Hello, everyone, and welcome to the National Fuel Gas Company Q1 FY 2023 Earnings Conference Call. My name is Drew, and I'll be your operator today. [Operator instructions] I'd now like to turn the call over to Brandon Haspett, the Director of Investor Relations. Please go ahead.

Thank you, Drew, 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 and National Fuel Midstream. At the end of the prepared remarks, we will open the discussion to questions. The first quarter fiscal 2023 earnings release and February 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 they are made, and may refer to last evening’s earnings release for a listing of certain specific risk factors. With that, I will turn it over to Dave Bauer.

Thanks, Brandon, and good morning, everyone. National Fuel's fiscal year started off with a great first quarter. Adjusted operating results were $1.84 per share, an increase of 24% versus last year, with each of our four business segments contributing to the increase. Starting with our Upstream business, production in Appalachia increased by 11%, which when combined with the $0.50 per Mcf improvement in our natural gas price realizations, led to a 29% increase in EBITDA. This increase is particularly impressive, given that last year's EBITDA includes the benefit of our California assets, which we sold last summer. Seneca's production growth also contributed to a 6% increase in gathering EBITDA. The combination of our valuable transportation and marketing portfolio, along with great operational execution by our team, drove the improved performance of our nonregulated businesses during the quarter. Justin will add more details on these results in a few minutes. Our regulated segments also had a good quarter. Despite the inflationary headwinds I've discussed on past calls, earnings were up in both businesses. We saw continued growth in pipeline and storage revenues, driven principally by the FM100 expansion and modernization project. As you recall, this project went in service in December 2021, so we saw the impact of a full quarter of both expansion revenues and the modernization rate increase associated with the project that went into effect last April. In the Utility business, excluding some rate making adjustments that did not impact earnings, our underlying customer margin was up about $6 million, driven by the ongoing benefits of our infrastructure modernization tracker in New York and increased usage, which was largely related to colder weather versus last year. The increase in margin more than offset the inflationary pressure on our operating expenses, leading to earnings growth for the quarter. Turning…

Thanks, Dave, and good morning, everyone. Seneca and NFG Midstream kicked off the year with a strong quarter. Seneca's 91 Bcfe of production was a 3% increase sequentially and an 11% increase when compared to last year's Appalachian production. We've continued our trend of solid operational execution with 17 wells turned in line during the quarter, which was in line with our plan. Additionally, we saw better-than-expected well performance on these new pads, and we boosted PDP production with some additional compression on the Trout Run system, which was time to capture peak winter pricing. These results were particularly impressive given the extreme weather we faced in December related to winter storm Elliot. The Seneca and Midstream operations and marketing teams did a brilliant job managing through this multi-day event. In spite of sustained windshield temperatures below negative 30 degrees, we saw limited production impacts with any volumes offline being brought back very quickly. While the basin experienced significant and sustained production impacts, we estimate less than 0.5 Bcf impact during the quarter. This is a testament to the entire team who collectively deserve a huge thank you for keeping our production flowing in very challenging conditions, especially given that the storm occurred when most people should be at home and join the holidays with their families. Turning to our future development activity. Drilling and completion operations are proceeding according to plan. As a result, our production rate should continue at about 1 Bcf per day net through the second quarter before production ramps up again into the second half of the fiscal year with several pads expected to turn in line in the spring and early summer. This is in line with our prior expectations, and as such, we are maintaining our full year production guidance of 370 Bcfe…

Thanks, Justin, and good morning, everyone. Last evening, National Fuel reported first quarter fiscal 2023 adjusted operating results of $1.84 per share, up 24% compared to last year. Dave and Justin already hit on the high points for the quarter, so I'll briefly touch on one other item. At the Utility, I want to remind everyone of the impact of an order issued in our New York jurisdiction relating to our pension and post-retirement benefit plans. Based on the fully funded status of these plans, we made a filing last summer, seeking to temporarily suspend recovering revenue from our customers in connection with these obligations. While this order has no earnings or cash flow impact to National Fuel, it does lead to a drop of approximately $18 million in EBITDA, which is fully offset by a benefit to non-service costs that fall below operating income. During the quarter, the impact to revenue, and therefore EBITDA, was a reduction of about $4 million. This was correspondingly offset with lower non-service costs. Looking forward, we'd expect this EBITDA impact to be largest in our fiscal second quarter as the revenue impact nears customer volumes, which are highest during these peak winter months. Turning to guidance; we've lowered our full year earnings guidance to a range of $5.35 to $5.75 per share. This decrease was almost entirely attributable to the drop in natural gas prices, partially offset by some smaller tailwinds across all of our businesses. We're now forecasting NYMEX pricing to average $3.25 per MMBtu for the last three quarters of the year. Somewhat offsetting this is the modest improvement in Appalachian basis differentials, which we now expect to average $1 per MMBtu for the remainder of the year. As Justin mentioned, we have firm sales in place for 90% of our…

[Operator Instructions] Our first question today comes from John Abbott from BofA. Your line is now open.

Hey. Good morning, and thank you for taking our questions. My first question is to you, Dave. It's -- my first question is -- yes, my first question was potential deal opportunities. In the past, Dave, you'd express some interest and potentially adding to your regulated businesses. Now assuming that something did become available, what sort of size would you be sort of thinking about that if you were to go down that path? And how do you sort of think about a potential funding of that opportunity if that were to become available?

Yes. Well, ideally, it would be of a size that we could do within our balance sheet or with a, call it, a modest amount of equity. That puts it in a kind of more modest-sized transaction to the extent that we were to look to go bigger than that, we have to be more creative in how we finance it either with a partner or some other means.

And then my second question is for you, Karen. I mean, you appreciated the color on cash taxes for this year. I think you said, around 5% or 6%. How -- if you sort of look into the future, Karen, you look into 2024, how do you see cash taxes progressing at this point in time based off strip pricing?

So there will be an increase, but we're largely looking at moving into the, call it, lower teens at current strip prices going out into '24, '25.

That is very, very helpful. Thank you for taking our questions.

Our next question today comes from Trafford Lamar from Raymond James. Your line is open.

Thanks for taking my questions. First one centers around CapEx; obviously, unchanged for the full year. And I guess, for Justin, how are you kind of viewing the OSS [ph] environment right now with regards to inflation? Obviously, you are a quarter ahead of most of the Appalachian E&Ps. And so just kind of seeing maybe peaked from '22 levels? Or you're still seeing kind of a higher rate of inflation similar to last year?

Sure. Yes. So right now with where we sit, I would say, generally, the service costs have kind of peaked. It's always hard to say exactly the peak goes flat from here or maybe we come down depending upon obviously commodity prices. But if you're thinking more holistically across the industry, what that really means, though, is anyone entering the new contract, it's going to be at a higher level. But from the current levels that people are entering, it's largely -- it seems to largely be kind of reaching the max of where they're going on major services. More specific, as it relates to Seneca, we pretty much have most of our services certainly for the balance of this fiscal year locked in. We have a new contract we executed with next tier on our e-frac fleet as well as working on some of our longer-term rig contracts. But generally for the most part this year, most of that's locked in. So we're pretty relatively insulated from any further inflation beyond what I've already talked about. So we feel confident in our budget and our guidance that we put forth.

Perfect. Appreciate the color on that. And then our second question now similar to John's question earlier. What about at this price environment, potential bolt-on opportunities for Seneca? How do you look at that? And then kind of, I guess, what's kind of the bid-ask spread been going around given the recent fall in natural gas? We are seeing more opportunities come available.

Yes. So we haven't seen a lot of new stuff come available. It's always tricky in a rapidly increasing or declining market in trying to find needle in the middle on what value makes sense. We remain very interested in opportunities that kind of fit us nicely. And so when I talk about that proximate or contiguous with our existing acreage, ideally have some element of takeaway capacity. We love it if it has a gathering midstream angle. So we're continuing to look at opportunities that offer us those kind of -- some or all of those attributes and really, we'll kind of watch to see as the prices evolve. I'm hopeful that there'll be more -- that will come available, but there's definitely bid-asked or why just given how much volatility we've seen on the way up, and it will probably be hard for people to accept a lower price given what they could have done if they just executed, say, three months ago.

Yes, that makes perfect sense. Okay. Thank you so much and congrats on a great quarter.

Our next question today comes from Umang Choudhary from Goldman Sachs. Your line is open.

My first question was, I really appreciate your comments around the scoping plans, and to the extent, you can share any insights and color regarding -- on the discussions which you're having with the regulators or the policymakers about managing the need to decarbonize as well also maintaining reliability of service would be appreciated. And then just to bolt-on to that question, how are you thinking about your business mix longer-term as to grow EPS and dividend while managing this potentially -- which could potentially be a regulator dust on the road?

Yes. So on the -- our engagement with regulators, the New York Public Service Commission has got a series of proceedings on the future of not just the gas business, but also the -- all of the utility business in the state. And we've been active participants with that and have made a number of filings that we've gone back and forth on with the state. I mean, it's still really early innings on this, but the discussion so far has been constructive. In terms of the long-term business mix, I'd like to see a balance between regulated and nonregulated. And at times, we may be higher on the nonregulated side than regulated. But I think over time, we'll be able to achieve that balance and the utility will be an important part of that.

Got you. That's really helpful. And then I guess just to follow up on that previous discussion. It sounds like a lot of your rig and your completion crews are under contract here, and to your point, you are hedged out in the near term. So I was wondering if there's any price levels at which you will look back at your activity levels for the CRM. Like maybe it's beneficial to push the completions out by a quarter or two quarters because the pricing is a little bit more favorable down the road. Because we agree with you, the long-term outlook is much more favorable with LNG coming online in 2025 and beyond.

Yes, absolutely. So we are not -- while we've spoken to and I've mentioned this on a number of calls that our longer-term plans envision continued growth in kind of the mid to single digits at least for the -- call the near to intermediate term, that's not something that we can't evolve and so we're going to be very mindful of the price environment. We're going to try to really balance capital efficiency, growth and free cash flow generation. We want to achieve the best mix of those three things. And if that means we're going to make some delays or slow things down, then that will make the most sense. So really what I guess I would just want to make sure it's really clear is; we're going to strive to find the optimal balance of those three things. And if we have a view or we're locking in longer-term pricing that we think makes sense to defer some things, then we'll be very open to evaluating that and incorporate into our longer-term operations plan.

[Operator Instructions] So we have no further questions at this time. So I will hand you back over to Brandon Haspett for closing remarks.

Thank you, Drew. 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, will run through the close of business on Friday, February 10. To access the replay online, please visit our Investor Relations website at investor.nationalfuelgas.com, and access by telephone, call 1 866 813-9403 and enter conference ID number 856816. This concludes our conference call for today. Thank you, and goodbye.

That concludes today's National Fuel Gas Company Q1 FY 2023 Earnings Conference Call. You may now disconnect your lines.