Until National Fuel Gas Co. gets some kind of decision from the courts or the Federal Energy Regulatory Commission on its blocked Northern Access pipeline project out of Pennsylvania's north-central shale counties, it is keeping a tight rein on drilling projects and hunting for space on other people's pipelines, executives said Feb. 2.
The waiting — for courts, regulators and deals — will continue for some or all of the next year, CEO Ronald Tanski said during a earnings conference call. "While there are no set timelines for either of these proceedings, we estimate that we might hear from the Second Circuit in the summer. We could hear from the FERC at any time," he said.
National Fuel is hoping the U.S. Court of Appeals for the Second Circuit will order the New York Department of Environmental Conservation to issue the water permits it needs to build the nearly 500,000 Dth/d pipeline designed to take gas from northern Pennsylvania to market hubs in New York.
Until then, National Fuel has been searching for room on other pipelines without much success. In its fiscal first quarter ending Dec. 31, 2017, the company reported an 11% drop in natural gas production from its fields in north-central Pennsylvania. National Fuel shut-in 1.2 Bcf of gas during the quarter rather than sell it at "depressed prices" in the local market, while at the same time another "couple" of Bcf were shut-in when the installation of compressors in Tioga County was delayed, said John McGinnis, president of National Fuel's exploration and production segment Seneca Resources Corp.
"While we wait to see the outcome of our Northern Access proceedings, we continue to look at ways to build or acquire more transmission capacity on our Western Development Area," Tanski said. That area is centered on Elk County, Pa., and the counties around it and is prospective to both the Utica and Marcellus Shales.
"A project of any size usually has a long wait time, and we're finding that to be true in this case also," Tanksi said. "We're looking at possible options both on a stand-alone basis and with partners, but we're not far enough along to provide any details today."
The company said gas production will increase in the second quarter but the curtailments and pushing some planned 2018 wells into 2019 will shave 5 Bcfe, or 2.5%, off its production guidance for the full year.
Despite the drop in gas production, National Fuel beat analysts' expectations as compiled by S&P Global Market Intelligence on both a GAAP and adjusted basis, changes executives said benefit the company well into the future as its effective tax rate declines.
Analysts were looking for first-quarter adjusted earnings of 85 cents per share. National Fuel reported $1.04 per share. On a GAAP basis, analysts were looking for 82 cents per share with the company posting $2.30 per share in profits, thanks to a $1.29 per share boost from tax adjustments.
Because National Fuel's fiscal year has already begun, the company said it is required to use a blended tax rate of 24.5% for the remainder of the annual period. The new corporate rate of 21% would take effect for National Fuel on Oct. 1, when its next fiscal year begins.
