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To: richardred who wrote (167570)	8/3/2012 7:47:16 AM
From: Dennis Roth	Read Replies (1) of 206085

National Fuel Gas Co (NFG) Quarter Beats; ‘13 Guidance Ahead of Expectations; Buy 3 August 2012 ¦ 10 pages ir.citi.com FQ3 Results — NFG reported EPS of $0.52 (incl. $0.02 PA impact fee), beating both our $0.45 estimate and the Street at $0.46. Better than expected results out of the Pipeline & Storage segment and Energy Marketing were able to offset lower than expected contribution from the Utility (see p.3). The E&P business was in-line. '13 Guidance Higher than Expected — NFG issued 2013 EPS guidance of $2.45 - $2.75 using conservative $3.25 gas & $85 oil price forecasts versus the current strip at ~$3.65 & ~$90, respectively. Our EPS estimate is $2.70p/s using a more aggressive $3.65 gas estimate, ~12% above NFG. In our opinion, NFG’s FY’13 guidance will be viewed as a positive surprise as the midpoint of $2.60p/s exceeds current consensus estimates of $2.54. We would expect consensus to trend higher. Adjusting estimates — We have updated our operating model. Our target price is now $57p/s, up from $55.50, mostly due to higher expected production out of the E&P segment. We estimate 2013 production of 95Bcfe, still below guidance of 99Bcfe. Based on our consolidated capex estimate of ~$550mm for ’13, NFG should come very close to living within cash flow (see reconciliation in body of note). Recommendation — We maintain our Buy rating. Yesterday’s quarterly results & guidance update leave us incrementally more positive on the name. We believe that NFG is an attractive way to play the Marcellus while trading at a ~28% discount (’13 EBITDA) to a basket of major Marcellus producers. We estimate that investors are currently receiving NFG’s Western PA Development area (~520K acres) for an implied ~$600 per acre, essentially rendering the ongoing wet gas exploration program a “free” option. We do not assume any liquids upside in our valuation. Call — 11AM EST. The dial-in number is 866.578.5788 (code 62532693). We expect the call to focus on 1) Operational updates in the Marcellus & California; 2) Some discussion around the initiated ’13 guidance; and (maybe) 3) Additional color on NFG’s progress with respect to liquids directed drilling in the Utica & Marcellus.

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