Lower natural gas prices will have an effect on National Fuel Gas’ (NFG) bottom line in 2011, but the company will continue to ramp up its drilling operations in the Marcellus Shale during the year, CEO David F. Smith said during a conference call with financial analysts Friday.

“We’re excited about the progress we’ve made in the Marcellus in 2010 and we look forward to continued success in fiscal 2011. Despite the decline in natural gas prices in recent months, we remain committed to spending $380-425 million in our Marcellus program in 2011. Even at $4 gas prices, our returns our still very, very attractive.”

During 2010, the Williamsville, NY company’s exploration and production unit, Seneca Resources Corp., advanced its Marcellus program from almost a dead start.

“When we entered our fiscal year, Seneca was in the very early stages [of its Marcellus program], having just drilled its first two Seneca-operated horizontal wells. By the end of the year, Seneca was a seasoned operator, having drilled another 29 horizontal wells and having grown its daily Marcellus production from virtually 0 to 53 MMcf/d,” Smith said.

Seneca’s Marcellus production increased even as its California, Gulf of Mexico and Upper Devonian production remained flat, according to Seneca President Matthew D. Cabell.

“Our midstream group is acquiring rights-of-way and surveying for a gathering system that will bring production from [the Tioga-Potter-Lycoming county area] south to Transco,” Cabell said. “Construction will begin in the spring with first production expected next fall.”

Seneca recently said it was in the hunt to secure more joint venture (JV) partners to help develop its Marcellus Shale portfolio (see Daily GPI, Sept. 23). Seneca and IV partner EOG Resources Inc. since 2007 have been testing the potential of Seneca’s 935,000 net acres in the Pennsylvania portion of the gas shale play (see Daily GPI, Aug. 10, 2009; Feb. 8, 2007).

NFG announced consolidated earnings for the fourth quarter of fiscal year 2010 (FY2010) of $38.4 million (46 cents/share), a 42% increase compared with the year ago period’s $27 million (33 cents). Those earnings “were right in line with our expectations,” Smith said. But $6.3 million of those profits came from the sale of the company’s landfill gas business, and low natural gas prices will drag earnings below previous estimates in FY2011, he said.

The company revised its earnings guidance for fiscal 2011 to $2.40-2.70/share, down from the previously announced $2.60-2.90/share, due to a decline in assumed natural gas prices.

The E&P segment reported fourth quarter FY2010 earnings of $27.5 million (33 cents) compared with $28.1 million (34 cents) in the year ago period. The decrease was mainly due to a higher effective tax rate. Lower natural gas prices realized after hedging also reduced earnings, Cabell said. The pipeline and storage segment, consisting of National Fuel Gas Supply Corp. and Empire Pipeline Inc., reported earnings of $6.7 million (8 cents).