National Fuel Gas (NYSE:NFG) reported what management called a “solid” second quarter of fiscal 2026, citing record adjusted earnings per share and strong performance across regulated and non-regulated operations amid severe winter weather.
Quarterly performance and winter weather impacts
President and CEO David P. Bauer said the company delivered adjusted earnings per share of $2.71, up 13% from the prior year, extending what he described as a streak of double-digit EPS growth and keeping the company on track for a multi-year target of 10%+ average annual growth. Bauer highlighted operational resiliency during an extended cold snap in January and February, when some areas saw daily lows below freezing for 19 straight days.
Marketing and hedging drove results; free cash flow highlighted
Treasurer and CFO Timothy J. Silverstein said the quarter produced record EPS, “driven in large part by the strength of our natural gas marketing and hedging portfolio,” which was positioned to capture upside from winter price spikes. He said that benefit “came to fruition in late January and February,” and, combined with regulated growth, lifted adjusted EPS by 13%.
Silverstein also said the company generated approximately $160 million in free cash flow during the quarter, calling the combination of earnings growth and free cash flow a differentiator versus peers.
Within the integrated upstream and gathering segment, Silverstein said price realizations rose by more than $0.50 per Mcf, or nearly 20%, reflecting winter exposure to markets that can command premium pricing and the use of collars. Production came in “slightly below expectations” due to weather-related road closures, which Silverstein quantified as a 5 Bcf impact in the quarter.
On costs, Silverstein said per-unit gathering O&M ran slightly above expectations due to a new compressor maintenance strategy that led to larger-than-normal expense from accounting write-downs. He said full-year gathering O&M is now expected to be $0.01 higher at $0.12 per Mcf, while upstream LOE is expected to be $0.01 lower, resulting in “no impact” on the combined cost structure.
Updated guidance reflects lower NYMEX assumption and modest production cut
Silverstein said the biggest guidance change for the remainder of fiscal 2026 was the NYMEX price assumption, now projected at $3.00 per MMBtu, down from $3.75. The company also expects “modestly tighter” basis differentials, projecting $0.80 below NYMEX. He said National Fuel is about 75% hedged for the rest of the year, “with the bulk of that in the form of swaps and fixed-price sales,” which helps reduce the earnings impact of lower expected pricing.
The company’s adjusted EPS guidance was updated to $7.45 to $7.75 per share; at the midpoint, Silverstein said that would be a 10% increase over last year. Production guidance was revised to 425 to 440 Bcfe for the full year, down 3% from the prior range, though Silverstein said the midpoint remains up versus last year and the longer-term outlook for production growth is intact.
During the Q&A, Silverstein addressed curtailment considerations, noting that about 30 Bcf of volumes are exposed to spot pricing. He said the company does not specify a precise price level for curtailments, but added that historically “prices north of $2, we’re still flowing gas” while “prices…well below $1, we’re definitely curtailing.” He also said the company’s guidance does not assume any price-related curtailments and that it has not curtailed volumes since winter.
Upstream testing, well design progress, and capital commentary
Justin I. Loweth, President of Seneca Resources and National Fuel Midstream, said the integrated upstream and gathering segment delivered record EBITDA of more than $300 million, driven by net production of 102 Bcf and higher winter prices. He echoed management’s comments that operations performed well during severe weather, though road closures slowed completions and delayed flowback.
Loweth also discussed results from a six-well pad in Northwest Tioga drilled in a separate fault block, including one Upper Utica well and a Lower Utica Gen 4 test plus four “older design” wells. He said the four older design wells are underperforming projections, while the Gen 4 and Upper Utica wells are “demonstrating strong productivity in line with our expectations.” Loweth said the pad was drilled in part to hold an almost 20,000-acre parcel prior to completing 3D seismic work and integrating it into the subsurface model, which he said is now in place and expected to lead to better outcomes going forward.
Loweth said two Tioga Utica pads, Bower and Taft, reached cumulative production of 130 Bcf, and he estimated the pads would deliver about “900 million per 1,000 foot in 18 months,” which he described as among the basin’s best results. He said Seneca turned in line its first Tioga co-development pad with three Upper and three Lower Utica wells, with another planned toward the end of the fiscal year. He also cited an early encouraging test in which a single Tioga Utica well was rate constrained at 40 million per day, above the 25 million to 30 million per day levels held on Bower and Taft.
In response to analyst questions about moving to Gen 4 designs, Loweth said the company is “trending” in that direction but will continue challenging Gen 3 versus Gen 4 (and future designs) to optimize integrated returns, noting Gen 4 is “a little bit more expensive.”
On capital, Loweth said the company maintained its prior upstream capital guidance range of $560 million to $610 million, but is trending toward the high end. He attributed that to drilling efficiencies that could bring forward capital as more wells are drilled, strategic land activity to bolster acreage, and emerging cost headwinds tied to higher oil and diesel prices, which affect drilling, completions, and logistics. In a separate Q&A exchange, Loweth said the company was not seeing war-related supply chain disruptions similar to post-COVID issues and characterized the current impact as more about “pricing headwinds,” with many services under longer-term contracts.
Pipeline, utility, and acquisition updates
Bauer outlined several items in the regulated businesses, including new pipeline and storage expansion opportunities tied to demand growth for electric generation, including data centers. He said the company executed a proceeding agreement for the Line N System Upgrade Project, which would add 94,000 decatherms per day of incremental transportation capacity under a long-term contract with an investment-grade counterparty. The project’s estimated capital cost is $93 million, with about 70% related to modernization of a key six-mile portion of pipe, and is expected to go into service in late calendar 2028.
Bauer said construction began during the quarter on the Shippingport Lateral and Tioga Pathway expansion projects, which he said remain on track for November 2026 target in-service dates. He also said Supply Corporation is filing a new rate case with FERC seeking an approximately $95 million increase to cost of service and proposing a modernization tracker, with the company hoping to reach a settlement in the fall and new rates effective late in the calendar year.
In the utility segment, Bauer said affordability remains a priority and noted delivery rates are the lowest in both New York and Pennsylvania. He said New York is in year two of a three-year rate plan running through fiscal 2027, and that the company has more than a decade of remaining modernization investments at the current replacement pace. In Pennsylvania, he said the company expects to file rebuttal testimony in May and begin settlement discussions over the summer, expressing optimism that a settlement could be reached by fall on a request for a $20 million increase.
On Ohio, Bauer and Silverstein said the CenterPoint acquisition remains on track for a calendar fourth quarter closing. Silverstein said the HSR waiting period has passed, and the company expects an order from the Public Utilities Commission of Ohio in late spring or early summer. He added that the company is preparing to complete remaining permanent financing prior to closing and expects to raise up to $1.5 billion across multiple tranches, including roughly $1 billion needed at closing, refinancing a $300 million October maturity, and extending a portion of a term loan. Silverstein also noted National Fuel recently upsized its committed credit facility to $1.3 billion of borrowing capacity.
Silverstein said the balance sheet is “in great shape,” with expectations to end the year below two times debt to EBITDA and approach 50% FFO to debt, positioning the company to reach a target of mid-two times debt to EBITDA after the first full year post-closing.
About National Fuel Gas (NYSE:NFG)
National Fuel Gas Company (NYSE: NFG) is a diversified energy company engaged primarily in the production, gathering, transmission, distribution and marketing of natural gas. The company operates through four principal segments: Exploration & Production, Pipeline & Storage, Utilities, and Energy Marketing. Its integrated asset base spans upstream development in the Appalachian Basin, regional pipeline networks, underground storage facilities, and regulated utility distribution systems.
In its Exploration & Production segment, National Fuel Gas focuses on developing natural gas reserves in the Marcellus and Utica shales, leveraging modern drilling and completion techniques.
