Earnings Call Transcript - NFG Q3 2025

Operator, Operator

Hello, and welcome to the National Fuel Gas Company Q3 Fiscal 2025 Earnings Conference Call. My name is Alex, and I'll be coordinating today's call. I'll now hand over to Natalie Fischer to begin. Please go ahead.

Natalie M. Fischer, Vice President of Investor Relations

Thank you, Alex, 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; Tim Silverstein, Treasurer and Chief Financial Officer; and Justin Loweth, President of Seneca Resources and National Fuel Midstream. At the end of today's prepared remarks, we will open the discussion to questions. The third quarter fiscal 2025 earnings release and July 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 on which they are made, and you may refer to last evening's earnings release for a listing of certain specific risk factors. With that, I'll turn it over to Dave Bauer.

David P. Bauer, CEO

Thank you, Natalie. Good morning, everyone. National Fuel had an excellent third quarter. We're seeing great execution across the company, and our momentum continues to build. At Seneca, our Eastern development area continues to exceed expectations. Production for the quarter was up 16% from last year. Based on our updated guidance, we expect full-year production to be up approximately 8% compared to fiscal 2024. We are also seeing ongoing improvements in cash operating costs, solidifying our position as a low-cost operator with top-tier breakeven economics. Looking to fiscal 2026, I expect Seneca will deliver further enhancements in capital efficiency. We've initiated production guidance of 440 to 455 Bcf, which is a projected increase of 6% at the midpoint. Equally important, we anticipate spending 4% less capital to achieve that growth. Our operational team is continually improving well productivity, most recently with our Gen 3 well design, while simultaneously driving our drilling and completion costs lower and reducing overall capital expenditures. It is evident that our exploration and production assets, backed by over two decades of high-quality inventory, will generate significant value in the years ahead. Justin will provide more details on our nonregulated operations later in the call. Our outlook on the regulated side of the business is also promising. We have recently experienced significant growth through ratemaking activity. Moving forward, we expect to achieve mid-single-digit rate base growth over the next several years as we continue investing in system modernization. Additionally, we have identified substantial pipeline expansion opportunities in recent months. In previous calls, I have discussed the need for infrastructure to meet growing energy demands and Pennsylvania's suitability for data center development. With over $90 billion of new investment in Pennsylvania announced two weeks ago, it is evident that this is becoming a reality, and National Fuel is well positioned to take advantage of that growth. In line with this, earlier this month, we announced our Shippingport Lateral Project, a roughly 7-mile pipeline expansion off of our Line N system in Western Pennsylvania, aimed at supplying a significant portion of natural gas for the Shippingport power station and a new co-located data center. Speed to market is crucial for these types of projects, and thanks to FERC's recent increase in blanket certificate project cost limits, we should be able to expedite the construction while incorporating more robust facilities that enhance capacity. We currently have a presiding agreement to provide 205,000 dekatherms per day of capacity starting in the fourth quarter of calendar 2026. This is the largest amount of capacity we can construct in the shortest timeframe. In the long term, Shippingport anticipates bringing online over 3 gigawatts of generation, presenting a real potential for us to supply additional pipeline capacity to the facility in the coming years. In May, our Tioga Pathway project received FERC approval and remains on track for an early fiscal 2027 in-service date. This 190,000 dekatherm per day project serves as an outlet for Seneca's Eastern development area production volumes to reach more premium pricing markets. We expect construction for both the Tioga Pathway and Shippingport Lateral Projects to commence in the first half of calendar 2026. While each expansion is modest in size, we anticipate together they will generate over $30 million in new revenue annually, accounting for about 7% of our current pipeline and storage segment revenues. In summary, between modernization and expansion projects, we have a very strong outlook for our pipeline business. Regarding our capital return programs, given our robust annual performance and significant confidence in our long-term outlook, we raised our dividend for the 55th consecutive year to an annual rate of $2.14 per share in June. In terms of our buyback program, we have made good progress with share repurchases but have recently paused to assess growth opportunities, which remain our top priority. If those opportunities do not materialize, I fully expect to complete the buyback program by 2026. Turning to state energy policy, Pennsylvania is clearly prioritizing economic development. The recent Energy and Innovation Summit in Pittsburgh attracted leaders from top energy, technology, and financial companies, including President Trump and several cabinet members. The summit emphasized the substantial investments in the state committed by data center developers. With our unique assets, including a strong inventory of high-quality drilling locations and an integrated midstream and downstream business, we are well positioned to support the anticipated infrastructure development across the Commonwealth. I hope our Shippingport project is just the beginning of such initiatives. In contrast, New York has yet to take similar strides, but the shift toward a more pragmatic energy policy is beginning. Last week, the State Energy Planning Board released their draft energy plan, a requirement every five years that had not been fulfilled since 2015. This draft acknowledges that the state will not meet several interim targets outlined in the 2019 Climate Act and positively recognizes the significance of a balanced approach to energy. Rather than focusing solely on aggressive short-term decarbonization targets, the draft plan aims to better balance energy reliability, affordability, and emissions reductions. While it doesn't fully embrace new natural gas generation as a solution for decarbonization goals, it acknowledges the ongoing need for investment in natural gas systems while leaving room for potential new investment in natural gas generation. In closing, it is a pivotal time in the natural gas industry. Demand for natural gas is at historic highs both domestically and internationally, and production is increasing in tandem. The idea that wind and solar can power everything in just a few short years is becoming a thing of the past. Clearly, natural gas is the fundamental fuel that will be crucial for driving our nation's growth for decades ahead. National Fuel possesses exceptional acreage in the lowest-cost natural gas basin in the country, along with a strategically located pipeline network to meet rising regional demand and a highly skilled workforce eager to advance the company. All of this positions us for meaningful opportunities and, in turn, value creation for our shareholders. I will now turn the call over to Tim.

Timothy J. Silverstein, CFO

Thanks, Dave, and good morning, everyone. We had a great third quarter with adjusted operating results increasing 66% versus last year. The main drivers were higher natural gas prices, lower per unit operating costs at Seneca, and continued growth in production and gathering throughput. Moving to the outlook for the business. I'll start with fiscal 2025, where we've narrowed our earnings guidance to a range of $6.80 to $6.95 per share. While we've reduced our NYMEX forecast from $3.50 to $3.25 for the fourth quarter, our other guidance updates highlight the positive momentum we are seeing across the company. Strong well results in the EDA allowed us to move up our production guidance to the high end of our previous range. We are also seeing tailwinds with respect to Seneca's cost structure, where both G&A and LOE are expected to be lower for the year. Looking at fiscal 2026, we've provided preliminary guidance. Given the evolving supply and demand fundamentals, we are showing earnings per share ranges at various NYMEX gas prices. Using a $4 price, which closely approximates the current strip, we'd expect earnings to be in a range of $8 to $8.50 per share. At the midpoint, this reflects a 20% increase from fiscal 2025. This anticipated earnings growth is supported by a solid hedge book with nearly 2/3 of our production protected at strong prices through a mix of swaps, collars, and fixed price sales. Our collars with an average floor of $3.50 and an average ceiling of $4.75 provide the opportunity to capture higher pricing, such that at a $5 NYMEX, we would expect earnings of $10 per share at the midpoint, an increase of nearly 50% from our estimate this year. Sticking with the nonregulated businesses, I'll highlight a few other key assumptions. As Dave mentioned, we are guiding to a 6% increase in production at the midpoint of our range. While production is anticipated to grow, it is worth noting that next year, we're expecting a slight decrease in our gathering revenues. Our near-term development program includes a single 6-well Tioga Utica pad scheduled to come online late this fiscal year, which will flow through a third-party system. After this pad, all of our TILes next year will utilize our own gathering system, which will drive volume growth into 2027. From a unit cost perspective, we anticipate maintaining the lower levels of cash unit costs achieved during the current year, while DD&A is set to increase. The impairments recognized over the past year temporarily lowered our DD&A rate below our long-term F&D cost. Over time, DD&A should trend back towards Seneca's F&D costs, which are approximately $0.70 per Mcf. Switching to our regulated subsidiaries. At the utility business, we are expecting a 5% to 6% increase in customer margin next year. This is due to the step-up in rates as part of our 3-year rate settlement in New York, along with higher revenues from our modernization tracker in Pennsylvania. In the Pipeline and Storage segment, revenues are expected to remain relatively flat in fiscal 2026. We are evaluating the timing of a rate case in Supply Corporation, the larger of our 2 FERC-regulated companies. We will look to file at some point in fiscal 2026. But as of today, we are not projecting any incremental associated revenue from this rate case until early fiscal 2027. On the cost side, outside of general inflationary trends, there are 2 factors driving the anticipated year-over-year increase. The first relates to utility customer receivables in arrears. In the New York rate settlement, we established an uncollectible tracker and agreed to accelerate write-offs. With this acceleration, we were able to write off a large amount of our arrears, a good portion of which were the result of statewide policies implemented during the pandemic. The uncollectible tracker permits us to defer and recover write-offs that exceed a certain threshold, both this year and next. We've exceeded that threshold this year, and as a result, have reversed a portion of the previously accrued bad debt expense. The second unique expense item relates to collective bargaining agreements with our unions. Between contract extensions with 2 of our unions earlier this year and upcoming negotiations in 2026 for the remaining covered employees, we expect to see year-over-year increases as wages true up to current market levels. Taken together, we expect utility O&M to increase by approximately 5%, which for our spending levels in New York is generally in line with what was included in the second year of our 3-year settlement. In the Pipeline and Storage segment, costs are projected to be up 4% to 5%. Longer term, regulated O&M increases should trend in the low single-digit range. From a cash tax perspective, the recently passed federal reconciliation bill provides several tailwinds for us. The reinstatement and permanent extension of 100% bonus depreciation will be a benefit to cash tax expense starting this year. In addition, there were changes made to the calculation of the corporate AMT. Without these changes, our forecast would have had us paying higher cash taxes starting in fiscal 2027. But with the new law, we do not expect any corporate AMT payments for at least the next 5 years. Switching to capital. Our consolidated spending guidance for fiscal 2025 is unchanged. Given the timing of some projects, there was a modest shift in spending between the Utility and Pipeline segments. But other than that, we are still on track with our prior consolidated guidance level. Looking at fiscal 2026, Dave already highlighted the continued positive trend in capital efficiency across the nonregulated businesses. In the regulated subsidiaries, we are expecting a modest increase in utility spending, which is related to general cost inflation as our activity levels are consistent year-over-year. In the Pipeline and Storage segment, we are projecting an increase of $100 million at the midpoint. This increase is driven by spending on the Tioga Pathway and Shippingport lateral projects. On the rate-making front, as I said earlier, we anticipate filing a rate case next year for Supply Corporation. At the utility, our capital and O&M levels in New York are generally in line with what is embedded in our 3-year settlement, allowing us to achieve our allowed returns. For Pennsylvania, our DIS mechanism covers the targeted fiscal 2026 modernization spending. But given we are approaching the cap on that mechanism, we are looking to file a rate case next year with new rates effective in early fiscal 2027. Bringing it all together, next year is expected to be a great one for National Fuel. Earnings are projected to be meaningfully higher, up approximately 20% at current strip pricing. And we have a great hedge book that protects to the downside while leaving significant opportunity to capture higher prices. The outlook for free cash flow is strong. At $4 NYMEX, we project to generate between $350 million and $400 million, all while investing in significant growth. And looking further ahead, we remain confident in our ability to deliver mid-single-digit production growth on decreasing capital spending and to grow rate base by an average of 5% to 7% annually through the end of the decade. In addition, the strength of our investment-grade balance sheet, disciplined approach to capital allocation, and consistent returns of cash to shareholders further support the ability of National Fuel to create meaningful long-term value in the years to come. With that, I'll turn the call over to Justin.

Justin I. Loweth, President of Seneca Resources and National Fuel Midstream

Thanks, Tim, and good morning, everyone. Last night, we reported another quarter of record production and throughput at Seneca and NFG Midstream, underscoring the quality of our prolific Eastern development area wells, excellent operational planning, and continued strong execution in the field. Production increased 6% from the prior quarter to 112 Bcf, driving gathering throughput to a new quarterly high of 133 Bcf. As shown on Slide 21 of our latest investor presentation, enhanced Tioga Utica, Tioga Utica well designs are delivering significantly improved results with both estimated ultimate recoveries and cumulative production per 1,000 feet increasing by 20% to 25% with our Gen 3 well design. Based on our strong performance year-to-date and expectations for the remainder of the year, we are updating our production, capital, and cash operating expense guidance for fiscal '25. For production, we have raised our guidance to a new target range of 420 to 425 Bcf, an 8% increase at the midpoint year-over-year. In terms of capital, we have tightened guidance by $5 million on both ends to a new range of $500 million to $510 million. We forecast a meaningful step-up in fourth quarter spending as we enter our peak construction season with substantial activity focused on pads, roads, and infrastructure projects as well as 2 rigs running. Regarding expenses, we have revised our LOE guidance to reflect successful cost management initiatives and higher production expectations, lowering the range to $0.67 to $0.68 per Mcf, a $0.01 reduction on both ends. Additionally, we anticipate projected per unit G&A of $0.18 per Mcf, which represents the low end of our prior guidance range. Looking ahead to next year, our initial guidance highlights continued progress across key operational and financial metrics. For production, we are establishing a range of 440 to 455 Bcf, representing a 6% increase at the midpoint year-over-year. We plan to drill and turn in line approximately 25 to 27 wells with a steady cadence for most of the year before a modest decline in the fourth quarter. With respect to capital, we forecast to spend $470 million to $500 million next year, a $20 million or 4% reduction relative to the midpoint of our fiscal 2025 range. Our development plan includes a 1- to 2-rig program with capital expenditures expected to decline in the second half of the year based on planned activity levels. Going forward, we anticipate continued gains in capital efficiency as our long-term development program remains on track to deliver mid-single-digit production growth alongside further reductions in capital spending. Comparing fiscal 2023, when we began our transition to an EDA-focused development strategy to our fiscal 2026 guidance, we project 20% production growth against an 18% overall capital reduction. This multiyear trend of continuous significant capital efficiency improvements is unique among peers and complemented by our multi-decade inventory of core development locations. A recent independent analysis by Enverus ranks Seneca's inventory at the top of the Appalachian peer group with nearly 20 years of drilling locations at breakeven NYMEX prices below $2.50 per MMBtu. This third-party analysis is consistent with our internal assessments and a testament to our competitive position in the industry. Turning to the natural gas market. We maintain a constructive outlook for prices, supported by strong supply and demand fundamentals. While U.S. gas production has increased over the past 12 months, much of that growth appears to be driven by the drawdown of DUC inventories and deferred TILes accumulated during the period of lower prices experienced in 2024. Despite this added supply, storage levels have remained near the 5-year average, highlighting resilient structural demand. LNG exports and gas-fired power generation have reached record highs with U.S. LNG demand recently exceeding 16 Bcf per day and power sector gas burn hitting record seasonal peaks. Against this backdrop, we are well positioned through our marketing and hedging strategy, which offers price stability while maintaining upside exposure. Over 85% of our expected volumes through the end of fiscal 2026 are backed by our marketing portfolio of firm transportation and firm sales, ensuring both financial resilience and positive leverage to potentially higher prices. Pivoting to NFG Midstream, we continue to gather increasing volumes through our system. To support our EDA development, we were installing additional gathering pipelines, expanding existing stations, and building centralized facilities in multiple locations to enable future growth. We are also continuing to advance the engineering designs for our 2026 projects to accommodate Seneca's increasing well productivity and deliverability. We've moved from designing infrastructure based on individual well rates of 18 million to 20 million per day to now 25 million to 30 million per day. Additionally, not only are the individual well rates higher, but the wells are sustaining at those choke-restricted rates for long periods of time, in some instances, for well over 1 year, highlighting the prolific nature and deliverability of our Tioga Utica inventory. With respect to third-party volumes, we're actively working with the Tioga County producer to gather new production as part of a recently signed interconnect agreement and continue to advance discussions with other third-party producers to leverage and fully utilize our significant gathering infrastructure and associated facilities. We see opportunities to further grow this business over time. In closing, our strong results reflect the strength of our team and the quality of our assets, both of which continue to exceed expectations. Our focus on development planning, operational excellence, combined with an integrated business model and a deep inventory of high-quality drilling locations is driving greater capital efficiency and growing free cash flow. Over the past 5 years, we have transformed the nonregulated business of National Fuel through our acquisition of Shell's upstream and midstream business, divestiture of our California division, and transition to an EDA-focused development strategy. In fiscal 2026, we expect to build on that momentum and reinforce a long-term trajectory of sustained operational and financial growth. With that, I'll ask the operator to open the line for questions.

Operator, Operator

Our first question for today comes from Zach Parham of JPMorgan.

Benjamin Zachary Parham, Analyst

First, I just wanted to ask on the buyback, which you paused this quarter. Can you talk about the drivers of that? The stock has moved significantly higher. It's now pretty close to all-time highs. But you also mentioned preserving balance sheet flexibility for optionality for growth projects. Can you just talk about the moving pieces on the decision to pause that buyback program?

David P. Bauer, CEO

Yes. It's entirely driven by our capital allocation priorities. Our philosophy on capital return hasn't changed where we have our dividend that's funded largely by the regulated businesses and then a buyback program that is largely funded by the free cash flows of the nonregulated businesses. When you look at our capital allocation priorities, as we've said consistently, is first, get our balance sheet in good shape, which is what we've done. And then second, grow the company. But absent growth opportunities, we have excess free cash flow, give the cash back to shareholders. Of late, we've been looking at different opportunities. And as you said, we want to keep balance sheet flexibility.

Benjamin Zachary Parham, Analyst

And then, Tim, maybe a follow-up on cash taxes. Can you just quantify that impact of cash taxes in 2026 and beyond? I think, previously, you talked about mid- to high teens cash taxes. Where does that move with the passage of the tax bill?

Timothy J. Silverstein, CFO

Yes. So Zach, what ultimately will happen is, as I alluded to, we were expecting to be a corporate AMT payer starting around 2027. So the impact will be bigger as you move out in time. Call it, 400, 500 basis points of cash tax rate. In the near term, it's probably, say, in the 200 to 300 basis point area. So I think as we look out to this year, we're in the high single digits from a cash tax perspective. Next year, we'll be in the sort of low to mid-single-digit cash tax rate, ultimately, depending on where prices go, that can cause it to move around a little bit.

Operator, Operator

Our next question comes from Greta Drefke of Goldman Sachs.

Margaret Ellen Drefke, Analyst

My first is just on the change in operations in fiscal '26 versus fiscal '25 and the ramp-up of the Tioga Pathway and Shippingport projects. I appreciate the details you provided of both in the slides. Just focusing in on the Tioga Pathway project, though, to the extent you're able to, can you talk about the cadence of spending for the project in fiscal '26, some key next steps and maybe the most impactful modernization pieces?

David P. Bauer, CEO

Well, we'll kick off construction in the spring, and then with free clearings and other prep-type work. And then the bulk of the spending will be in the summer on the contractors and installing the lines. In terms of modernization, there is an element of modernization to that project, and it's part of our ongoing roughly, call it, $75 million to $100 million a year type program.

Margaret Ellen Drefke, Analyst

Great. Appreciate the detail. And then I just wanted to follow up maybe more broadly on industry trends. There's been a lot of moving pieces in the outlook for D&C costs across the industry. Can you speak a bit about your current sense of the balancing of potential service cost deflation, especially as oil rigs continue to come off and potentially higher input costs such as steel from tariff impacts?

Justin I. Loweth, President of Seneca Resources and National Fuel Midstream

Yes, sure, happy to, Greta. So I'll start with the service cost inflation, for example, on steel. We had expectations going back when some of the tariffs talk really began and got moving that we would see prices move up. In part due to lower overall activity levels and in part due to the mills just keeping up with demand and things kind of lessening in terms of the impact, we're really not seeing a lot of inflationary pressure on the steel side of things. We think kind of where we are is where we'll be as we look out over the coming months. I'd also just note, as a company, we're quite insulated from most of that, certainly over the near and intermediate term. More broadly across the industry, I think that there's probably more tailwinds than headwinds when you think about overall service costs. I'm not expecting any material increases really across the board. I'm not expecting big material decreases either. But if I had to gauge the overall direction, I'd say slightly down to neutral is kind of how we think about the world broadly across the services.

Operator, Operator

Our next question comes from Noah Hungness of Bank of America.

Noah B. Hungness, Analyst

For my first question, I would like to know how you are planning to approach signing a supply agreement if we see new egress emerging from Northeast Pennsylvania. Since you are the only company in that region increasing production and have significant inventory along with an investment-grade credit rating, how does that position you if these new egress projects move forward?

Justin I. Loweth, President of Seneca Resources and National Fuel Midstream

Noah, thanks. Look, I mean, we're excited about those opportunities, and we've got lots of active dialogue. Your thesis and philosophy there on our company is exactly right. We've got the perfect trifecta when you think about all the things you need to be successful in being a supplier to a future data center and power infrastructure. So we're actively engaged in that sort of dialogue. As you mentioned, we've got a really deep inventory of, frankly, some of the best inventory across the basin, across the country. And broadly across national fuel, we've just got all the pieces to find ways to participate in that. So we're going to continue what we've done, which is move very methodically, have a lot of dialogue and then probably talk about things when they're done as opposed to when they're being speculated or potentially looked at. So stay tuned, and we'll continue working it. And hopefully, we'll see some development over in our core upstream production areas, whereas this first kind of wave has been more on the western side of the state, which has also been great for our company.

Noah B. Hungness, Analyst

That's great color. And then for my second question, I'm sure as you guys know, we're very constructive on the Tioga Utica as well. And I see you reiterated your productivity estimates for the Gen 3 design, but it does look like the 2 most recent pads are trending above that type curve. Should we think that there is upside risk to the current productivity estimates?

Justin I. Loweth, President of Seneca Resources and National Fuel Midstream

Yes, we will continue to evaluate those trends. We aimed to be more transparent due to the numerous questions we've received. Therefore, we included additional data in our investor materials to emphasize the impressive performance of these wells. The last two pads have performed exceptionally well. We are continually refining and carefully assessing our completion design. As mentioned earlier, there may be developments beyond Generation 3, and we have already begun testing various factors for that. The rock we are working with is outstanding, and we are finding ways to enhance gas extraction, both in terms of total recoveries and short-term production. We will pursue this direction and acknowledge the efforts of our broader subsurface team for their strategic thinking in maximizing returns. The leading-edge wells are performing slightly better than our type curve, and we aim to maintain that level of performance. We will make adjustments as necessary when appropriate, but we remain very optimistic about the resources we are observing.

Operator, Operator

Our next question comes from John Freeman of Raymond James.

John Christopher Freeman, Analyst

Both the Constitution and Northeast Supply Enhancement pipelines get more attention as Williams looks to try and revitalize those projects. I believe if you all had to pick, I believe NESE is sort of the bigger benefit to you all. But if you could maybe kind of elaborate on that sort of the gives and takes of those projects just as it relates to kind of you all's exposure?

Justin I. Loweth, President of Seneca Resources and National Fuel Midstream

Thank you, John. The Northeast Supply Enhancement project is one that we are eager to see completed. Both this project and the Constitution project are essential for New York and New England as a whole. We believe NESE has significant positive implications if it advances, particularly regarding our existing firm transportation. It could potentially increase demand, which would not only enhance the benefits of our current firm transportation but also open up opportunities for more firm sales or other projects that could be linked to it over time. NESE is definitely a key project. Regarding Constitution, it also holds promise. This area has abundant gas resources, but there are challenges that need to be addressed. However, we have seen valuable discussions, positive momentum, and encouraging updates from both shippers and the developer about the project's potential. This could lead to increased gas movement from areas like Bradford and Susquehanna, which might raise in-basin pricing, especially on Tennessee 300 line Zone 4, and likely impact Eastern as well. This would be advantageous for our portfolio and pave the way for further growth. We fully support both projects and are optimistic about the infrastructure development moving forward.

John Christopher Freeman, Analyst

I want to follow up on what you mentioned earlier, Justin, regarding the evolution of whether to refer to it as Gen 3+ or Gen 4. I'm curious if your guidance for 2026 includes any additional gains in well productivity, or if it simply reflects your current status on well productivity.

Justin I. Loweth, President of Seneca Resources and National Fuel Midstream

Yes, that's a good question, John. The short answer is the results have continued to exceed our expectations. There are a couple of interesting dynamics to consider. One is the deliverability and the rates at which we restrict the wells. Typically, we restrict these wells to around 25 million a day, sometimes 30 million a day, and we maintain them at that level. The biggest opportunity for continued growth lies in how long we can keep these wells at flat rates. We've seen low pressure drawdown even at high per well rates, allowing us to hold these wells flat for periods exceeding a year. The question is how long these wells can sustain flat production levels. We are currently focused on this area, assessing both current and future wells. The day one production and day ninety production levels are likely comparable since we can deliver a significant amount of gas. Similarly, the day one eighty numbers are also likely in line. The real consideration becomes what the production looks like at day two seventy, three sixty-five, and a year and a half in, particularly how long these wells can maintain steady rates. This presents further opportunities, which we have incorporated to some extent into our forecasts, but we still have some uncertainty. We haven't fully committed to all potential scenarios yet.

Operator, Operator

Our next question comes from Timothy Winter of Gabelli.

Timothy Michael Winter, Analyst

And congrats on another strong quarter. Dave, I'm trying to better understand the growth opportunities you guys are considering. Can you just talk a little bit more about what the potential for regulated pipeline investment is? Shippingport in Tioga are great, but are relatively small. Are there more material opportunities that are out there? And how do you weigh that against other regulated investments like some of the LDCs that could be for sale? I know, one's in Ohio is for sale. And then also that against like the potential for behind-the-meter gas plants in the heart of Pennsylvania. If you could just talk a little bit about your thinking...

David P. Bauer, CEO

There's a lot to unpack in that question. To summarize, our main focus is on organic growth, as spending $1 on rate base is the most cost-effective means of expanding. Shippingport and Tioga Pathways are excellent projects, which we consider smaller-scale initiatives that will collectively contribute significantly to the company's growth over time. I believe there will be additional opportunities beyond these two projects, particularly near the locations of retired coal-fired plants in Pennsylvania and New York, which are close to our system. This presents a real chance for development. If the government were to seriously pursue permitting reform, larger-scale projects could become viable. The forecasted demand for natural gas will require us to source production from somewhere, and the Appalachian region is the lowest-cost natural gas basin. This means increasing pipeline capacity from that area is beneficial in the long run. However, we will need permitting reform to see many of these large projects come to fruition.

Timothy Michael Winter, Analyst

Okay. And just to emphasize, we agree organically is the best way to grow, and it's great to see utility that's getting free cash flow from the other businesses to grow rate base. But separately, given the increased sentiment for gas, the spotlight on Pennsylvania's energy hotbed, does it make any sense or have you considered, say, floating like a 15% piece of Seneca to the market to help fund a regulated acquisition? Just talk a little bit about if that makes any sense.

David P. Bauer, CEO

Who knows? When we consider financing the business, we explore various options. I prefer not to comment on a specific situation like that.

Operator, Operator

Our next question comes from Geoff Jay of Daniel Energy Partners.

Geoff Jay, Analyst

I guess looking at the capital efficiency, I'm just kind of curious, obviously, well productivity is playing a role and service costs are likely playing a role. I'm just wondering, if you can kind of help me frame the efficiencies you've seen year-to-date on both the drilling and completion side and how big a factor that's been.

Justin I. Loweth, President of Seneca Resources and National Fuel Midstream

Yes, Geoff, thank you for your question. We have definitely seen improvements in our overall costs related to drilling and completion per foot over the past year. However, we haven't experienced significant service cost reductions during this time. The improvements we've seen are primarily due to enhanced operational efficiencies. It's also important to note that we are still in the early stages of drilling these Tioga and Utica wells, so there are still opportunities for us to improve further. We are committed to continuous improvement and fostering a culture focused on reducing costs per foot, regardless of fluctuations in the overall service cost environment. We believe there is still room for improvement, which will be driven by effective planning and execution, especially from our drilling and completion teams, as we strive to do more with less.

Operator, Operator

At this time, we currently have no further questions. So I'll hand back to Natalie Fischer for any further remarks.

Natalie M. Fischer, Vice President of Investor Relations

Thank you, Alex, and 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 and will run through the close of business on Thursday, August 7. Please feel free to reach out if you have any follow-up questions. Otherwise, we look forward to speaking with you again next quarter. Thank you, and have a nice day.

Operator, Operator

Thank you all for joining today's call. You may now disconnect your lines.