Hello, everyone, and welcome to the National Fuel Gas Company Q1 FY 2023 Earnings Conference Call. My name is Drew, and I'll be your operator today. I would now like to turn the call over to Brandon Haspett, the Director of Investor Relations. Please go ahead.

Thank you, Drew, and good morning. We appreciate you joining us on today’s conference call for a discussion of last evening’s earnings release. With us on the call from National Fuel Gas Company are Dave Bauer, President and Chief Executive Officer; Karen Camiolo, Treasurer and Principal Financial Officer; and Justin Loweth, President of Seneca Resources and National Fuel Midstream. At the end of the prepared remarks, we will open the discussion to questions. The first quarter fiscal 2023 earnings release and February investor presentation have been posted on our Investor Relations website. We may refer to these materials during today’s call. We would like to remind you that today’s teleconference will contain forward-looking statements. While National Fuel’s expectations, beliefs and projections are made in good faith and are believed to have a reasonable basis, actual results may differ materially. These statements speak only as of the date they are made, and may refer to last evening’s earnings release for a listing of certain specific risk factors. With that, I will turn it over to Dave Bauer.

Thanks, Brandon, and good morning, everyone. National Fuel's fiscal year started off with a strong first quarter. Adjusted operating results were $1.84 per share, reflecting a 24% increase compared to last year, with all four of our business segments contributing to this growth. In the Upstream sector, production in Appalachia rose by 11%, and combined with a $0.50 per Mcf increase in our natural gas price realizations, this resulted in a 29% increase in EBITDA. This growth is particularly notable given that last year's EBITDA included benefits from our California assets, which we sold last summer. Seneca's production growth also played a role in a 6% increase in gathering EBITDA. Our valuable transportation and marketing portfolio, along with effective operational execution by our team, drove improved performance in our nonregulated businesses during the quarter. Justin will provide more details shortly. Our regulated segments also performed well this quarter. Despite the inflationary challenges I've mentioned in previous calls, earnings increased in both sectors. We observed ongoing growth in pipeline and storage revenues, mainly due to the FM100 expansion and modernization project. This project began service in December 2021, allowing us to benefit from a full quarter of expansion revenues and the modernization rate increase that took effect last April. In the Utility sector, excluding certain rate-making adjustments that did not affect earnings, our underlying customer margin increased by about $6 million, largely driven by our ongoing infrastructure modernization tracker in New York and increased usage due to colder weather compared to last year. This rise in margin fully offset inflationary pressures on our operating expenses, resulting in earnings growth for the quarter. Regarding capital allocation, our fiscal '23 capital spending guidance remains unchanged at $830 million to $940 million. At Seneca, we will continue our 2-rig program. Although we've seen a short-term decline in natural gas prices primarily due to reduced winter demand, the long-term outlook remains positive. The anticipated pipeline of LNG projects expected to launch mid-decade and the ongoing transition from coal to gas generation will support long-term base demand. However, we will stay adaptable, and if market conditions necessitate change, we can adjust our spending to maintain free cash flow. In our recent release, we adjusted our NYMEX natural gas price assumption to an average of $3.25 per MMBtu for the remaining nine months of the year, aligning with forward markets. This significant drop is mitigated by our hedging portfolio. We continue to trust our disciplined hedging strategy to safeguard earnings and cash flows from the inherent volatility of commodity prices. Looking ahead, long-term prices have not fluctuated as much as the front end of the curve. Our program economics are attractive at current prices and should yield substantial returns and free cash flow, which we anticipate using to reduce debt, explore growth opportunities, and return capital to shareholders. Over the Christmas weekend, we faced challenging weather conditions across our service area, including a historic blizzard in our New York territory. Winter Storm Elliott caused significant disruptions, and I want to express my gratitude to our employees who went above and beyond to keep our systems functioning safely. Our region depended on us, and the National Fuel team rose to the occasion. Whether addressing freeze-offs at Seneca's wells, maintaining operational midstream compressor stations, or ensuring adequate gas supply and prompt emergency responses at the utility, I’m extremely proud of our team's dedication. This storm underscored the need for resilient, weather-resistant infrastructure. Many customers in our service territory lost power during the holiday weekend due to less reliable energy sources. Feedback on social media indicated appreciation for natural gas service as residents relied on natural gas fireplaces for warmth, used natural gas stoves for cooking, and in many instances, utilized natural gas generators to power their homes. In light of this, it is surprising that New York state policymakers remain steadfast in their push for a rapid transition to a primarily electric future, mainly reliant on intermittent wind and solar energy. Last December, the state's Climate Action Council finalized its scoping plan in compliance with the Climate Act of 2019. If implemented as proposed, this plan would fundamentally change energy production, distribution, and consumption throughout the state economy. The scope of this proposal is truly extensive. Regarding demand, the plan would require nearly complete electrification of New Yorkers' energy use at any expense, causing electricity demand to surge. Just electrifying space heating in our service area would necessitate nearly quadrupling the electric grid. On the supply side, the plan anticipates that this increased electricity demand would be largely met by new wind and solar sources. The scale of this undertaking is unprecedented. Currently, New York state has about 2 gigawatts of wind and solar capacity, which took two decades to establish. To fulfill its targets, the state must add over 4 gigawatts of wind and solar every year for the next 18 years. Consider this: it has taken decades to reach our current 2 gigawatts of capacity, yet the expectation is to double that capacity each year for the next two decades. While some may view this as overly ambitious, the plan treats it as an assured outcome. Even if over 80 gigawatts of wind and solar capacity are constructed as planned, there will likely still be a shortfall of up to 45 gigawatts in winter electric generation that existing technologies cannot meet. Additionally, the costs associated with building the necessary electric transmission infrastructure to deliver these new power supplies will require utilities to make unprecedented investments in system updates to enhance service and address existing grid constraints, which will likely lead to sharply rising electric prices in New York. Consumers will also face the financial burden of converting systems, potentially costing as much as $50,000 per household. This could have severe implications in our service area, especially given the median income in Erie County is just over $62,000 and even lower in the City of Buffalo. Despite these challenges, the scoping plan advocates for policies that push for a rapid transition by specific dates that are not aligned with any reliability milestones. This is an extremely reckless approach. Mandating the electrification of space heating in Western New York is nonsensical when there is uncertainty about whether the required power and electric infrastructure will be available to accommodate the resulting increased electricity demand. Instead, the state should adopt a more reasonable approach to the energy transition that sets electrification targets linked to generation and reliability milestones, while continuously assessing the cost-effectiveness of these measures and their impacts on customer affordability. I envision a phased implementation. Initially, the focus should be on bolstering existing resources; wind and solar can be developed at the pace outlined in the scoping plan. During this phase, consumers should have the freedom to electrify based on their preferences without being mandated to do so. Meanwhile, policymakers should promote no-regret solutions like energy efficiency upgrades and improved building energy installations, which are essential regardless of energy sources used in homes and workplaces. Furthermore, they should scale current technologies like renewable natural gas that can deliver significant emissions reductions now and support research and development of future technologies such as hydrogen, which will be vital for sectors that are difficult to decarbonize. Once we’re confident in the feasibility of the proposed wind and solar projects, the state can progress to another phase that encourages hybrid heating solutions at a pace aligned with the generation build-out. Our internal studies indicate that incorporating a hybrid heating approach into a comprehensive energy strategy could surpass the 85% emissions reduction target outlined in New York's climate legislation. Ultimately, by leveraging the natural gas system, this method is more cost-effective and significantly enhances energy reliability during critical winter months. Only when the state has developed a cost-effective solution for the 45-gigawatt winter generation shortfall should it even contemplate full electrification. Given current technologies, this is likely many decades down the road. Again, mandating electrification before ensuring reliability is a potentially hazardous venture. Just imagine facing a winter storm without heat or reliable transportation. The state administration acknowledges that the scoping plan is not a legally binding document; rather, it serves as a future energy blueprint. Specific laws and regulations to achieve this vision will be devised in the coming months and years. We are committed to advocating with legislators and policymakers to avoid the risky all-in strategy of the scoping plan that attempts to accomplish everything simultaneously yet is likely to fall short. Instead, we should embrace a more gradual, all-encompassing strategy that establishes realistic targets based on current technologies and builds on them as advancements are made. Having covered quite a bit on regulatory matters, let's shift back to the quarter. I'll now turn it over to Justin for an update on our nonregulated businesses.

Thanks, Dave, and good morning, everyone. Seneca and NFG Midstream kicked off the year with a strong quarter. Seneca's 91 Bcfe of production was a 3% increase sequentially and an 11% increase when compared to last year's Appalachian production. We've continued our trend of solid operational execution with 17 wells turned in line during the quarter, which was in line with our plan. Additionally, we saw better-than-expected well performance on these new pads, and we boosted PDP production with some additional compression on the Trout Run system, which was timed to capture peak winter pricing. These results were particularly impressive given the extreme weather we faced in December related to winter storm Elliott. The Seneca and Midstream operations and marketing teams did a brilliant job managing through this multi-day event. In spite of sustained wind chill temperatures below negative 30 degrees, we saw limited production impacts, with any volumes offline being brought back very quickly. While the basin experienced significant and sustained production impacts, we estimate less than 0.5 Bcf impact during the quarter. This is a testament to the entire team who collectively deserve a huge thank you for keeping our production flowing in very challenging conditions, especially given that the storm occurred when most people should be at home enjoying the holidays with their families. Turning to our future development activity. Drilling and completion operations are proceeding according to plan. As a result, our production rate should continue at about 1 Bcf per day net through the second quarter before production ramps up again into the second half of fiscal year with several pads expected to turn in line in the spring and early summer. This is in line with our prior expectations, and as such, we are maintaining our full-year production guidance of 370 Bcfe to 390 Bcfe. As previously communicated, our first quarter of fiscal '23 had a significant amount of completions activity. Not only did we have our dedicated frac crew operating in the WDA, but as planned, we also utilized a spot crew in Tioga County for the entire quarter. We have now wrapped up our spot frac activity, and going forward, we will only utilize our single dedicated completions crew across our operations. As a result, our capital is expected to moderate and level out through the remainder of the fiscal year. Given this is consistent with our prior plans, capital guidance remains unchanged at $525 million to $575 million. As we look out to fiscal '24, natural gas prices will govern our level of spending. We will be focused on balancing capital efficiency, growth and free cash flow generation across our integrated development program and will modify our plans to best maximize these factors. Longer-term, we remain bullish on natural gas pricing, particularly in fiscal '25 and beyond as new LNG export facilities come online. Unfortunately, a large percentage of our fiscal '23 and fiscal '24 production is protected by hedges and fixed-price firm sales. At the midpoint of our guidance, we have hedges in fixed price firm sales in place for nearly 70% of our expected remaining fiscal '23 natural gas production. We have another 20% with basis protection that is not hedged, which leaves only about 10% of expected production exposed to in-basin pricing. We've been opportunistic with our marketing portfolio over the past few months, locking in favorable basis differentials that result in strong realized prices. For example, we recently locked in a long-term basis of NYMEX plus $0.50 for some of our Leidy South capacity. We remain committed to building a marketing and hedging portfolio that delivers strong returns and supports meaningful free cash flow generation. This positions us well for stability through commodity price cycles, which can be hard to predict. At Midstream, we are focused on system expansion to meet both Seneca and our third-party shippers' needs with particular emphasis on meeting our customers' turn in line target dates. Additionally, for Seneca, we are building out centralized facilities in our Tioga system and ensuring gathering lines are in place to provide fuel gas to Seneca's e-frac fleet, which will allow us to displace substantially all diesel fuel for completion operations with dual benefits of both lower emissions and lower fuel costs. We also continue to focus on growing our third-party shipper throughput. With over 400 miles of gathering lines able to connect into multiple interstate pipelines, there are various opportunities to serve third-party producers proximate to our existing systems. During the quarter, we signed an updated agreement with a third-party shipper and expect additional volumes to flow in our system later this year. While this project is not a game changer, it demonstrates the value of our system and our willingness to develop commercial arrangements to tie in incremental volumes. In fiscal '23, I expect third-party volumes will represent about 10% of system throughput, up from zero just three years ago. We will continue to chase similar third-party opportunities to drive value from our midstream systems in the years to come. Turning to our sustainability practices; I want to highlight some of our recent work and achievements. In our Gathering business, we commenced the EquiOrigin certification process and hope to complete the process by the end of the year. And at Seneca, we completed our annual EquiOrigin reverification assessment in December '22, demonstrating continuous improvement under all five principles of the EO100 Standard for responsible energy development. We continue to focus on emissions monitoring and have made strides there as well. We are using LIDAR and OGI equipment mounted to aircraft to identify and measure methane emissions across our operations, and we are evaluating the potential to use satellites in the future. In conclusion, it was a great quarter across the board. As we look forward, lower natural gas prices will impact our near-term cash flow, but the combination of growing production, holding the line on capital and a robust marketing and hedging portfolio mitigates a good portion of that decrease. Beyond '23, Seneca's deep inventory of high-quality acreage combined with our low-cost integrated approach to development positions us very well for strong returns and continued growth. With that, I'll turn the call over to Karen.

Thanks, Justin, and good morning, everyone. Last evening, National Fuel reported first quarter fiscal 2023 adjusted operating results of $1.84 per share, up 24% compared to last year. Dave and Justin already hit on the high points for the quarter, so I'll briefly touch on one other item. At the Utility, I want to remind everyone of the impact of an order issued in our New York jurisdiction relating to our pension and post-retirement benefit plans. Based on the fully funded status of these plans, we made a filing last summer, seeking to temporarily suspend recovering revenue from our customers in connection with these obligations. While this order has no earnings or cash flow impact on National Fuel, it does lead to a drop of approximately $18 million in EBITDA, which is fully offset by a benefit to non-service costs that fall below operating income. During the quarter, the impact to revenue, and therefore EBITDA, was a reduction of about $4 million. This was correspondingly offset with lower non-service costs. Looking forward, we expect this EBITDA impact to be largest in our fiscal second quarter as the revenue impact nears customer volumes, which are highest during these peak winter months. Turning to guidance; we've lowered our full year earnings guidance to a range of $5.35 to $5.75 per share. This decrease was almost entirely attributable to the drop in natural gas prices, partially offset by some smaller tailwinds across all of our businesses. We're now forecasting NYMEX pricing to average $3.25 per MMBtu for the last three quarters of the year. Somewhat offsetting this is the modest improvement in Appalachian basis differentials, which we now expect to average $1 per MMBtu for the remainder of the year. As Justin mentioned, we have firm sales in place for 90% of our remaining expected production and fixed price firm sales or hedges in place for nearly 70% of our remaining expected production. We also entered into some favorable collars during the quarter, adding 11 Bcf of new positions with a $4.75 floor for April through October. These are well timed and helped to mitigate some of the impact we've seen with this recent pricing pullback. While our hedge portfolio adds a nice level of protection, we still do retain exposure to movements in pricing. To that end, a $0.25 decrease from our updated NYMEX guidance price will impact earnings by $0.21 per share for the year. Keep in mind that we do have 65 Bcf of costless collars, so this impact is not necessarily linear. As noted in the release in our investor presentation, the remainder of our earnings guidance assumptions are largely unchanged. We are holding our capital spending forecast the same with a range of $830 million to $940 million for the full year. Moving on to cash flows; we are now expecting funds from operations to exceed capital spending by $200 million for the fiscal year. This is a reduction of about $125 million from our prior estimate. The impact of lower pricing is being partially offset by a lower expected cash tax rate this year. Previously, we were expecting our cash tax rate to be in the high single digits, but with our lower forecasted taxable income, that is now forecasted to be around 5% to 6% for the year. While our FFO is lower, we are projecting a larger source of working capital for the year, principally due to an expected decrease in receivables by Seneca and lower storage injection costs at the utility based upon our lower natural gas price assumptions. These improvements are expected to keep our total cash flow after capital spending generally consistent with last quarter. In addition to operating cash flows, we also have reduced hedging collateral deposits to zero as of today, down from $90 million to start the year. As a result, we are well positioned to deliver on our near-term goal of deleveraging. We originally had $549 million of long-term debt maturing next month. Last fall, we borrowed $250 million on our 364-day term loan, which matures at the end of June. A portion was used for working capital needs and the remainder was used for an early redemption of $150 million of our March maturity. Next month, we expect to redeem the remaining $399 million, largely with cash on hand. We expect to meet any shortfall using short-term liquidity. This leaves us right on track with our plans in the near term. Longer term, the forward NYMEX curve is still averaging near $4 per MMBtu in 2024 and beyond. At that level, we'd expect to see steady growth in our free cash flow based upon our current plans. Furthermore, our integrated model and consistent and methodical approach to hedging provide a level of stability and predictability that underpin our cash flow outlook. Combining this with credit metrics that continue to improve and are headed towards the mid-BBB area, we expect to have great flexibility as it relates to capital allocation decisions going forward. With that, I'll ask the operator to open the line for questions.

Our first question today comes from John Abbott from BofA. Your line is now open.

Good morning, and thank you for taking our questions. My first question is for you, Dave. I'm interested in potential deal opportunities. In the past, you expressed interest in possibly expanding your regulated businesses. If an opportunity were to arise, what size of deal would you be considering? Additionally, how do you plan to approach funding if such an opportunity becomes available?

Yes. Well, ideally, it would be of a size that we could do within our balance sheet or with a, call it, a modest amount of equity. That puts it in a kind of more modest-sized transaction to the extent that we were to look to go bigger than that, we have to be more creative in how we finance it either with a partner or some other means.

And then my second question is for you, Karen. I appreciated the details you shared about cash taxes for this year, indicating it's around 5% or 6%. Looking ahead, do you anticipate cash taxes progressing based on strip pricing?

So there will be an increase, but we're largely looking at moving into the, call it, lower teens at current strip prices going out into '24, '25.

That is very, very helpful. Thank you for taking our questions.

Our next question today comes from Trafford Lamar from Raymond James. Your line is open.

Thanks for taking my questions. First one centers around CapEx; obviously, unchanged for the full year. And I guess, for Justin, how are you viewing the OSS environment right now with regards to inflation? Obviously, you are a quarter ahead of most of the Appalachian E&Ps. And so just kind of seeing maybe peaked from '22 levels? Or you're still seeing kind of a higher rate of inflation similar to last year?

Sure. Right now, I would say that the service costs have likely peaked. It's difficult to predict if they will stabilize at this level or decrease, as it will depend on commodity prices. However, for those entering new contracts, they will be at a higher level. Currently, it seems that most services are reaching their maximum points. Specifically regarding Seneca, we have most of our services secured for the remainder of this fiscal year. We have a new contract with next-tier for our e-frac fleet and are working on longer-term rig contracts. Overall, most of this year's costs are locked in, which helps protect us from any additional inflation beyond what I've mentioned. We feel confident in our budget and the guidance we've provided.

Perfect. Appreciate the color on that. And then our second question now similar to John's question earlier. What about at this price environment, potential bolt-on opportunities for Seneca? How do you look at that? And then kind of, I guess, what's kind of the bid-ask spread been going around given the recent fall in natural gas? We are seeing more opportunities come available.

Yes. So we haven't seen a lot of new stuff come available. It's always tricky in a rapidly increasing or declining market in trying to find a needle in the middle on what value makes sense. We remain very interested in opportunities that kind of fit us nicely. And so when I talk about that proximate or contiguous with our existing acreage, ideally have some element of takeaway capacity. We love it if it has a gathering midstream angle. So we're continuing to look at opportunities that offer us those kinds of attributes, and we'll watch to see as the prices evolve. I'm hopeful that there'll be more that come available, but there's definitely a bid-ask spread given how much volatility we've seen on the way up, and it will probably be hard for people to accept a lower price given what they could have done if they just executed, say, three months ago.

Yes, that makes perfect sense. Okay. Thank you so much and congrats on a great quarter.

Our next question today comes from Umang Choudhary from Goldman Sachs. Your line is open.

My first question is about your comments on the scoping plans. I would appreciate any insights you can share regarding your discussions with regulators or policymakers about balancing the need to decarbonize while ensuring reliability of service. Additionally, how are you planning your business mix in the long term to grow EPS and dividends while navigating potential regulatory challenges?

Yes. Our engagement with regulators has involved the New York Public Service Commission, which is currently reviewing the future of both the gas business and all utility operations in the state. We have actively participated in this process and made several filings, engaging in discussions with the state. While it is still early in this process, the conversations so far have been constructive. Regarding our long-term business mix, I aim for a balance between regulated and nonregulated operations. There may be times when our nonregulated sector is stronger than the regulated one, but I believe we will achieve that balance over time, with the utility sector playing a significant role in it.

Got you. That's really helpful. And then I guess just to follow up on that previous discussion. It sounds like a lot of your rig and your completion crews are under contract here, and to your point, you are hedged out in the near term. So I was wondering if there's any price levels at which you will look back at your activity levels for the CRM. Like maybe it's beneficial to push the completions out by a quarter or two quarters because the pricing is a little bit more favorable down the road. Because we agree with you, the long-term outlook is much more favorable with LNG coming online in 2025 and beyond.

Yes, absolutely. We have discussed that our long-term plans anticipate continued growth in the mid to single digits at least for the near to intermediate term, but that is something we are open to evolving. We will be very mindful of the pricing environment and aim to balance capital efficiency, growth, and free cash flow generation. Our goal is to achieve the best mix of these three aspects. If that leads to some delays or a slowdown in activities, that will be the most sensible approach. I want to emphasize that we are committed to finding the optimal balance of these factors. If we see longer-term pricing that suggests it would be beneficial to postpone some activities, we will be willing to evaluate and incorporate that into our longer-term operational plan.

So we have no further questions at this time. I will hand you back over to Brandon Haspett for closing remarks.

Thank you, Drew. We'd like to thank everyone for taking the time to be with us today. A replay of this call will be available this afternoon on both our website and by telephone, which will run through the close of business on Friday, February 10. To access the replay online, please visit our Investor Relations website at investor.nationalfuelgas.com, and access by telephone, call 1 866 813-9403 and enter conference ID number 856816. This concludes our conference call for today. Thank you, and goodbye.

That concludes today's National Fuel Gas Company Q1 FY 2023 Earnings Conference Call. You may now disconnect your lines.