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NATIONAL FUEL'S EARNINGS DECLINE 8%

Lower earnings from its utility business, coupled with lower production in its oil and natural gas drilling operations, caused National Fuel Gas Co.'s second-quarter profits to slide by 8 percent, the company said Tuesday.

The earnings, which were equal to 83 cents per share, fell short of the 88 cents that analysts were expecting, according to Thomson Financial/First Call. The earnings, which were released after the stock market closed, fell to $70.7 million from $77.1 million, or 93 cents per share, a year earlier.

Much of the decline in profits came from National Fuel's utility business, where high gas prices prompted its consumers to try to conserve energy, leading to a drop in gas consumption by its average customer. At the same time, operating expenses within the utility business increased, further squeezing profits.

Philip C. Ackerman, National Fuel's chairman, president and chief executive officer, said the combination of declining sales and rising expenses were behind the company's push to increase rates in its New York and Pennsylvania service territories, although the impact of those rulings will not have an impact until the fiscal year that begins in October.

Despite record high oil prices and lofty prices for natural gas, National Fuel's oil and gas drilling business was stung by a 40 percent drop in profits as production levels dropped sharply.

Earnings also dropped in National Fuel's international and energy marketing businesses, while its natural gas pipeline and storage operations generated sharply higher profits and earnings also grew from its timber segment.

National Fuel repeated its previous forecast that its profits for the year that ends in September would range between $1.75 and $1.85 per share, less than the $1.91 that analysts are expecting. Profits during the current quarter are expected to range between 22 cents and 30 cents per share, less than the 36 cents per share forecast by analysts surveyed by Thomson Financial/First Call.

The company also said it plans to repatriate an estimated $80 million in profits from its international business, which is mainly centered in the Czech Republic. National Fuel, taking advantage of provisions in a job creation law last year, will bring the profits back to the United States in the form of a dividend that will be taxed at a reduced rate of 5.25 percent. The repatriated profits will provide funds for the company's future growth, Ackerman said.

The company's second-quarter profits were reduced by a one-time charge of $3.8 million for the taxes expected to be paid on the repatriated profits. National Fuel also booked a $2.6 million one-time gain from the sale of gas from its storage facilities. Profits fell by 13 percent at its utility operations as lower gas usage by its customers cut into profit margins on its sales and transportation services.

National Fuel's oil and gas drilling business had a 40 percent drop in earnings as natural gas production dropped by 19 percent, even though its average price for the gas, after hedging, rose by 13 percent. Oil production fell by 17 percent, with the average price, after hedging, falling by less than 1 percent.

Earnings from its pipeline and storage business grew by 35 percent, mainly because of lower pension and interest expense.

The company's international business had a 21 percent drop in profits, while earnings slid 26 percent at its energy marketing business and rose 51 percent at its timber operations.

e-mail: drobinson@buffnews.com

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