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National Fuel beats Street, cuts 2020 guidance on low gas prices

Strong earnings growth from natural gas gathering and distribution buffered vertically integrated Appalachian gas company National Fuel Gas Co.'s fiscal third-quarter earnings, but the company's exploration and production arm will drop one rig and a frack crew in 2020 in light of weak gas prices, executives said.

Newly installed CEO David Bauer told analysts on the firm's Aug. 2 earnings conference call not to expect the 490,000-Mcf/d Northern Access pipeline project to be completed until 2022 or later. He expected New York regulators to continue to throw roadblocks in its path despite Federal Energy Regulatory Commission authorization.

With a FERC waiver of New York's Clean Water Act Section 401 authority, "we're in a position where we could apply for a notice to proceed, but it's pretty clear that New York is going to oppose this project pretty much [every] step of the way," Bauer told analysts. "So we're thinking that this is really a longer-term project, likely in the 2022, 2023 time frame."

With its Seneca Resources Corp. production arm slowing the pace of drilling wells in Marcellus and Utica shale areas in northern Pennsylvania, Bauer said delaying the Northern Access project, which would connect those wells to markets in New York and Canada, is "not the worst thing in the world."

National Fuel has joined other Appalachian producers in cutting costs in the face of spot gas prices down near $2/MMBtu and futures prices under $3/MMBtu. Nonetheless, National Fuel expected its Appalachian production to increase 15% to roughly 614 MMcfe/d in 2020 based on production from new wells just coming online this year. The company also expected NYMEX gas futures prices to increase 6% in 2020 to $2.55/MMBtu.

"We are going to focus on the return-trip projects drilling Utica wells pads that have previously been developed for the Marcellus," further cutting costs, Seneca President John McGinnis said. "So that should keep our relative level of gathering spending pretty low."

National Fuel's fiscal third-quarter results of 71 cents per share of adjusted earnings beat expectations by 5 cents, according to the analysts' consensus compiled by S&P Global Market Intelligence.

Income from National Fuel's gas gathering unit jumped 18% year over year as the company's Appalachian production grew 26% to 558 MMcf/d in its third quarter. Upstream income slipped 5% as gas prices shrank 3% year over year to average $2.36/Mcf, including hedges, while the company's quarterly spending increased slightly.

Income from National Fuel's New York gas utility jumped 87% to $7.4 million when compared to last year, with a slight increase in residential customers as the state's economy improved and with a revised rate structure, Bauer said.