National Fuel Gas Co. (NFG) saw its earnings and revenue fall steeply in the second quarter 2015 fiscal year, mainly as a result of low commodity prices that prompted its upstream segment, Seneca Resources Corp., to shut in 13.5 Bcfe of Marcellus Shale production in Pennsylvania.

Seneca President Matt Cabell said that absent those curtailments, year-over-year production would have increased by 34%. Stagnant oil and gas prices also forced the company to take a nearly $70 million writedown on its properties in Pennsylvania and California. If commodity prices don't rebound significantly, Principal Financial Officer David Bauer said impairments would likely persist for the next three quarters.

Seneca produced 35.7 Bcfe during the quarter, down about 3% from the 36.8 Bcfe it produced in the year-ago period. Management said the company sold only its firm volumes in the Marcellus, with weak Appalachian basis prompting it to curtail about 150 MMcfe/d in uncommitted production. That was up from the first quarter 2015 fiscal year, when the company curtailed about 6 Bcfe/d of Marcellus volumes (see Shale Daily, Jan. 30).

"On a macro basis, we continue to see more and more drilling rigs being idled, and we believe that this will help bring the current oversupply more in balance with near-term demand, and as each new pipeline project out of the basin comes online, we expect to see the basis differentials in our production areas decrease," CEO Ron Tanski said of the company's Pennsylvania assets. "We recognize that there will be some low spot pricing and curtailments that we need to deal with in the short term, but we anticipated that, and our plans are designed to deal with that issue.

Seneca's natural gas prices during the quarter, including hedges, were $3.65/Mcf, down from $3.89/Mcf at the same time last year. Oil prices, including hedges, were $67.14/bbl, down from $96.85 in the year-ago period. Upstream revenue was down from $199.5 million to $165.5 million over the period.  Seneca recorded a loss of $53.6 million in the quarter, compared to a profit of $24.4 million in 2Q2015.

Although the company's upstream business dragged down consolidated earnings, a colder than normal winter and Appalachian midstream demand helped keep them from eroding further. NFG's utility and pipeline and storage segments both reported an increase in earnings. National Fuel Gas Distribution Corp., which serves more than 737,000 customers in New York and Pennsylvania, reported earnings of $38.2 million, up $2.7 million from the year-ago period.

The midstream segment, National Fuel Gas Supply Corp. and Empire Pipeline Inc., saw year-over-year earnings increase by $2 million to $23.4 million.

"As in prior quarters, we continued to see high demand for short-term transportation on our [pipeline] systems," Bauer said. "Some of it was weather-related, but most of it was producer volumes looking to get out of the basin. The weather in our Pennsylvania service territory, while only 2.5% colder than last year was 23% colder than normal, which added about 4 cents/share to earnings."

Overall, year-over-year consolidated revenue dipped from $756 million to $596 million. Year-over-year consolidated net income also dropped from $95.2 million ($1.12/share) to $16.7 million (20 cents/share).