National Fuel Gas Company — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021; comparisons are to fiscal 2020. This is an annual report, not a standalone fourth-quarter results release. The company is an integrated natural gas producer, gatherer, pipeline and storage operator, and utility serving about 753,000 customers in western New York and northwestern Pennsylvania.
Financial results and key metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1.743 billion | $1.546 billion |
| Operating income | $639.9 million | $29.9 million |
| Net income (loss) | $363.6 million | $(123.8) million |
| Diluted EPS | $3.97 | $(1.41) |
| Cash from operations | $791.6 million | $740.8 million |
| Capital expenditures | $751.7 million | $716.2 million |
| Long-term debt, net | $2.629 billion | $2.630 billion |
- Net income rebounded by $487.4 million. The principal driver was the lower non-cash oil and gas impairment charge: $76.2 million pretax in FY2021 versus $449.4 million in FY2020. FY2021 also included a $51.1 million pretax gain on timber-property sales.
- Segment net income: Exploration and Production $101.9 million; Pipeline and Storage $92.5 million; Gathering $80.3 million; Utility $54.3 million. All Other contributed $37.6 million and Corporate lost $3.1 million.
- Revenue increased 12.7%, primarily on higher Appalachian gas production, including the acquired Shell assets, and higher gas prices. Operating margin and net margin were strongly affected by the prior-year impairment and current-year timber gain; the filing does not present these as adjusted margins.
- Cash from operations rose $50.8 million. Investing cash used was $633.2 million, including $751.7 million of capital expenditures and $104.6 million of net timber-sale proceeds. Dividends paid were $163.1 million; dividends declared were $1.80 per share.
- At year-end, cash and temporary investments were $31.5 million, plus $88.6 million of hedging collateral deposits. Commercial paper outstanding was $158.5 million; no bank short-term notes were outstanding. Committed revolving credit access totaled $1.0 billion. The credit-facility debt-to-capitalization ratio was 0.59 against a 0.65 limit.
- FY2021 included a $15.7 million pretax premium for early redemption of $500 million of 4.90% notes. The company issued $500 million of 2.95% notes due 2031 and redeemed those notes early; embedded long-term debt cost was 4.48% at year-end.
Material changes and operating developments
- Exploration and Production revenue rose to $836.7 million from $607.5 million. Gas production increased to 314.0 Bcf from 227.4 Bcf, principally reflecting the Shell acquisition and new Appalachian wells. Weighted average gas price after hedging increased to $2.25/Mcf from $2.07/Mcf.
- Pipeline and Storage revenue increased to $343.6 million from $309.6 million; segment earnings rose $13.7 million. Empire North contributed $26.9 million of incremental transportation revenue in FY2021.
- Gathering revenue increased to $193.3 million from $142.9 million as gathered volumes rose to 366.0 Bcf from 264.3 Bcf, largely due to the acquired Tioga system.
- Utility revenue increased to $667.3 million from $652.3 million, while earnings decreased to $54.3 million from $57.4 million. Warmer-than-normal weather and higher operating costs, including uncollectible-account expense, weighed on earnings; the New York weather-normalization mechanism partly moderated weather effects.
- Proved reserves increased 11% to 3,853 Bcfe. The company completed the $104.6 million net sale of substantially all timber properties and recognized a $51.1 million pretax gain.
Outlook, risks and contingencies
- Management expects FY2022 operating cash flow to exceed FY2021 and be used for dividends and reducing short-term borrowings. Estimated capital expenditures are $700 million in 2022, $675 million in 2023 and $670 million in 2024. No long-term debt principal repayment was scheduled for FY2022.
- The FM100 pipeline upgrade was under construction, with a targeted December 1, 2021 in-service date, estimated cost of about $240 million, and projected incremental annual transportation revenue of about $50 million. These are management expectations, not realized results.
- The Northern Access project remains subject to unresolved permitting and litigation issues in New York. Its cost estimate and in-service date were not updated; no future project capital expenditures were included in the company’s estimate table.
- Commodity-price exposure remains material. At September 30, 2021, commodity derivatives were in a net liability position; the balance sheet reported $616.4 million of derivative liabilities and $88.6 million of posted collateral. Management warns that rising prices can trigger additional cash margin calls, while hedges can limit participation in price increases.
- Key risks include oil and gas prices and production, reserve-estimation uncertainty and future ceiling-test impairments, financing access and credit ratings, project approvals and construction delays, pipeline safety and environmental compliance, climate policy and reduced gas demand, customer collections, cybersecurity, and COVID-19-related impacts. The company reported no material COVID-19 impact to date but said future effects remain uncertain.
- Environmental remediation liability for former manufactured-gas-plant sites was estimated at $3.3 million; management said it was not aware of material additional environmental exposure. Other ordinary-course legal and regulatory matters could affect earnings when resolved, but the filing does not provide a clear estimate of possible loss or range of loss.
Important facts for investors to verify
- Whether the FM100 project entered service on schedule, achieved expected capacity and revenue, and remained within its estimated cost.
- Subsequent cash-flow and liquidity effects of hedge settlements, derivative liabilities, and collateral requirements as commodity prices change.
- Whether proved-reserve additions, production growth, and development spending meet management’s plan, and how commodity prices affect ceiling-test headroom.
- Developments in the Northern Access project’s permits and litigation, and any resulting impairment or revised project economics.
- Utility customer collections, uncollectible-account expense, and the outcome of the Pennsylvania tariff complaint and related customer refunds.
- Progress against emissions-reduction targets and any new regulatory or market changes affecting natural-gas infrastructure and demand.
Audit and controls: The independent auditor issued an unqualified opinion on the consolidated financial statements and reported effective internal control over financial reporting. Proved oil and gas reserves and their impact on property valuation were identified as a critical audit matter.