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Writedowns cause loss at National Fuel Gas

The plunge in oil and natural gas prices forced National Fuel Gas Co. to absorb a $42.7 million loss during the first quarter, but the Amherst-based energy company's actual operations did better than analysts were expecting.

National Fuel warned last month that the steep drop in energy prices would force it to reduce the value of its oil and natural gas properties on its books by $108.2 million. That caused National Fuel to post a loss equal to 53 cents per share.

But excluding that charge, National Fuel's actual operations remained profitable, although the drop in energy prices led to lower earnings at its oil and natural gas drilling business that were only partially offset by improved profits at its pipeline and utility operations.

"We continue to be optimistic about the future," said David Smith, National Fuel's president and chief executive officer. "No doubt, the coming months will be challenging."

National Fuel earned $64.3 million, or 80 cents per share, which was down 9 percent from $70.6 million, or 82 cents per share, a year earlier, but better than the 70 cents per share that analysts surveyed by Thomson Financial/First Call were expecting.

The company also lowered its earnings forecast for the current fiscal year by more than 10 percent to reflect the decline in energy prices.

National Fuel said it now expects to earn between $1.10 and $1.25 per share during the fiscal year that ends in September. That's down from its November forecast of $1.25 to $1.45 per share, including the impact of the impairment charge, but in line with current analyst forecasts of $1.13 per share.

With energy prices down and credit very tight, National Fuel is trying to conserve its cash by halting stock repurchases, at least temporarily, and by trimming its capital spending plans for its oil and gas drilling business, mainly at its California oil fields and in the Gulf of Mexico.

"We're just really watching our capital," said Ronald Tanski, National Fuel's chief financial officer, during a conference call Friday.

That caution, however, is not causing National Fuel to cut back on its efforts to find natural gas in a potentially lucrative region in Pennsylvania that some experts believe could hold vast amounts of gas.

The first well drilled under a joint venture between National Fuel and EOG Resources has initially been producing about 1.4 million cubic feet per day and Matthew Cabell, who runs National Fuel's oil and gas drilling business, believes it could reach 2 million.

The joint venture expects to complete and test four or five more wells in the coming months, he said. National Fuel also expects to start drilling the first well next week under its own exploration program in the Marcellus Shale.

Tanski also warned that National Fuel could face a further write-down of its oil and natural gas properties if prices continue to drop. A $1 decline in gas prices could reduce the value of the company's gas properties by about $50 million. A $5 drop in oil prices could also lead to an additional $50 million impairment charge.


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