Fitch Affirms National Fuel Gas' IDR at 'A-'; Outlook Stable.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed National Fuel Gas Company's (NFG NFG No Freaking Good (polite form) NFG Nefteyugansk (Russia) NFG New Found Glory (band from Coral Springs, Florida) NFG Neighborhood Funders Group ) Issuer Default Ratings (IDRs) and debt ratings as follows: -- Long-term IDR IDR In currencies, this is the abbreviation for the Indonesian Rupiah. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. at 'A-'; -- Short-term IDR at 'F2'; -- Senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. at 'A-'. The Rating Outlook is Stable. NFG's ratings and Stable Outlook largely reflect the predictable performance of its natural gas distribution utility operations in New York and Pennsylvania and its FERC-regulated pipeline and storage operations. The ratings also consider the relatively conservative operating practices at Seneca Resources Corp. (Seneca), NFG's oil and natural gas exploration and production (E&P) segment, and the company's consistently solid overall financial profile and strong liquidity position. Concerns are mainly focused on the current low natural gas price environment and Seneca's exposure to volatility in commodity prices for its unhedged portion of oil and natural gas production. In addition, NFG's proposed West to East project and Appalachian Lateral may pose a challenge to the ratings if the projects are developed. NFG's mix of operations historically was fairly balanced among the utility, E&P, and pipeline and storage segments. During the run-up in commodity prices over the last two fiscal years, Seneca's E&P business contributed a much greater proportion of earnings than the other segments. Going forward, it is expected that earnings will return to a more balanced mix as a result of lower commodity prices, particularly for natural gas, which Fitch expects to remain low for a more extended period of time. The natural gas distribution utility operations provide a stable base to the company's overall business. About two-thirds of the utility's roughly 727,000 customers are in New York, with the remaining one-third in Pennsylvania. Although the New York Public Service Commission authorizes a fairly low return on equity (ROE) at 9.1%, it allows for several constructive rate mechanisms, such as revenue decoupling Decoupling The occurrence of returns on asset classes diverging from their normal pattern of correlation. Notes: Take for example stock and corporate bond returns, which normally rise and fall together. , weather normalization In relational database management, a process that breaks down data into record groups for efficient processing. There are six stages. By the third stage (third normal form), data are identified only by the key field in their record. , and rate trackers for gas costs, post-retirement medical expense, and pension expense. These mechanisms are viewed favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. by Fitch because they tend to smooth out financial performance throughout the economic cycle and periods of commodity price and weather volatility. The Pennsylvania Public Utility Commission authorizes a higher ROE of between 10 and 11%, but limits its rate mechanisms to trackers for gas costs and post-retirement medical expense. Similar to the utility operations, NFG's regulated pipeline and storage operations are expected to continue to provide earnings stability. The company's straight fixed-variable rate design mitigates the effect on revenues caused by transportation volume volatility. Efficiency gas revenues will likely remain low but provide some upside Upside The potential dollar amount by which the market or a stock could rise. Notes: This is basically an educated guess on how high a stock could go in the near future. See also: Bull, Downside to earnings in the future when natural gas prices eventually recover and volumes pick up. The Empire Connector pipeline, which went into service in December 2008, should continue to provide a reliable revenue stream as a strategically placed pipeline that serves the New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. area via the Millennium Pipeline. Seneca has moved away from the riskier E&P operations in the Gulf Coast to focus largely on the development and production of its Appalachian natural gas properties in the Upper Devonian and Marcellus Shale. The increased drilling activity in these areas is expected to account for the majority of capital expenditures in 2010, and Fitch expects this to continue to be the focus in 2011 and beyond, as the company strives to increase its reserves and production. Seneca's low cost structure and lack of royalty fees for its properties in the Marcellus Shale enable the company to continue to operate profitably in a fairly low natural gas price environment. However, earnings from the E&P segment would be stressed should natural gas prices remain at their current low levels. Seneca's oil production operations in California, which have been complemented by the company's recent acquisition of Ivanhoe Energy's assets, provide some diversity to the natural gas operations in Appalachia. The significant drop in commodity prices - particularly natural gas - from last year is a concern, but the expected decrease in Seneca's cash flows will be partially mitigated by the company's use of hedges that have locked in favorable natural gas and oil prices for about 47.5% of 2010 production, an estimated 25% of 2011 production, and a portion of 2012 production. Seneca's average hedged price for natural gas is $7.22 / Mcf in 2010, $7.31 / Mcf in 2011, and $7.50 / Mcf in 2012. The impact of low natural gas prices on NFG's financial metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. will be more significant as these hedges begin to roll off and the company becomes increasingly exposed to volatile commodity prices. Although the robust financial performance of 2007 and 2008 is not likely to return in the near future, Fitch expects NFG to be able to maintain solid leverage and interest coverage ratios during a somewhat challenging operating environment In computing, an operating environment is the environment in which users run programs, whether in a command line interface, such as in MS-DOS or the Unix shell, or in a graphical user interface, such as in the Macintosh operating system. for companies with E&P operations. An extended period of low natural gas prices may result in negative free cash flow, although Fitch views the company's liquidity position - supported by $433 million in cash as of June 30, a fully available $300 million commercial paper program backed by a $300 million syndicated committed credit facility, and $420 million of unused uncommitted lines of credit - as strong enough to allow NFG to operate without the need to access the capital markets until the likely refinancing Refinancing An extension and/or increase in amount of existing debt. of its $150 million of medium term notes that mature in November 2011. Furthermore, the discretionary nature of much of Seneca's operations has allowed it to cut back capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. , particularly in the Gulf of Mexico Noun 1. Gulf of Mexico - an arm of the Atlantic to the south of the United States and to the east of Mexico Golfo de Mexico Atlantic, Atlantic Ocean - the 2nd largest ocean; separates North and South America on the west from Europe and Africa on the east , to respond to market conditions. NFG is a diversified energy company that is primarily driven by the following three segments: a natural gas distribution utility, the Seneca Resources Corp. oil and natural gas exploration and production business, and pipeline and storage. In addition, NFG has an energy marketing segment and various smaller businesses largely related to timber and landfill gas. NFG has a strong Northeastern regional presence and its operations are primarily centered on its natural gas distribution utility segment located in New York and Pennsylvania. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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