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National Fuel's Rising Profits Top Forecasts

By David Robinson

NEWS BUSINESS REPORTER

May 6, 2011

 
Soaring natural gas production from the Marcellus Shale and a gain from the sale of its landfill gas business caused National Fuel Gas Co.'s second-quarter profits to jump by 44 percent, the Amherst-based energy company said.

Even without the $31 million gain from the sale of some of its landfill gas operations, National Fuel's earnings from its operations improved by 7 percent, as the rising natural gas production offset a 19 percent drop in the prices the company is receiving for that gas.

The earnings topped analyst forecasts, and the company hiked its earnings forecast for the fiscal year that ends in September by about 4 percent.

National Fuel said it's total profits jumped to $115.6 million, or $1.38 per share, from $80.4 million, or 97 cents per share, a year ago. Most of that increase came from the gain of 38 cents per share that National Fuel booked from the sale of its landfill gas properties.

Without that gain and the impact of discontinued operations, National Fuel's operating earnings grew to $84.2 million, or $1 per share, from $80 million, or 96 cents per share, a year ago. That was better than the 95 cents per share that Wall Street analysts were expecting.

Earnings from the company's fast-growing oil and natural gas drilling business jumped by 22 percent to $33 million as natural gas and oil production soared by 55 percent, mainly because of National Fuel's big push to drill in the Marcellus Shale region in northwestern Pennsylvania.

National Fuel's gas production from the Marcellus region soared nearly seven-fold over the last year to 9 billion cubic feet during the quarter that ended in March. Because of the company's stepped-up drilling efforts within the Marcellus, its daily production rate in that region topped 100 million cubic feet per day by the end of March.

"We look for future production growth to exceed our initial, conservative, projections," said David F. Smith, National Fuel's chairman and chief executive officer.

With its Marcellus drilling efforts expanding, the company narrowed its production forecasts for the entire fiscal year toward the higher end of its earlier guidance. National Fuel said it now expects to produce the equivalent of between 66 billion and 71 billion cubic feet of gas, compared with its earlier forecast of 64 billion to 71 billion cubic feet.

Earnings from the company's pipeline and storage business fell by 12 percent to $11 million, mainly because of higher operating expenses and the cancellation of some contracts from customers because of high gas prices at its Niagara/Chippewa gateway. National Fuel is in the midst of a project that will reverse the flow of some of its pipelines to help the company transport more gas from the Marcellus region, rather than the current focus on bringing now more costly gas into the United States from Canada.

The company's utility earnings were down less than 1 percent to $33.1 million, while profits from its energy marketing business improved by 5 percent to $6.3 million.

drobinson@buffnews.com