National Fuel Gas Co. (NFG) is forecasting a decrease in earnings for fiscal year (FY) 2018, which began last month, primarily as a result of lower anticipated commodity prices for its upstream business segment.
“Unfortunately, we’ll be missing the boost to earnings that we had expected with our Northern Access project,” which was initially scheduled to come online late last year, CEO Ronald Tanski said during the company’s fiscal 4Q2017 earnings call Friday.
The New York State Department of Environmental Conservation (DEC) denied a water quality certification (WQC) for Northern Access in April, claiming it would adversely impact the environment. NFG has petitioned the U.S. Court of Appeals for the Second Circuit to review the agency’s decision and has asked FERC for a rehearing of the certificate order authorizing the 490,000 Dth/d project.
Oral arguments before the Second Circuit are scheduled for Nov. 16. “If we were to use the Constitution lawsuit as an indicator of the timeline, we may not get a decision from the court until August,” Tanski said. “Remember that our case is different from the facts in Constitution and, we’re not discouraged by the outcome in that case.”
Constitution Pipeline Co. LLC lost a similar challenge in the Second Circuit over the summer. The DEC denied that project’s WQC last year because the agency said it was incomplete. DEC also continues to fight the Federal Energy Regulatory Commission over its decision towaive the agency’s authority to decide on a WQC for Millennium Pipeline Co. LLC’s Valley Lateral Project and green light construction of the project.
“It’s hard to project a timeline on that hearing, since FERC seems to be busy clearing up their certificate application backlog that built up when they had no quorum,” Tanski said of the company’s motion to expedite its request for a FERC rehearing. “Add to that the additional litigation DEC is piling on in the Millennium Valley Lateral proceeding, and it’s anyone’s guess when we might get an answer.”
Tanski said the company continues to make progress in discussions with third parties to secure more takeaway capacity in Appalachia, but said there wasn’t enough yet to offer any specific details. The company is preparing its FERC application for the Empire North Project, which would move 205,000 Dth/d through New York and into Canada. That project, Tanski said, wouldn’t require a WQC from the state because it’s designed to increase throughput by adding compression to the existing Empire Pipeline system.
In the meantime, NFG’s exploration and production subsidiary, Seneca Resources Corp., continues to focus on testing the Utica Shale in the company’s Western Development Area (WDA) of northwest Pennsylvania. Seneca has eight wells on production there after more than a year of delineation efforts. Seneca President John McGinnis said the company would shift to a 100% Utica development program in the WDA by the end of FY 2018.
Based on results from the first five wells, Seneca released an initial WDA Utica type curve of 1.7 Bcf per one thousand feet of lateral. That’s compared to a 1.1 Bcf estimated ultimate recovery for Marcellus Shale wells in the region.
“There’s quite a bit of testing left to do,” McGinnis said. “In the three most recent wells, we actually tested three different targets. They’re all within 30 or 40 feet of each other, but we’ve seen differences even within that small of a change. As we move forward, it will be an ongoing testing program. We will be -- at least for the next year -- testing different stage spaces, testing different well spacing as well. So, there’s still quite a bit of work to do.”
In Seneca’s Eastern Development Area in north-central Pennsylvania, the company recently added a rig to ramp-up volumes for the Atlantic Sunrise project, which is under construction and expected to come online next year. Seneca has committed to 190 MMcf/d on the project, and McGinnis said the company would be ready to fill that immediately once service begins.
Seneca produced 40.4 Bcfe in the fourth quarter, up slightly from the 39.8 Bcfe it produced in the year-ago period and down from the 42.7 Bcfe it produced in fiscal 3Q2017. Lower Appalachian prices forced the company to curtail 2.5 Bcf of production during the fourth quarter, which was an improvement from the 6.2 Bcf of price-related curtailments it made in the year-ago quarter.
For the full year, the company produced a company record of 173.5 Bcfe, which was up 8% from FY 2016. Seneca is guiding for 185-200 Bcfe of production in 2018, which is in line with previously announced plans to grow annual production by 10% over the next three years. Upstream spending is forecasted at $275-325 million next year, compared to the $246 million the segment spent during FY 2017.
Average realized natural gas prices during the fourth quarter, including hedges, dropped from $3.09/Mcf in the year-ago period to $2.91/Mcf.
NFG’s consolidated revenue, which includes the upstream, gathering, pipeline, utility and energy marketing segments, declined from $292.5 million in 4Q2016 to $286.9 million. NFG reported consolidated net income for the fourth quarter of $45.6 million (53 cents/share), compared to income of $37.6 million (44 cents) in 4Q2016.
For FY 2017, NFG reported revenue of $1.6 billion, up from $1.5 billion in the prior year. Full year net income was $283.5 million ($3.30), compared to a net loss of $291 million (minus $3.43) in FY 2016.