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With Seneca Resources Shift, NFG Foresees Appalachian Natural Gas Growth
A sizable boost in quarterly output from the exploration arm, as well as stronger midstream volumes, have helped fuel Appalachian Basin-focused National Fuel Gas Co. (NFG) as it shifts focus to undeveloped acreage in the Marcellus and Utica shales.
Management told investors during a third quarter conference call the firm’s performance reflected its approach to balanced spending. That approach is helping the company maintain momentum as it prepares for the energy environment of the future, management said.
“Our unique integration allows us to look at project economics on a consolidated basis, and in doing so, we find ways to deliver incremental returns and cash flows that pure play producers and midstream companies typically cannot match,” Seneca President Justin Loweth said.
New York-based NFG operates across four different segments: exploration and production through its Seneca Resource Co. subsidiary, pipeline and storage, gathering and utility services in western New York and northwestern Pennsylvania.
NFG combined production for the quarter was 92 Bcfe, compared with 83 Bcfe year/year. Midpoint production guidance has been increased for the year by 2.5 Bcfe to a range of 350-355 Bcfe.
NFG attributed most of the growth to Seneca’s development program in the Appalachian Basin, boosting natural gas volumes. NFG’s natural gas production totaled 89,293 MMcf for 3Q2022 from 79,745 MMcf in the year-ago period.
Seneca is running two rigs in the Appalachian. NFG CEO Dave Bauer said that plan will largely continue, but the activity is shifting in 2023 to Tioga County, PA, acreage in the Utica.
“We’ve had great success on the initial development of the acreage we acquired there, so it makes sense to overweight that area,” Bauer said.
The strategy change wouldn’t substantially increase upstream spending levels, Bauer said, but would be an emphasis of its capital plan for the next two years as NFG builds out infrastructure to the interstate pipeline system.
Bauer said NFG’s midpoint guidance for Fiscal Year 2023 capital spending was $830-940 million, a 10% increase year/year.
Oil production volumes dropped slightly when compared year/year, which the firm attributed to a “natural production decline in California.” Oil volumes totaled 526,000 bbl in 3Q2022, compared with 558,000 in 3Q2021.
NFG recently closed the sale of Seneca’s California assets, reportedly netting $241 million.
NFG is also planning a transition to an all-electric hydraulic fracturing fleet next year. Loweth said the move could “significantly advance” long-term emission reduction goals while reducing impacts from inflation. An all-electric fleet could mean “largely locking in completion service prices” and reducing reliance on diesel fuel, he said.
NFG’s average realized price for natural gas was $5.52/Mcf in fiscal 3Q2022, compared with $2.31 year/year. Its realized oil price was $110.76/bbl from the year-ago average of $67.52.
Around 75% of NFG’s total production volumes are hedged, The firm also expects its exposure to near-record high natural gas prices to be limited in fiscal 2022, as around 90% of volumes are under contract.
Net income was $108.2 million ($1.17/share) in fiscal 3Q2022, compared with year/year profits of $86.5 million (94 cents).
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