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National Fuel's profit rose 14% in quarter

National Fuel Gas Co.'s first-quarter profits jumped by 14 percent as high energy prices buoyed its oil and natural gas drilling business while its pipeline business improved as customers sought new ways of transporting gas in the wake of the Gulf Coast hurricanes.

The earnings of $57.4 million, or 67 cents per share, were 2 cents less than analysts were expecting, according to Thomson Financial/First Call.

The company also warned that its profits for the current fiscal year could be 15 cents below its earlier forecast of $2.30 to $2.50 per share because of the drop in oil and natural gas prices since September.

Still, National Fuel officials said Thursday they were pleased with the improvement in the company's earnings during the final three months of last year, especially since the gains were spread across all of its main businesses.

"This is one of those quarters where every segment is up year-over-year," said Philip C. Ackerman, National Fuel's chairman and chief executive officer.

The company's utility business increased its operating profits by 20 percent to $21.8 million as a $2.6 million upward adjustment in gas rates collected over the last three years offset lower earnings from its New York service territory.

The company also increased its reserve for bad debts in its utility business by $4.5 million as soaring gas costs have made heating bills more of a burden on many of the company's residential customers. National Fuel's bad debt reserves have more than doubled over the last year.

Earnings from the company's pipeline and storage business jumped by 29 percent to $15.9 million as National Fuel's pipelines carried more gas as customers found new routes to transport their gas after the Gulf Coast hurricanes damaged some pipelines in that region.

Hurricane-related gains accounted for about half of the additional gas
volumes that National Fuel's pipelines carried during the quarter, said David Smith, the company's president and chief operating officer. "Everybody is now looking to diversify their transportation routes," he said during a conference call.

The company's oil and gas drilling business also improved by 25 percent as soaring energy prices offset lower production as the hurricanes caused a drop in output from National Fuel's wells in the Gulf of Mexico.

About 87 percent of the company's Gulf production has been restored, with the rest expected to come back on line within the next six months.

National Fuel also began pumping gas from a new well in the Gulf that already more than offsets the production that remains shut down, said James Beck, who runs the company's oil and gas drilling business.

Earnings from the company's energy marketing business improved by 32 percent as its customers used more gas, while operating profits from its timber operations almost doubled to $1.5 million as good weather allowed National Fuel to cut down more trees.


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