Good morning and thank you for joining the National Fuel Gas Company Q4 Fiscal 2023 Earnings Conference Call. My name is Kate and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to turn the call over to your host, Brandon Haspett, director of Investor Relations. You may proceed.

Thank you, Kate 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'll open the discussion to questions. The fourth quarter fiscal 2023 earnings release in November 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 the date on which they're 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. Good morning, everyone. Fiscal '23 was a good year for National Fuel, both financially and operationally, and one that positions the company for growth in the years ahead. Seneca's production was up 9% over the last year, averaging over 1 Bcf per day net. cash operating costs continued to trend downward as we build scale at Seneca. Commodity prices were a headwind during the year, but our consistent approach to hedging mitigated a lot of the pricing impacts and protected a substantial portion of our earnings and cash flows. Earnings at our regulated businesses were down slightly due to cost inflation and the associated regulatory lag, but recent rate proceedings in all three jurisdictions should reverse that trend. Most importantly, we generated $275 million of free cash flow during the year, roughly in line with the nearly $300 million of combined free cash flow and proceeds from asset sales in fiscal '22. In addition to continuing our long history of returning significant and increasing amounts of capital to shareholders through our dividend, the free cash flow we've generated over the past two years has funded $150 million of bolt-on acquisitions in our Eastern development area, while at the same time contributing to a reduction in our absolute levels of debt. Given our deep and growing inventory of high returning locations in Tioga County; this past summer, we started a multi-year transition of Seneca's development program to focus more heavily on the EDA. While it's early, the transition is progressing smoothly. We just brought online a six-well Marcellus pad in Tioga County and expect to bring online in the first quarter a 13-well Marcellus pad in Lycoming County. Production rates, drilling and completion costs and the timing of the wells being brought online, have all been in line…

Thanks, Dave and good morning, everyone. Fiscal '23 was a great year for both Seneca and NFG midstream, and sets up our Appalachian development program for continued success in the years ahead. Seneca registered another year of record net production averaging over one Bcfe per day, which combined with increasing third-party volumes drove record revenues at midstream. We also began our transition to an EDA-focused development plan, which is supported by continued strong well results in Tioga County and the integration of recent bolt-on acquisitions that further bolster our deep inventory of highly economic future development locations. Our integrated approach to development creates capital efficiency tailwinds with Seneca increasingly targeting its highest returning area and midstream leveraging its significant existing gathering trunk lines and centralized facilities. Starting with midstream, we achieved several notable milestones in fiscal '23, including record throughput and EBITDA. Throughput increased more than 8% to over 1.2 Bcf per day with third-party gathering volumes increasing nearly 20% over the prior year. EBITDA also increased 5% year-over-year to $186 million. Looking to fiscal '24, we expect this growth to continue as we focus on the ongoing coordinated infrastructure build-out with Seneca to support its shift to an EDA-weighted development program. Moving to Seneca's '23 results. we concluded the year with a strong fourth quarter producing 94 Bcfe. Our team delivered fiscal year production of 372 Bcfe, an increase of 6% year-over-year. These strong results included the impact of 6 Bcf of voluntary curtailments due to low in basin pricing. Seneca's reserves also grew to over 4.5 Tcfe as a fiscal year end with net additions and revisions of over 700 Bcfe represented an annual increase of 9% and an impressive nearly 200% reserve replacement. In addition to record production and reserves during fiscal '23, Seneca expanded its highly-economic…

Thanks, Justin and good morning, everyone. Last night, national Fuel reported fourth quarter adjusted operating results of $0.78 per share. The decrease in earnings compared to last year was largely driven by lower realized natural gas prices. for the quarter, NYMEX prices averaged $2.55 per MMBtu, compared to more than $8 in last year's fourth quarter. However, our hedge portfolio mitigated a significant portion of this price decrease. In addition to pricing, there are a few other items that I want to hit on with respect to our reported results and fiscal 2024 guidance. First, capital spending for fiscal 2023 came in slightly above the high end of our guidance range. breaking it down by segment, our upstream and gathering businesses came in right on top of the midpoint of the respective ranges. However, we finished the year above our spending guidance ranges for both of our regulated segments. Construction activity came in ahead of schedule in the fourth quarter. with rate cases on file in our New York Utility and supply corp subsidiary, and the availability of a system improvement tracking mechanism in our Pennsylvania utility, we've been working hard to ensure that our modernization program stays on track and the associated capital is placed in service as efficiently as possible. While this pushed us above our previous guidance range, it was important to get this plan in service in order to ensure that we are able to earn a timely return on these investments. Next, our DD&A rate of $0.65 per Mcfe for the fiscal year was above the high end of our guidance range. This was driven principally by our ongoing transition towards an EDA-focused development program, where well productivity and returns are superior to our Western development area. Despite this return profile, these wells tend to…

[Operator Instructions] The first question will be from the line of Umang Choudhary with Goldman Sachs. Your line is now open.

Hi. good morning and thank you for taking my questions. Let me start with the Tioga Pathway project, where you plan to add 190 MMcf per day of capacity coming online in 2026. Wanted to get a sense in terms of how you plan to -- what are your plans around the upstream segment? Do you plan to grow production to fill in the capacity and if any color you can provide in terms of potential uplift in netbacks through the project?

Sure. Good morning. Thanks for the question. So yes, this is all part of our longer-term kind of strategic growth plans in Tioga and creating additional takeaway capacity that'll allow for the growth that we have planned with -- if you look at our production rates today, over 1 Bcf a day net and a lot of that production will continue to shift. One, we intend to continue growing and then a lot of that production will shift to being coming out of Tioga. So, it's important for us to have access to diverse markets, and also, the best pricing we can get. The Tioga Pathway Project achieves both of those opportunities for us. So, we'll be able to move gas to markets, where we do anticipate getting an uplift relative to what we could sell into the markets that are available to us today, just right in Tioga. And then on top of that, it will allow for growth and diversification when we think about how much gas we'll be producing out of Tioga as we get out a couple three years from now and then continue that that development plan for many, many years beyond that.

Helpful, thank you. And then would love your updated views around the M&A landscape and the broader macro. Any color you can provide there would be helpful. thank you.

Sure, happy to hit on that. obviously, there's been a tremendous amount of activity recently more really big transactions and certainly more generally speaking, Permian focused. Our view is that there could be additional M&A, but certainly, there's nothing that we don't see necessarily a wave kind of coming across Appalachia that would consolidate the industry. Perhaps at some point, that'll happen, but these other recent deals that we've seen, seem to be more focused and definitely, the Permian continues to be the area, where I think we'll continue to see the most M&A focus.

Got you. Anything on the utility and the regulated side, where you see potential areas, which can be a focused area for the company longer-term, I guess.

Yes. I think over time, we'll see assets come on the market. As I've said on the past, our interest is in properties that would be nearest in proximity to us. It's a long-term business. So, we're going to stay focused on evaluating properties that come onto the market.

Excellent. Thank you.

Yes.

Thank you. The next question will be from the line of Zach Parham with JPMorgan. Your line is now open.

Yes. Thanks for taking my question. Tim, maybe just a follow-up for you on your prepared remarks just on cash taxes over the longer term. I think in the past, you've talked about high single digits in 2024. Is that still the case? And maybe, could you provide some thoughts on what longer-term cash taxes might look like?

Sure, Zach. Yes, I would say, where we sit right now, that high single-digit 10% area for 2024 still feels like the right number. The new repairs guidance may make that move around a little bit as we go through time. Longer term, over the next, say two or three years, I'd expect us to trend a bit ratably up to the low 20% area and then hold that run rate over the long term.

Thanks. that's great color. And then Justin, maybe just one for you on the E&P business. Could you just give us an update on how things are going with your E-fleet, I know you added it around mid-year, maybe just any color on efficiency or cost gains you've seen thus far?

Sure, happy to. So, we're currently completing our third pad with the new E-fleet. It's gone very well and one of the things, I'm most happy to see is that we're achieving approximately 90% diesel displacement at this point out of that fleet, which is what we were hoping to do. That has an additional benefit, which is diesel prices are starting to move upward and our exposure to that is much more limited, than it would be if you're using a tier two, tier four fleet. So overall, positive and we're just prosecuting the development plan and intend to continue using it and able to use our own gathering system to provide the gas, which is a dual benefit.

Thanks, guys.

Thank you. The next question will be from the line of John Abbott with Bank of America. Your line is now open.

Hey. thank you very much for taking our questions. So, this question may be for Tim here. It's on the utility rate case that was filed for New York and the $89 million increase that you're looking to obtain. When you sort of look at other, I mean, when you look at that number and you look at what other peer utilities have asked for within the state, what's your sort of competence on that sort of number?

Yes. John, it's a good question. I think, we're starting right now from a position of very low delivery rates. We're the lowest delivery rate company in New York State. All of the other utilities that have been in, they're facing the exact same cost pressures that we are seeing. So, while on the surface, it's a larger increase that the fact that we've stayed out of a rate case since 2016 and our delivery rates really haven't been unchanged since 2008 for the most part. I think, we're hopeful we get a good settlement that allows us to earn the returns and recover the costs that we have. But it's early on in the proceedings, I don't want to speak to exactly the direction of travel it'll take. but hopefully, that gives you some color

That does. And you just spoke to the trajectory of cash taxes. but that new tax rate guide of 25% to 25.5%, is there catch-up in that guide from 2023? And I guess, my question is, is that the applicable rate post-2024 or does it tick up towards the higher end of that range? How does that kind of work there, Tim?

Yes. So, there is no effective rate in impact of the catch-up. That all happens as a temporary difference from a tax perspective. So, that isn't driving it, it's largely driven by the nature of, of our Pennsylvania jurisdiction and how they treat repairs in this deduction specifically. So, I'd expect this effective tax rate ultimately to maintain relatively consistent levels but it will depend on the level of capital that we deploy in Pennsylvania and ultimately, how much of that is eligible for this deduction versus being capitalized from a tax perspective.

That was very helpful. Thank you for taking our questions.

You bet.

Thank you. [Operator Instructions] The next question will be from the line of Trafford Lamar with Raymond James. Your line is now open.

Guys, I guess, my first one is probably for Justin. Justin, looking at the EDA, I was wondering if you could touch on maybe well productivity comparison between the Marcellus and the Utica and kind of how you all view the two targets from a planning and development standpoint, deciding which ones to drill?

Sure, Trafford. The well productivity, we see, is just higher deliverability out of the Utica. It's the pressures we have there are quite a bit higher. So, what we can achieve out of those wells are sustained rates that are $15 million to $20 million a day in sustaining those rates for many months. So, you get a lot of gas you hold, you hold pressure, so that you get a lot of gas at a sustained rate for quite a long period of time. And given the contiguous nature of our development, we're able to drill very long laterals, pretty much all of our laterals are north of 10,000 feet, probably the averages in the 11,000 foot to 13,000-foot TLL. The Marcellus wells are great. They don't have quite the pressures. The deliverability we have in Tioga is very good. What benefits those is, they're a little bit lower cost, they're lower pressure, they're a little shallower, so less money to drill. And the completion designs on those wells are a little bit less intense bringing the cost down. So, they're both excellent targets for us. from an economic perspective, we're happy to go to either one. And really, our development plan is guided by what makes the most sense collectively between Seneca and Midstream as we work to develop across that entire position. Ultimately, looking to deploy as few dollars as possible between the two entities and kind of marching through the acreage we have. And so that's what really will guide it. Both targets, Marcellus and Utica are excellent. So, we're going to keep working through all the inventory we have over the next many, many years.

Perfect. Appreciate the color on that. And then one quick one on the two Bcf price-related curtailments. Was that largely via pipe maintenance, I'm assuming?

No. so, I'm not counting pipeline maintenance in that, that is purely, there were times in the last quarter, where gas prices were terrible, the in-basin gas pricing even below $1 and less. and there's times when prices are very low like that. we will voluntarily curtail. So, we maintain a small portion of our overall production that is exposed to in-basin pricing that's intentional. And so, like I spoke for '24, we have about 90% of our production that has access to firm transport or firm sales that leaves about 10% in there. And so, when I talk about that two Bs, what I'm really getting at is that layer that doesn't necessarily have a home if you will. if we see prices that are extremely depressed, call it, below $1 or in that vicinity. we choose not to sell that gas and we will simply curtail the well, choke the wells back, shut them in for a period of time and then wait for better pricing like we're starting to see now as we start to see the beginnings of winter and find that to be a far better economic answer for our company.

Perfect. Appreciate that. Thank you.

Thank you. At this time, there are no further questions in the queue. So, I will turn the call back over to Brandon for final remarks.

Thank you, Kate. 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 we'll run through the close of business on Thursday, November 9th. 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 693074. This concludes our conference call for today. Thank you and goodbye.

That concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.