Falling prices for crude oil and natural gas are taking a toll on earnings for National Fuel Gas Co., which saw its first-quarter profits rise by just 3 percent over the same period a year ago.
The Amherst-based energy company earned $84.7 million, or $1 per share, during the quarter that ended Dec. 31, an increase of $2.5 million, or 3 cents per share, over the same period in the previous fiscal year. That performance outpaced the expectations of analysts who follow the energy sector, according to a survey by Zacks Investment Research, which found their average estimate was for earnings of 89 cents per share.
“For the first quarter of our 2015 fiscal year, everything went pretty much according to plan — except for commodity prices,” Ronald J. Tanski, National Fuel’s president and CEO, said Friday.
National Fuel, which has five main business units, had warned last fall that its profits are likely to decline during this fiscal year. The energy company announced this week it is lowering its earnings forecast from a range of $3.05 to $3.35 per share to $2.65 to $2.90 per share, primarily because of anticipated lower production and lower gas and oil prices.
Even with the decline in energy prices, National Fuel reported a modest rise in profits, thanks to its fast-growing businesses that transport and store natural gas throughout Western New York and Pennsylvania, and its gathering system in the Marcellus Shale region that moves gas from the wellhead to larger pipelines.
The pipeline and storage unit reported earnings of $20.8 million, an increase of 8.3 percent, or $1.6 million, over the first quarter in the previous fiscal year. The gathering unit earned $11.6 million for the quarter, an increase of 90 percent, or $5.5 million, over the same period a year ago, thanks to higher revenues from its Trout Run and Clermont gathering systems and an overall increase in production volumes, according to the company.
National Fuel’s energy marketing business, which resells natural gas to industrial, commercial and residential customers, had earnings of $2.8 million, an increase of 75 percent, or $1.2 million, compared to the first quarter one year ago. In this case, the company benefitted from lower commodity prices that boosted its profit margin.
That rise in revenue made up for declines in National Fuel’s other business units. Its oil and natural gas drilling business saw earnings fall by 14 percent, or $4.4 million, to $26.7 million, in the first quarter, as increases in production in National Fuel’s Appalachia and California properties were offset by lower natural gas and crude oil prices realized after hedging.
And National Fuel’s utility segment earned $22.6 million, a drop of 7 percent, or $1.6 million, from the first quarter in the previous year, thanks in part to higher operating costs generated by replacing a customer-billing system, said David P. Bauer, the company’s treasurer.
National Fuel continues to build out its gathering and transmission pipeline network in Appalachia, providing more capacity to move Marcellus supplies to the marketplace, including a major Northern Access project to move that gas to Canadian customers, Tanski said.
But he said low commodity prices prompted National Fuel to reduce its oil and gas production for the quarter, and the company is lowering its expected production for the entire fiscal year, which ends on Sept. 30, from about 200 billion cubic feet of natural gas to about 173 billion cubic feet.
The company also is responding by limiting short-term capital spending in its gathering and its exploration and production segments, from a predicted expenditure for the fiscal year of about $825 million combined to about $700 million combined.
“Nevertheless, we remain confident in our long-term growth plans in Appalachia, and in our strategy. We designed our integrated model to weather such challenges and we remain in a strong position to create sustainable value for our shareholders,” Tanski said.