National Fuel Gas Company (NFG) Earnings Call Transcript & Summary

Good morning, and welcome to National Fuel Gas Company's Annual Meeting of Stockholders. Mr. Bauer, your line is open. Your meeting may begin.

Good morning. I'm David Bauer, President and CEO of National Fuel Gas Company and a member of the Board of Directors. Our Chairman of the Board, David Smith, is on the line with us this morning. But he's not present at company headquarters, where we're running today's virtual meeting. As a result, to minimize any potential technical issues, Dave has asked that I take the lead in conducting today's meeting. There'll be 2 parts to today's meeting. We'll start with the formal business of the meeting, where we elect directors and consider shareholder proposals, and then conclude with a brief management presentation and question-and-answer session. So without any further ado, I call the meeting to order. I'd like to take a moment to introduce the directors of the company who are on today's call: David Smith, Chairman of the Board of National Fuel Gas Company; David Anderson, President and CEO of Northwest Natural Gas Company; Barbara Baumann, President and Owner of Cross Creek Energy Corporation; David Carroll, President and CEO of the Gas Technology Institute; Steven Finch, Senior Vice President of AAA Western and Central New York; Joseph Jaggers, former President, Chairman and CEO of Jagged Peak Energy; Rebecca Ranich, former Director at Deloitte Consulting; Jeffrey Shaw, former Director and CEO of Southwest Gas Corporation; Thomas Skains, former President, Chairman and CEO of Piedmont Natural Gas Company; and Ronald Tanski, former President and CEO of the company. Also present at today's meeting are members of senior management of the company. Sarah Mugel, General Counsel and Corporate Secretary of the company, will act as secretary of this meeting and will record the proceedings. I'd like to welcome everyone listening to our Annual Meeting of Stockholders. As we continue to face the COVID pandemic, the safety and well-being of our employees, customers and communities are our highest priorities. Our employees have done a terrific job, and I would like to say thank you to them for their hard work. I'd also like to thank our directors for their continued leadership. Turning to the meeting. A full, true and complete list, in alphabetical order, of all stockholders entitled to vote at this meeting with the residence of each and the number of shares held by each is available on the web portal link at the bottom of your screen. I order that this list be filed with the secretary of the meeting. In addition, meeting materials are contained on the virtual meeting website, including a link to the rules of conduct and procedures for the meeting.

The inspectors of election for this meeting, James J. Raitt and [ Margaret DiStrocca ], have been appointed and will, among other things, determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the validity and effect of proxies. The inspectors have taken the oath of this office and have been properly sworn. In addition, the inspectors have informed me that a quorum is present. There are represented at this meeting, in person or by proxy, a majority of the company's outstanding shares.

I declare a quorum present and the meeting ready for business. Ms. Mugel, was the Notice of Meeting duly and properly mailed?

Yes. Proper Notice of the Meeting has been given to each stockholder of record as of January 11, 2021, in accordance with the bylaws of the company. And I have before me an affidavit of mailing furnished by Broadridge Financial Solutions with respect to the mailing on January 22, 2021, of the Notice of Meeting, the proxy card and the proxy statement. This document is available upon request if any stockholder wishes to examine it.

Please identify the document as presented to the meeting and file it with the records of the corporation. The reading and approval of the minutes of last year's annual meeting held on March 11, 2020, is now in order. The minutes of that meeting are available for examination at the bottom of your screen.

I move we omit the reading of the minutes of last year's annual meeting held on March 11, 2020, and approve the minutes as submitted.

I second the motion. It has been moved and seconded that the reading of the minutes be waived and the minutes approved as submitted. The minutes are approved. You will note from the proxy statement that there are 4 items for stockholders' consideration today: First, the election of David Anderson, David Bauer, Barbara Baumann and Rebecca Ranich as directors of the company to hold office for 3-year terms expiring in the year 2024 and until their respective successors have been elected and qualified; second, advisory approval of the company's named executive officer compensation; third, approval of an amendment of the restated certificate of incorporation to declassify the Board of Directors; and fourth, ratification of the appointment of PricewaterhouseCoopers LLP as independent registered accounting firm for fiscal year 2021. The Board recommends a for vote for all 4 proposals. We will now proceed with the balloting. I declare the polls open. If you've already voted by phone, Internet or proxy card, there is no further action required, unless you wish to change your vote at this time. If so, please use the Vote Here button on your screen and follow the instructions to vote your shares. We will now pause for a few moments to allow shareholders to submit their votes. [Voting]

I declare the polls closed. The inspectors of election have provided the preliminary results of the votes on the proposals. The final results of each vote will be reported in a Form 8-K filed with the SEC. Based on the preliminary results, each of the 4 directors were reelected to 3-year terms expiring in 2024, and the 3 other proposals were approved by a majority of votes cast by the holders of shares entitled to vote. This concludes the formal business of the meeting. The Annual Meeting of Stockholders is now adjourned. We'll next provide a brief presentation highlighting the company's fiscal 2020 accomplishments. Following the presentation, we'll have a brief question-and-answer session, if there are shareholder questions. The rules of conduct set forth the protocols for asking questions, including a two -- a limit of 2 questions per shareholder in order to provide all an opportunity to ask a question. Questions may be submitted in the box located on your screen. Good morning, and thank you for participating in National Fuel Gas Company's 2021 Annual Meeting of Stockholders. I'm David Bauer, President and Chief Executive Officer. Over the next few minutes, I will briefly walk through some key operational and business updates that occurred in National Fuel's fiscal 2020. As you'll see, we had several major accomplishments that position the company well for continued success in the years ahead. As a reminder, this presentation will include forward-looking statements. And while our expectations and projections are made in good faith, actual results may differ materially. Without a doubt, fiscal 2020 was unlike any other in National Fuel's nearly 120-year history. Against the backdrop of the COVID-19 pandemic, National Fuel turned a year of challenges into one of opportunity. Most significantly, we completed a highly accretive acquisition of integrated Upstream and Midstream gathering assets in Appalachia. In addition, we placed a major pipeline expansion project into service on time and under budget and furthered our long-term system modernization efforts at our Pipeline & Storage and Utility businesses. Lastly, we made a concerted effort to enhance the company's environmental, social and governance initiatives, which culminated with the publication of our first Corporate Responsibility Report. As the company confronts the challenges of the COVID-19 pandemic, I'm proud to say that National Fuel has continued to safely and reliably operate across all 3 of our major business segments. The continuity of our operations has been a direct result of the dedication and hard work of our over 2,000 employees. During this unprecedented situation, National Fuel has remained committed to our workforce and has not instituted any furloughs or workforce reductions. With a large portion of our employees working remotely, we implemented a number of initiatives to provide the flexibility needed to address this new norm, including additional paid time off to address childcare needs and encouraging the use of alternative work schedules. And with respect to our in-field workforce and our customer service representatives, we adopted appropriate social distancing measures and provided necessary personal protective equipment in line with directives from federal, state and local agencies. The health and well-being of our employees and our communities will remain our #1 priority. In July, the company closed on an approximately $506 million acquisition of Royal Dutch Shell's Appalachian Upstream and Midstream assets, the largest acquisition in National Fuel's history. The assets acquired included over 200,000 net acres in Tioga County, Pennsylvania with approximately 225 million cubic feet per day of flowing natural gas production. The acquisition also included over 140 miles of gathering infrastructure and significant firm transportation capacity on the company's Empire Pipeline system. The properties are immediately adjacent to our existing assets and operations, which will drive significant cost synergies, including an expected $0.10 per Mcfe reduction in cash operating costs for our E&P business. The acquired assets also include over 200 undeveloped Utica and Marcellus drilling locations, which provide tremendous upside over the coming years. We expect this transaction will drive significant incremental free cash flow and be immediately accretive to our earnings. In mid-September, the Empire Pipeline placed into service the approximately $129 million Empire North Project. This project provides 205,000 dekatherms per day of new pipeline capacity to Northeast and Canadian markets. This is an excellent project for the company, adding $27 million in annual revenues that are supported by long-term firm transportation agreements. In addition, by utilizing an electric motor drive compressor and vent gas recovery systems, this project was designed to significantly mitigate operational and fugitive emissions. In fiscal 2020, our utility continued its long-term trend of investing in the safety and reliability of its distribution system. This year's annual system modernization program replaced over 150 miles of older vintage pipelines. Our modernization efforts have been a key driver of the significant emissions reductions in this business, contributing to a more than 60% decrease in EPA-reported greenhouse gas emissions since 1990. In September, the company published its first stand-alone Corporate Responsibility Report, which includes significant disclosures related to the company's performance on environmental, social and governance metrics using the sustainability Accounting Standards Board and Global Reporting Initiative frameworks. The report is an important step in the continuous improvement of National Fuel's ESG disclosures and highlights the company's ongoing efforts to ensure its operations have minimal environmental impacts on the communities in which we operate. We see the value of enhanced ESG disclosures, and we'll continue to build on this report in the future. Across our operations, National Fuel continues to take steps to further sustainability-focused initiatives. In addition to our enhanced disclosures, the company has ongoing initiatives at each business to reduce our environmental footprint. With respect to our Upstream operations, we are keenly focused on operational emissions reductions in Appalachia with our emissions intensity amongst the lowest in Pennsylvania. We've also made significant investments in water handling and recycling facilities, limiting our use of freshwater and limiting emissions related to truck traffic that would otherwise be needed to transport the necessary water for our drilling operations. And in California, we're focused on offsetting emissions from our operations with continued investment in solar facilities to power our field operations. Our Pipeline & Storage and Utility businesses are working to facilitate the transportation and consumption of renewable natural gas on our systems. In fiscal 2020, we completed our first interconnection with an RNG developer in Western New York. We've also continued to modernize our transmission and utility systems with a focus on reducing operational and fugitive emissions. And lastly, we continue to promote energy conservation and efficiency programs, which have reduced end-use greenhouse gas emissions by over 1.3 million metric tons since 2007. Overall, National Fuel is well situated to participate in the ongoing push to decarbonize the economy. National Fuel achieved a significant milestone in fiscal 2020 as we increased our dividend for the 50th consecutive year. The stability and long-term growth of our regulated operations support this return of capital to our shareholders, which we have paid through a dividend for 118 consecutive years. As we look ahead, National Fuel is poised for further growth, driven by the continued expansion of our FERC-regulated pipelines, the modernization of our regulated transmission and distribution assets and the integrated and cost-effective development of our Appalachian natural gas reserves. Of note, preliminary construction activities are now underway on our FM100 expansion and modernization project, the largest in the company's history. This project, which will add more than $50 million in annual pipeline and storage revenues, further supports the integrated development of our prolific and highly economic Marcellus and Utica assets and puts us on a path to generate meaningful consolidated free cash flow in fiscal 2022 and beyond. In closing, thank you for joining us for this year's annual meeting, and thank you for being a shareholder of National Fuel.

Thank you for the presentation, Dave. We have received a question that I will ask Dave Bauer to address at this time.

Yes. So we have a stockholder asked, with respect to proposal #4, for an explanation on the 26% increase in PricewaterhouseCoopers' fees this year versus last year. And the answer to that is our acquisition in 2020 of upstream and midstream assets from a subsidiary of Shell. You'll recall, that was a large transaction that required PwC to increase their audit work, particularly around the financing for that transaction.

Thank you, Dave. There are no more questions submitted by shareholders at this time. We thank you for attending the National Fuel Gas Company 2021 Annual Meeting of Stockholders. Operator, the meeting has now concluded.

Thank you for attending National Fuel Gas Company's Annual Meeting. This concludes today's meeting. You may now disconnect. Thank you.