NFG to Separate Integrated Upstream and Gathering Business - NATIONAL FUEL GAS CO

Explicit Guidance:

• Completion Timing: Expected completion of the separation (spinoff of Integrated Upstream and Gathering business) in the second half of calendar 2027.
• National Fuel (Post-Separation):
  • Rate Base: Approximately $5 billion.
  • Long-term Growth: Expected rate-based growth of 5% to 7% annually.
  • Capital Spending: Annual investments expected to nearly double to ~$400 million (up from ~$200 million previously) following the Ohio utility acquisition.
  • Expansion: 700,000 decatherms/day of new pipeline capacity under contract; 400,000 decatherms/day slated to come online next month.
  • Credit Rating: Anticipated improvement to two to three notches higher than current investment-grade rating after monetizing retained IUG stake.
• IUG (Post-Separation):
  • Leverage: Targeting long-term leverage ratio at or below 1.0x (starting slightly higher post-separation, path to sub-1.0x expected within 1–2 years).
  • Credit Rating: Expected to fall comfortably in the double B category (consistent with similarly sized upstream peers).
  • Equity Financing: Both companies expect to operate with no incremental equity financing needs over the next five years.

Business-Segment Outlook:

• National Fuel (Regulated Utility & Pipeline):
  • Customer Base: Will serve ~1.1 million customers across New York, Pennsylvania, and Ohio.
  • Transmission Capacity: FERC-regulated pipeline and storage will provide ~5 BCF/day of natural gas transmission services and 77 BCF of fully contracted storage capacity.
  • Modernization: Continued system modernization programs across jurisdictions underpinned by rate-based growth.
  • Expansion: Continued pipeline expansion driven by utility, data center, and power generation demand, particularly around the Pittsburgh area (Line-in system).
• IUG (Upstream & Gathering):
  • Production: Currently 1.1 BCF/day net production; positioned to grow production via deep inventory.
  • Reserves: 5 BCF of proved reserves across 1.2 million net acres.
  • Inventory: 25+ years of prospective Marcellus/Utica development inventory with break-even prices at NYMEX $2.25 or less.
  • Acreage: 300,000 acres in Eastern Development Area (Tioga/Lycoming counties); 900,000 acres in Western Development Area (fee-owned, no drilling requirement).
  • Capacity: 1 BCF/day of firm transportation capacity currently active; additional 0.5 BCF/day contracted capacity expected over the next several years (first portion: Tioga Pathway Project available next month).
  • Capital Efficiency: Trend of improving capital efficiency (up 25% since 2023) expected to continue.
  • Management: Justin Loeweth to become CEO of the standalone IUG company.

Market and Competitive Outlook:

• Demand Drivers: Natural gas demand expected to increase driven by LNG exports, power generation growth, and data center demand.
• Market Positioning: IUG positioned to capitalize on a "durable multi-year increase" in demand; National Fuel assets well-positioned to support regional growth.
• Geographic Focus: Both entities leveraging the Appalachian Basin, the "most prolific source of natural gas supply in the country," with strategic interconnections to all long-haul pipelines.
• Share Growth: IUG expects to pursue market share gains and additional growth avenues (organic and inorganic) utilizing superior subsurface understanding in Tioga County.

Macro / Industry Outlook:

• Industry Backdrop: Management describes the natural gas industry backdrop as "as strong as it's ever been."
• Regulatory Environment: Operates within "constructive regulatory frameworks" in NY, PA, and OH that support steady rate-based growth and real-time recovery of capital spending.
• Cost Structure: IUG's integrated model supports a low-cost structure; National Fuel maintains a record of customer affordability (lowest delivery rates in NY/PA).
• FX/Commodities: IUG leverage target of ~1.0x is subject to movement based on commodity prices and market conditions.

Strategic Initiatives:

• Corporate Separation: Execution of a tax-free spinoff to create two independent public companies to optimize capital allocation and attract specific investor bases.
• Capital Allocation:
  • National Fuel: Dividend expected to adjust to align with utility peers; growth funded by free cash flow (no equity issuance expected).
  • IUG: Free cash flow to be balanced across balance sheet optimization, growth investment, and share repurchases.
• Retained Stake: National Fuel will initially retain up to 19.9% of IUG, with plans to tax-efficiently monetize this stake post-separation to strengthen the National Fuel balance sheet.
• M&A: National Fuel anticipates increased competitiveness for M&A opportunities post-separation due to improved cost of capital; IUG open to inorganic growth to leverage acreage.
• Ohio Acquisition: Completion of the Ohio gas utility acquisition (already closed) provided the scale necessary to operate both entities independently.

Risks and Headwinds to Outlook:

• Commodity Price Sensitivity: IUG's ability to achieve sub-1.0x leverage is contingent on expected free cash flow generation and current natural gas strip prices.
• Execution Risk: Completion of the separation is subject to customary conditions, including SEC Form 10 effectiveness and financing arrangements.
• Regulatory/Market Fluctuations: IUG leverage targets may move depending on market conditions and opportunities.
• General Forward-Looking Statement Risks: Actual results may differ materially from expectations due to various factors (referenced in the press release).

Management Tone on the Future:

• Confidence Level: High; described as the "right time" and "best path" to unlock long-term value.
• Differentiation: Emphasizes unique positioning of National Fuel (equity-free growth) and IUG (scale and cash flow) compared to peers.
• Strategic Shift: Views the current integrated synergies as less relevant given IUG's scale and success, favoring independence for focused execution and capital efficiency.
• Hedges: Acknowledges leverage flexibility for IUG based on market conditions but remains committed to a disciplined, long-term focus.

Miscellaneous:

• Dividend History: National Fuel has a long history of lowest delivery rates in NY and PA; plans to extend affordability focus to Ohio business.
• Investor Relations: Presentation and specific risk factors posted on the company website; Form 10 will contain further transaction details.