National Fuel Gas Company Earnings Call Nuggets: E&P Capital Budget and Firm Sales
E&P Capital Budget
Carl Kirst – BMO Capital World: Maybe just a first question on the capital budget and specifically the E&P capital budget the $550 million to $650 million. We had always kind of thought maybe the decision of adding a fourth rig might be the big swing factor there, but is that based on a kind of three rig program through the year. What’s the – what would be the primary swing factor in that CapEx budget?
Matthew D. Cabell – SVP and President, Seneca Resources Corporation: I’m not sure that I fully understand your question Carl. You mean what would be – what makes that – makes for the $100 million range?
Carl Kirst – BMO Capital World: Yes Sir.
Matthew D. Cabell – SVP and President, Seneca Resources Corporation: There are couple of things, one would be the activity level in Kansas which is going to be somewhat dependent on our success there. Another is our leasing activity in Lycoming County. You know it’s not a huge number, but it could have an impact on that total. And I guess the third one is really more our pace of drilling and completions, if you frac up six-well pad in one year versus another year, that can have a say a $25 million swing. So, it’s kind of – a mix of all of those factors…
Carl Kirst – BMO Capital World: So really the issue of kind of shifting from 595 over to Clermont rather than adding a new rate Clermont is just primarily an issue of gas pricing basis at this point, kind of I guess same as it’s always been as far as the gating factor?
Ronald J. Tanski – President and COO: For adding additional rigs beyond the three.
Carl Kirst – BMO Capital World: If I could ask one other question just cost wise and understanding that we are still sort of in this delineation and perhaps science experiment, but now that we’ve sort of gone officially in Clermont to a full development program can you give us a sense of what you are expecting well costs to be, I don’t know whether you can sight either the latest one I think you said it was the 9H or just general what your expectations are, but just want to make sure I have got that ring fenced.
Ronald J. Tanski – President and COO: Let me give it to you in terms of our expectations. As we go into this full development program our expectations is that we’ll be drilling wells that have say 5,000 to 6,000 treatable lateral length. So they’ll have say 33 to 40 stages and the drilling complete costs for those would be $6.5 million to $7.5 million. They are not cheap wells but they are not cheap because they are long laterals with a lot of stages and that’s another reason why they are so effective and we found that the bank for your buck is significantly better on a longer lateral with more stages…
Carl Kirst – BMO Capital World: Then last question Dave, I apologize I was writing this down in your prepared comments you said turning to taxes that the tax rate you expected to be 40% to 41% going forward. Did you make a mention of what you expected the sort of current deferred split to be in 2014 assuming no more bonus depreciation?
David P. Bauer – Treasurer and Principal Financial Officer: No, I didn’t say that, but we don’t expect to be paying any current taxes in ’13 or ’14.
Becca Followill – U.S. Capital Advisors: Just a couple of follow-ups. On the firm capacity it is firm sales that you have on the E&P side, can you quantify how much do you have under firm?
Matthew D. Cabell – SVP and President, Seneca Resources Corporation: Becca, we’ve got $125 million a day firm into TGP 300 and $155 million into Transco, then we have another sort of $30 million to $70 million into national fuel system.
Becca Followill – U.S. Capital Advisors: Then on the nine well pad, I think it was now that you were looking to begin drilling in the Clermont area, what’s the timing for that to go on into service?
Matthew D. Cabell – SVP and President, Seneca Resources Corporation: I think we’ll have it drilled and completed by, certainly by the end of the summer, but I’m not sure if the gathering line will be complete by that date, so I would say for forecasting purposes I would assume around the first of our next fiscal year.
Becca Followill – U.S. Capital Advisors: So that’s what is built into your guidance?
Matthew D. Cabell – SVP and President, Seneca Resources Corporation: Yes.
Becca Followill – U.S. Capital Advisors: So not really a ’14 impact.
Matthew D. Cabell – SVP and President, Seneca Resources Corporation: Clermont does not have – other than the two wells that we’ve already drilled doesn’t have a material impact on fiscal ’14.
Becca Followill – U.S. Capital Advisors: Then to your comments on structure and I think I was writing down all, because you guys were talking. I believe you said that it’s over the next three quarters you will kind of evaluate what you want to do, how quickly you want to ramp up in that area and that really won’t kind of drive your decision on whether or not you need that capital to form and MLP, is that correct?
Ronald J. Tanski – President and COO: Well Becca it’s really over the new few quarters we’re going to be looking at gas pricing and basis to see that there is a way that we can provide a little bit more clarity with respect future cash flows that might be – that would form the basis of ultimate drop downs in an MLP format or really just the economics of drilling the wells in the WDA.
Becca Followill – U.S. Capital Advisors: So what specifically are you looking for, what would be the threshold that would drive that decision?
Ronald J. Tanski – President and COO: Well again, the pricing. I mean Matt talked about a net back of $3.50 to $4 to Seneca for the production in that area. And as you know basis, as Dave mentioned is struggling a little bit at Dominion South Point these days and it’s – that’s really tough to get any kind of long-term contracts out of that area right now.
Becca Followill – U.S. Capital Advisors: Then finally, just in light of that of the bottlenecks that we’re seeing in the really compressed or the wide basis that we’re seeing, any progress on your West-to-East project?
Ronald J. Tanski – President and COO: No, not. No major progress. That’s still sitting out there because, with the – what we’re seeing for the dry gas portion, other producers out there haven’t been actively drilling a lot of wells looking for capacity. Everyone as you know is concentrating on the wet gas window.
A Closer Look: National Fuel Gas Company Earnings Cheat Sheet>>