremental layers through a combination of fixed price and fixed basis firm sales that's what we work with a typically a marketing counterparty who holds capacity through an AMA where we can work with them to create multi-year firm sales insulating us from that basis risk. But that -- our general view would be, it's largely going to -- I think for us, that's our plan longer-term, and that'll -- the success around the firm sales will dictate whether we're purely maintenance or this low growth mode. And we think as long as producers kind of behave, then we should see differentials, like I said wider than we have maybe most recently, but not extreme.

Thank you. There are no further questions at this time. I will now turn the call back over to Ken Webster for any closing comments.

Thank you, Celine. We'd like to thank everyone for taking the time to be with us today. A replay of this call will be available this afternoon on both our website and by telephone then and will run through the close of business on Friday, August 13. To access the replay online, please visit our Investor Relations website at investor.nationalfuelgas.com and to access by telephone, call (1800) 585-8367 and enter conference ID number 1368175. This concludes our conference call for today. Thank you and goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.