National Fuel Gas Co. management on Friday struck an aggravated but determined tone about the New York State Department of Environmental Conservation’s (DEC) decision last month to deny key permits for the Northern Access expansion, saying the company remains committed to the project.
“Operations in all of our business sections have been going great for a long time; that’s the old news,” CEO Ronald Tanski said in curt fashion. “The current news is that we’re getting lousy regulatory treatment in New York state.”
The DEC denied NFG subsidiaries water quality certification and other essential permits for Northern Access, which the company’s exploration and production (E&P) subsidiary, Seneca Resources Corp., is relying on to help alleviate capacity constraints in Northwest Pennsylvania. After three years of review, the agency said the project would have a negative impact on the environment. Two weeks after the denial, NFG filed a petition for review in the U.S. Court of Appeals for the Second Circuit.
“Unless we’re able to negotiate a resolution, we expect our litigation will take a minimum of one full year to resolve, but likely longer,” Tanski told analysts during a call on Friday to discuss the company’s fiscal second quarter results. “Assuming a timely resolution, and the need to remobilize all of the engineering and contractor logistics surrounding the Northern Access project, we would be looking at an in-service date of either the spring or fall of our 2020 fiscal year.”
At best, then, that would mean the project is delayed by about two years or longer. The company’s fiscal year begins in October, and NFG was targeting an in-service date of 1Q2018 for Northern Access. The more than 490,000 Dth/d project would expand the Empire and National fuel systems to move gas from Seneca-operated wells in northwest Pennsylvania to markets in New York, Canada, the Northeast and Midwest.
For the time being, Tanski said the New York-based company will focus on investment opportunities outside of the state. The DEC he said, “stymied our attempt to invest half a billion dollars in a federally approved pipeline project that would help us grow the company and assure a continued strong presence in the state.” That’s compared to Pennsylvania, he added, where the company has been more warmly received.
Tanski took that a step further. Combined with a record low rate case for the company’s utility — what he claimed was the lowest rate granted in the entire country since the 1980s — the regulatory climate has NFG “taking a serious look at our ability to achieve any reasonable growth in New York.”
Seneca President John McGinnis said that since Northern Access wasn’t scheduled to be online until 2018, it won’t have an impact on the E&P’s activity levels this year. Strong well performance and a better spot market in Appalachia, along with the company’s gathering segment, helped lift NFG’s second quarter results. Seneca produced 45.6 Bcfe during the period, up 16% from the year-ago quarter and 2% from fiscal 1Q2017.
Better prices and higher volumes prompted the company to increase its production guidance to 165-180 Bcfe, up from its previous guidance by 7.5 Bcfe at the midpoint. Seneca increased its capital budget for the year as well to $210-$250 million from $180-220 million.
The company also made progress with its Utica Shale appraisal program in northwest and north-central Pennsylvania during the second quarter. McGinnis said once the company has sufficient results from those wells, “it will decide whether or not to shift to an exclusively Utica drill program over the next few years.”
Despite the Northern Access setback, Tanski added, the company is targeting 10%-plus Appalachian production growth over the next three years, given the “near-term strength we are seeing in local pricing.”
Seneca’s average realized natural gas price, including hedges, was $2.96/Mcf, or 3 cents less than last year at the same time. Appalachian prices, however, increased significantly to $2.71/Mcf from $1.85/Mcf in 2Q2016. Consolidated revenue from the company’s utility, upstream and midstream segments increased as well, going from $449 million in the year-ago period to $522 million.
NFG reported consolidated net income of $89.3 million ($1.04/share), compared to a net loss of $147.7 million (minus $1.74) in fiscal 2Q2016.
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