Good afternoon, everyone. I would like to welcome you all to the National Fuel Gas Company Q2 Fiscal year 2023 Earnings Conference Call. My name is Brika and I will be your event specialist operating today's call. [Operator Instructions] Thank you. I would now like to hand the conference over to our host for today, Brandon Haspett, Director of Investor Relations. Sir Brandon, you may begin your conference call.

Thank you, Brika, 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; Tim Silverstein, 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 second quarter fiscal 2023 earnings release in May investor presentation have been posted on our Investor Relations website. We may refer to these materials during today's call. We'd 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.

Thank you, Brandon, and good morning, everyone. Overall, the second quarter was a good one for National Fuel with strong operational execution across our businesses. Seneca and NFG Midstream had a particularly good quarter. Seneca continues to see excellent results from its development program, which has driven both production and gathering volumes to record levels. Capital spending and pre unit operating costs were very much in line with expectations. Pricing was obviously a headwind for the quarter and will likely continue to be challenging in the quarters to come, but we are well hedged for the remainder of this year and for next year. Justin will have a complete update on Seneca's operations later in the call. Seneca was active during the quarter on the land acquisition front. As we announced in our earnings release yesterday, we're acquiring some smaller but highly strategic bolt-on opportunities in our Eastern development area. As I've said on past calls, our A&D strategy in Appalachia is focused on assets that are geographically contiguous that provide an opportunity to leverage our Midstream infrastructure, and it can be purchased at a reasonable price. These acquisitions check each of those boxes. Across the three transactions, we're adding approximately 36,000 largely contiguous acres, most all of which are undeveloped. In addition, we're acquiring approximately 20 million cubic feet per day of flowing production and a PDNP well that can be connected to our Lycoming County gathering system at a relatively low cost. These assets add approximately 50 to 70 EDA locations in some of the most highly prolific parts of the basin. In addition, these assets allow us the ability to drill longer laterals off more than 20 of our existing development locations, which should further enhance the capital efficiency and returns of our program. Although these acquisitions…

Thanks, Dave, and good morning, everyone. Seneca and NFG Midstream had a solid second quarter. Appalachian natural gas production for the quarter came in at 93.2 Bcfe, an increase of 3% sequentially and 12% above last year's second quarter production. This increase was driven by solid operational execution and better-than-expected production from wells turned online in the first half of the year. We also eclipsed the 1 Bcf per day net average for the quarter, a milestone for us. This production growth, combined with our third-party business, drove record throughput at NFG Midstream. This is a trend we'd expect to continue over the near term, particularly with some incremental third-party production that came online at the end of March. The strong production during the quarter offset the headwinds we're facing on the natural gas pricing front. While the long-term outlook remains extremely constructive, with NYMEX futures pricing north of $4 per MMBtu in 2025 and beyond, the near-term supply-demand and storage inventory fundamentals will likely pose some challenges through next winter. We expect in-basin pricing will remain challenged over the next couple of months until we get into summer, where increased power load demand is expected to provide more support. As we enter the late summer, early fall shoulder [ph] season, we expect cash prices to deteriorate again as gas storage levels near capacity. However, we are well insulated from this expected pricing weakness with over 90% of our remaining production protected by our valuable marketing portfolio, which significantly dampens our exposure. With prices anticipated to improve by next winter, we are modestly adjusting our operation schedule to target higher production volumes in early fiscal 2024. This will primarily be accomplished by pushing out online dates of a pad or two by a couple of months, which will bring flush…

Thanks, Justin, and good morning, everyone. Last evening, National Fuel reported second quarter GAAP earnings of $1.53 per share. Excluding items impacting comparability, our adjusted operating results were $1.54 per share, a decrease of $0.14 from last year's second quarter. There were 3 principal drivers of this decrease with the largest being related to the sale of our California assets, which closed in June of 2022. Last year, California contributed approximately $0.13 in earnings during the quarter. In addition, we also experienced higher operating costs in our regulated subsidiaries and 11% warmer weather in our utility. Somewhat offsetting these decreases were Seneca's higher production and associated throughput in our gathering business. With respect to weather and regulated operating costs, I'll take a few minutes to address our plans to mitigate their impacts. First, as Dave mentioned, we reached an agreement with parties in our Pennsylvania rate case on a $23 million revenue increase. The settlement agreement was filed in April, and we expect a decision from the commission that would put new rates into effect on August 1. In addition to the rate increase, the inclusion of a weather normalization mechanism with a dead band of plus or minus 3%, will help reduce year-to-year volatility. With this settlement, we expect to continue to have among the lowest, if not the lowest rates in the Commonwealth, which is a great outcome for our customers. This will go a long way to support our ongoing modernization program, further reducing emissions on our system while mitigating the inflationary pressures we are currently experiencing. In addition to the positive progress in Pennsylvania, in March, the New York Public Service Commission approved a new system improvement tracker. Consistent with our current modernization tracker, this permits us to recover costs associated with new modernization investments. The…

Thank you [Operator Instructions] We have our first question on the phone lines from Trafford Lamar of Raymond James.

Hey, guys. Good morning. I guess my first question is for Justin, kind of surrounding '24 CapEx. I know it's early, but Justin, I think you mentioned some cost plateauing or even decreasing specifically on the tubular side. What about kind of specifically surrounding service cost deflation, what are you all seeing there on the Reagan [ph] frac side?

Sure. So at this point, the biggest change that we've seen, and so over the last couple of months or so, is just that there's significantly more availability of services, so specifically with your frac and your rig services, we were very, very tight. If you go back 6 to 9 months ago, that's opened up. And that, in our view, is really the first step towards some reductions. Definitely, I think the leading edge is that there may be some modest decreases around that. But we think that's really going to play out over the next 3 to 6 months and will significantly relate to the amount of activity in gas basins, but frankly, also in the oil basin. So our bias on the service side is kind of flat to modestly declining if you look out 6 to 9 months or so.

Okay. Perfect. Appreciate the color on that. And then next question is for Dave and Tim. Looking at the balance sheet. You all repaid your '23 maturities and have leverage right around 2x. And you mentioned possibly issuing a longer-term maturity to pay off some short-term debt. But with leverage at 2x, you all are investment grade, how do you kind of look at kind of a target leverage figure moving forward, especially at this low price cycle environment?

Yes, Trafford, it's a good question. So I mean I think the way to think about it is in the high 1s, low 2s is probably the right area for us to be, and obviously, making sure that we can maintain our metrics comfortably within the bounds that the rating agencies have said through the lower points of the cycle. And if you look at where we're at right now, we've got lots of room within our current guidelines. So I'd say where we are at today and trending into the high 1s over the next year or two is the spot for us.

Perfect. Thank you, guys.

Thank you.

Thank you [Operator Instructions] We have had no further questions registered. So I'll hand it back to Brandon Haspett for any final remarks -- I apologize. We do have a follow-up question on the line from Trafford Lamar.

Hey, guys. Thanks for let me get one more in here. I guess the last thing I have is really on free cash flow. And if you all really considered working in buybacks to shareholder return framework. I mean, obviously, you'll have the base too, but I just want to get your thoughts on potential buybacks moving forward?

Yes. Certainly, there will be the potential for that down the road. Our first goal is to get our absolute levels of leverage down, so not just our metrics like FFO to debt and debt to EBITDA, but actual total leverage down. Once we hit that, we'll evaluate different opportunities. I mean, our hope is that something would come along that allow us to grow the company rather than shrink it through a buyback. But absent those opportunities, a buyback is something that we would certainly consider.

Yes. .That makes sense, okay. Thank you.

You bet.

And we have no further questions on the line. So -- we now have a question from Timothy Winter of Gabelli & Company.

Good morning and thanks for taking my questions. I was wondering if you could just talk a little bit more about the planned decision to go to a maintenance mode, what saw sort of underlying that plan? And what would maintenance mode look like from a capital expenditure and production guidance look like.

Sure. Thanks for your question, Tim. What really underpins our development plans and our production growth has remained consistent for a long time now, and it's the ability to reach premium markets. And so we've been fortunate. We've had a really solid firm transportation portfolio. And if you recall, about 16 months ago now, we were able to - our sister companies FM100 and the Leidy South project came online, giving us a significant leg of growth opportunity into strong markets. And we've augmented that plus our other firm FT with firm sales. And so as we look to the future, we don't anticipate any new build infrastructure is going to get announced and get built by 2025. There's the possibility of capacity turn backs, and we've been successful at a couple of those over the last year. And there's the potential also of additional long-term firm sales, which has been a practice of ours for a long time. But our view is very much if we don't have a premium market that will move the vast majority of our gas to. The right answer is to moderate our capital levels and moderate our production to basically match our long-term takeaway. And then, of course, augmenting all of that with our long-standing policy around methodically entering hedges. As it relates to capital, nothing has really changed much with the prior discussion on that. There - the general view is that you kind of have - excluding any sort of inflation or service cost changes kind of apple-apple the comment. But generally, I would expect Seneca and Midstream Capital would be 50 - excuse me, $75 million to $150 million less per year below current levels. And so there'll be a little bit of a noise in that range and we may have a large midstream infrastructure project or something like that in a given year that can move you around or an extra pad being completed and so forth. But that would be the general view on the long-term trend, and it's something we'll be talking more about in the coming quarters.

Okay, great. Thank you. That's very helpful.

Thank you [Operator Instructions] As we have no questions registered, I'll hand it back to Brandon Haspett for any final remarks.

Thank you, Brika. 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 and will run through the close of business on Thursday, May 11. To access the replay online, please visit our Investor Relations website at investor.nationalfuelgas.com, and to access by telephone, call 1 (866) 813-9403, provide access code 313864. This concludes our conference call for today. Thank you, and goodbye.

Thank you for joining. I can confirm that does conclude today's call. Please have a lovely day, and you may now disconnect your lines.