Earnings Labs

National Fuel Gas Company (NFG)

Q4 2025 Earnings Call· Thu, Nov 6, 2025

$89.48

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Transcript

Operator

Operator

Hello, and welcome to the National Fuel Gas Company Fourth Quarter and Full Year Fiscal 2025 Earnings Call. My name is Harry, and I'll be your operator today. [Operator Instructions] I would now like to hand the conference over to Natalie Fischer, Director of Investor Relations. Please go ahead.

Natalie Fischer

Analyst

Thank you, Harry, 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 Chief Financial Officer; and Justin Loweth, President of Seneca Resources and National Fuel Midstream. At the end of today's prepared remarks, we will open the discussion to questions. The fourth quarter and full year fiscal 2025 earnings release and 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 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.

David Bauer

Analyst

Thank you, Natalie. Good morning, everyone. As we reported in last night's release, National Fuel had a great fourth quarter with adjusted earnings per share of $1.22, an increase of 58% from last year. The quarter capped an excellent fiscal year where each of our segments delivered meaningful growth. On a consolidated basis, adjusted earnings per share increased 38% compared to fiscal 2024. At our integrated Upstream and Gathering businesses, we continued our impressive trend in capital efficiency, a trend that is unmatched by our Appalachian peers and perhaps across the industry. Since we began our EDA transition in mid-2023, we've grown production by approximately 20% while reducing our overall capital spending by 15%, which is a testament to both the quality of our Tioga County assets and our team's dedication to operational improvement and execution. Given the productivity of our acreage and the depth of our inventory, I fully expect our capital efficiency will continue to improve in the coming years. To that end, last night, we announced a significant expansion of our Tioga County inventory, adding approximately 220 prospective well locations in the Upper Utica formation. Over the past few years, we've been testing this horizon across our Tioga acreage and the strong performance from the 4 highly productive wells turned in line to date in the Upper Utica give us the confidence to increase our inventory in this area. The addition of Upper Utica locations nearly doubles our inventory in the EDA. At our current pace, we now have almost 20 years of development locations that are economic at NYMEX prices below $2 per MMBtu. As we've discussed in the past, another key driver for future growth at Seneca is additional firm transportation and firm sales to ensure we have an end market for our production. Consistent…

Timothy Silverstein

Analyst

Thanks, Dave, and good morning, everyone. We ended fiscal 2025 with a strong fourth quarter. As Dave highlighted, adjusted earnings per share increased 58% from the prior year, driven primarily by excellent results in our Upstream and Gathering operations. For the quarter, production increased 21% from the prior year as Tioga Utica well performance exceeded our expectations. In addition, our realized price after hedging increased by 9% on the back of improved commodity prices, while total per unit operating expenses were lower. Altogether, adjusted earnings per share in our integrated Upstream and Gathering business increased 70% year-over-year. These great results were also supported by continued operational excellence in our regulated businesses, where lower-than-expected expenses led us to beat our projections. Before I discuss our outlook for the business, I want to highlight a change in our segment reporting structure. Historically, we've reported our Exploration and Production and Gathering segments separately. We've streamlined our financial reporting by combining those 2 segments into one, which we are calling our Integrated Upstream and Gathering segment. We believe this approach best aligns with how we make capital allocation decisions, how we think about the integrated cost structure benefits and how we will continue to manage the businesses going forward. Shifting to fiscal 2026. All of our underlying operating assumptions and capital spending ranges remain consistent with last quarter's guidance initiation. Over the past few weeks, NYMEX prices have averaged approximately $3.75. So we are using that assumption to initiate formal guidance. At that price, adjusted earnings are expected to be within the range of $7.60 to $8.10 per share. As you may recall, with the natural gas price volatility we saw over the summer, we provided preliminary EPS guidance at various NYMEX prices. Volatility on the front end of the curve remains, so we're…

Justin Loweth

Analyst

Thank you, Tim, and good morning, everyone. As Dave mentioned earlier, fiscal '25 marked another year of strong operational and financial performance for our integrated Upstream and Gathering business. We grew our [indiscernible] reserve base to nearly 5 Tcfe and achieved record net production of 427 Bcfe, surpassing the high end of guidance and growing 9% year-over-year. This meaningful growth was achieved with capital expenditures of $605 million. A reduction of approximately $35 million from the prior year. Since 2023, we've achieved a 30% improvement in capital efficiency, highlighting the strength of our asset base, the effectiveness of our development strategy and our strong operational execution. And we expect this capital efficiency trend to continue to improve in the years ahead. Beyond capital efficiency improvements, over the past year, we've made substantial strides in further increasing our peer-leading inventory depth. As noted in last evening's earnings release and our updated investor presentation, we've significantly increased our core Tioga Utica development inventory. Our delineation efforts have unlocked additional resource potential in the Upper Utica, a distinct zone separated by a large frac barrier from the Lower Utica. We currently have 4 producing Upper Utica wells, each of which was codeveloped on a pad with lower Utica development wells, which allowed us to delineate a large swath of acreage over a multiyear period. As such, we have significant production history and all wells have demonstrated productivity on par with our Gen 3 Lower Utica wells. This successful appraisal campaign more than doubles our Tioga Utica inventory to approximately 400 future development locations. We estimate net recoverable gas from the future Tioga Utica development of over 10 Tcf, underpinned by an approximately 300-foot Utica resource column. In addition, we have approximately 60 Marcellus locations in Tioga and Lycoming counties. Combined, we now have…

Natalie Fischer

Analyst

You may open the line for questions.

Operator

Operator

[Operator Instructions] Our first question will be from the line of Greta Drefke with Goldman Sachs.

Margaret Drefke

Analyst

I first wanted to touch on the incremental core inventory and the economics of the Upper Utica. Can you provide more details on how long you've been examining the Upper Utica zone and what was the process like that has given you confidence that these 220 locations are competitive with the rest of the portfolio?

Timothy Silverstein

Analyst

Greta, thanks for your question. This has been something we've been working on for years. Our team saw this opportunity early on in our initial integration of the Shell acquisition and frankly, our prior results. So it's something we've seen the possibility of for a long time. We really began delineating it and getting a better understanding starting within the last 3 years. And so over a period of time, we were able to drill test wells while drilling lower Utica development pads. And so the opportunity we had in front of us was to test this, do it very efficiently and very effectively from a capital efficiency perspective and then bring these wells on at the same time as we were bringing on the balance of the production from these pads. So we've had a lot of opportunity to cover both a large swath of our acreage position and also to have a significant production history. And what we see is outstanding results. The other thing just to note about this that's very exciting to us is we're developing these and going to co-develop them in the future exactly where we're developing the Lower Utica now. So as an integrated Upstream and Gathering company, we will also capture additional margin and efficiencies by reutilizing our midstream infrastructure. So this is yet another step forward in our driving lower capital and increasing production over the long term.

Margaret Drefke

Analyst

Great. And I also wanted to ask on your outlook for in-basin demand a little bit more broadly. Beyond the Shipping Port project, are you continuing to see interest from other potential project partners for opportunities in basin? And how beneficial would you characterize NFG's fully integrated operations in these discussions relative to producers that might just have Upstream supply?

David Bauer

Analyst

Yes, Greta, we've had some really good interest from other data center developers, from other entities pursuing power projects, we're really excited about it. The momentum really continues to build behind it. As I said in my remarks, I think we -- our integration gives us a big advantage because we can offer a whole suite of alternatives, ranging from basic plain [indiscernible] pipeline service to gas supply to any combination of those things. So we're real optimistic about the future and I think we'll have multiple opportunities going forward.

Operator

Operator

The next question today will be from the line of Noah Hungness with Bank of America.

Noah Hungness

Analyst

For my first question here, this is maybe for you, Justin. How can we think about when the Upper Utica will become a larger part of the NFG program?

Timothy Silverstein

Analyst

Yes. Noah, thanks. We are already incorporating some Upper Utica into our 4 plants. And so I think what you should expect is that we're really going to continue to do what we've been doing with our lower Utica development, which is trying to optimize our operational planning to allocate capital that we deem to be the highest integrated returns between Seneca and Gathering. We're going to look at the Upper Utica and that same -- through that same prism. -- where we're going to focus on the balance of uppers and lowers that optimize both the land use in terms of the pads we're building, the midstream infrastructure we're building and optimize our development plan along that. So while our program to date has been certainly focused on a lower Utica, we will start having more uppers in our plan as we move forward.

Noah Hungness

Analyst

Well, I guess my question was, if you guys are going to pill 26 wells this year and let's say, 25 are the Tioga Utica, what percent of that would be uppers? And is that a good number to assume moving forward into '27 and beyond?

Timothy Silverstein

Analyst

Yes. So we will have a number of Upper Utica wells over the course of '26. It will be a much smaller percentage relative to the lowers. And then as we go into '27 and '28, I would expect the team to continue to optimize to figure out the right mix. I think near term, you should expect that we'll certainly have more lowers, but then over time, that may become more balanced between uppers and lowers. Hopefully, that answers your question more and certainly know over time, we can dig into that more with you and others.

Noah Hungness

Analyst

Yes. No, that's very helpful. And then the next question here is just on debt. I mean with the CenterPoint deal, you guys are obviously going to be taking on a large amount of debt. The utility can only handle so much. So how are you thinking about allocating the remainder of that debt across the rest of your business?

Timothy Silverstein

Analyst

That's a good question. I mean the reality is we do all of our financing at the parent company. So the credit rating agencies look at the total debt at the holding company level relative to the entire cash flows of the system. So we'll look across the system as to where those cash flows are being generated, and we'll issue intercompany promissory notes. But at the end of the day, all of that debt is fungible amongst the segments. And so it's a bit of a balancing act looking at cash flows, looking at capital structures at the various segments as it relates to ratemaking and a whole bunch of considerations. But I'd really stay focused on the capital or the debt being at the parent company and looking at the aggregate cash flows of the entire NFG system.

Operator

Operator

[Operator Instructions] And our next question will be from the line of Timothy Winter with Gabelli & Company.

Timothy Winter

Analyst

Congrats on another strong update. A couple -- one real quick one though, Tim. The Supply Corp going in for a rate case, what are the returns you're earning currently on the Supply Corp?

Timothy Silverstein

Analyst

Yes. I mean, typically, think of a rate-making return there and recognizing everything is a black box settlement in kind of the low double digits is a typical ratemaking return. So north of the utility ratemaking ROEs, but in that general ZIP code.

Timothy Winter

Analyst

Under an assumption of a 50-50 structure equity?

Timothy Silverstein

Analyst

Yes. Yes, 50-50, you have the ability to earn a little bit higher there. And given where our cap structure is north of 50-50, we believe we can earn on that. But again, it's all black stock settlement. So you typically lose the identity of the individual components.

Timothy Winter

Analyst

Okay. And then with the update and new numbers in, are you still looking at $300 million to $400 million of equity for the CenterPoint, Ohio? And any more thinking on the timing or how you're going to go about that?

Timothy Silverstein

Analyst

Yes. I mean if you look at the outlook for the business, which commodity prices being the bigger near-term driver, they're still pretty consistent with where we were a couple of weeks ago when we announced the transaction. So I'd expect that sizing to be similar to what we talked about. And as I mentioned on the call, around the acquisition, we will need pro forma financial statements for the offerings. And so that will take a little bit of time to put together. So we're still looking towards later in the first quarter or spring time frame for accessing the capital markets.

Timothy Winter

Analyst

Okay. Okay. And that assumes the free cash flow, I guess, what you're talking about the $300 million to $350 million generated. Is there any more thought on like a creative way to finance it? As I think I mentioned in the last call, maybe like sell a portion of Seneca or any assets that are less core that you could consider to use as equity?

David Bauer

Analyst

Yes. Tim, this is Dave. I don't think we have much in the way of noncore assets anymore to consider selling. And in terms of, call it, alternative or creative ways to finance things, I think given the amount of equity that we're looking at in this transaction, it's probably a little small to really change the -- our whole approach to financing it. But that's today. As we go through time, if other opportunities come along, we're certainly going to do the -- we're going to finance them in the way that shareholders will get the best answer.

Operator

Operator

With no further questions on the line at this time. I would now hand the call back to Natalie Fischer for closing remarks.

Natalie Fischer

Analyst

Thank you, Harry. 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, November 13. Please feel free to reach out if you have any follow-up questions. Otherwise, we look forward to speaking with you again next quarter. Thank you, and have a nice day.

Operator

Operator

This will conclude the National Fuel Gas Company Fourth Quarter and Full Year Fiscal 2025 Earnings Call. You may now disconnect your lines.