National Fuel Gas Company Q3 FY2026 earnings call

• Ohio Utility Acquisition Progress

  • The transformative acquisition will double utility rate base, rebalance the company's overall business mix, and strengthen the investment-grade credit profile
  • Closing is targeted for October 1, with transition planning and agreements with CenterPoint expected to be finalized in the coming weeks
  • Financing for the acquisition is complete: the company completed a $1.5 billion multi-tranche debt offering (the largest capital raise in company history) with a weighted average interest rate of just over 5%, redeemed a maturing $300 million note, issued 4.4 million common equity shares, and will execute a $1.2 billion 6.5% coupon promissory note with CenterPoint at closing

• Upstream Development Operations

  • The company completed its first upper and lower Utica co-development pad, confirming the seismite layer is an effective frac barrier with no communication between the two horizons, supporting future co-development of both zones
  • Long-term development strategy is now oriented to a lower Utica-first program to optimize long-term value; the company is testing Gen 4 completion designs for highest-quality rock, while retaining Gen 3 designs for other areas
  • The company drilled its longest-lateral lower Utica wells to date (18,000 to 20,000 feet of treatable lateral per well) which are expected to be among its most productive wells, with online targeted for early 2027
  • 14 total wells are scheduled to come online in Q4 fiscal 2026, with the company expected to exit the fiscal year at record daily production rates
  • The company is increasing discretionary leasing activity in Tioga County to expand its core acreage position, planning to deploy $100 million to $200 million in discretionary capital over the next several years, with only $15 million in annual maintenance leasing required to support the 5-year development plan

• Shareholder Return Commitment

  • The board approved the company's 56th consecutive annual dividend increase, extending its streak of consecutive dividend payments to 124 years

1. Integrated Upstream and Gathering Segment: The quarter delivered production of 104 BCF and throughput of 117 BCF. Lower full-year 2026 production expectations, now projected between 420 and 430 BCFE, drove the adjusted EPS guidance revision. The segment continues to deliver capital efficiency improvements, with plans to expand production growth while lowering long-term capital spending.
2. Regulated Utility Segment: The segment achieved top-line margin growth during the quarter from the multi-year rate plan in New York and DISC mechanism revenue in Pennsylvania. Benefits were offset by higher operating costs driven by general inflation, the non-recurrence of a 2025 bad debt expense reversal benefit in New York, and higher labor costs from a new Pennsylvania field employee agreement. The pending Ohio gas utility acquisition will double the segment's rate base. For fiscal 2027, the segment expects nearly $30 million in additional expansion revenue from the Tioga pathway and shipping port lateral projects, and a material step-up in earnings from the multi-year New York rate plan and the Ohio acquisition.

• Fiscal 2026 adjusted EPS guidance is revised to a range of $7.40 to $7.60 per share, reflecting the updated Seneca production outlook
  • The NYMEX natural gas price assumption remains unchanged at $3 per MMBTU; 75% of 2026 remaining production is hedged at prices above the current forward strip
  • Full-year 2026 Seneca production is projected between 420 and 430 BCFE
• Full fiscal 2027 guidance will be provided next quarter after the Ohio acquisition closes
  • Regulated businesses will see a material earnings step-up from the Ohio acquisition and existing multi-year rate plans; nearly $30 million in additional expansion revenue is expected from recently completed projects
  • The Ohio acquisition financing will increase full-year 2027 interest costs and weighted average share count
  • Upstream segment realized natural gas pricing is expected to be lower than 2026 levels, with modestly higher cash unit costs from inflation; DD&A rates are expected to normalize to the long-term range of $0.80 to $0.85 per unit
• Management projects 7% to 10% annual adjusted EPS growth through 2029; the midpoint of the range reflects the base business plan of 5% to 7% annual rate base growth for regulated operations and mid-single-digit production growth for upstream, with capital prioritized for deleveraging. Upside to the top end of the range can come from additional pipeline expansion projects and further upstream capital efficiency gains.

• Near-term credit metrics are expected to face pressure from current commodity price outlooks after the Ohio acquisition closes, though the long-term deleveraging trajectory remains intact and credit metrics currently stay well within investment-grade thresholds
• Greater-than-expected frac interactions between offset lower Utica Gen 4 completion wells impacted near-term production, though management has already implemented adjustments to mitigate future impacts
• Higher diesel and oil prices have modestly increased the midpoint of the annual capital expenditure guidance

Q: Analyst asks for more detail on the well frac interaction issue with Gen 4 completions, including whether spacing was too tight and how this changes broader development strategy. / A: Management notes the increased interactions are noise rather than a substantive structural issue, occurring during early testing of 50% upsized completion intensity. Interactions were only between lower Utica offset wells, with no cross-zone interaction between upper and lower Utica, confirming the seismite frac barrier is fully effective. The team is already implementing design adjustments to reduce future impacts, and all learnings are being incorporated into ongoing optimization of capital efficiency, which remains the core priority for development planning.

Q: After the Ohio acquisition closes, what is the company's approach to share repurchases, and what leverage target is management targeting? / A: Near-term capital will prioritize deleveraging to rebuild balance sheet flexibility after the acquisition. Management targets a long-term leverage ratio in the 2.0x to 2.25x range, which it expects to reach within the first few years post-closing. Once the leverage target is on track, the company will have full flexibility to consider share repurchases and other shareholder return initiatives.

Q: Can management elaborate on the recent Gen 4 completion test results to confirm whether weakness is noise rather than structural, and how the design strategy will evolve? / A: Management explains the team is optimizing for capital efficiency ("bang for the buck") rather than just production, testing whether more expensive, intensive Gen 4 completions deliver enough productivity uplift to justify the cost. Gen 4 designs will only be used in the highest-quality rock, where they deliver meaningful productivity supercharging, while Gen 3 designs will remain optimal for lower-quality rock. Long-term, the development program will use a mix of the two designs matched to acreage quality, with potential for a blended hybrid design in the future.

Q: What drives the new 7% to 10% annual adjusted EPS growth target through 2029, what moves the outcome between the range endpoints, and how confident is management in this target for a mature company? / A: Management has high conviction in the target, which reflects growing confidence in the company's asset base after years of improved performance. The midpoint of the range is underwritten to the base business plan: 5% to 7% annual regulated rate base growth, mid-single-digit upstream production growth, and capital prioritized for deleveraging. Upside to the top end of the range comes from additional FERC-regulated pipeline expansion projects and greater-than-expected upstream capital efficiency gains from ongoing optimization.