Comparing National Fuel Gas to its exploration and production peers



How does NFG stack up?

Activist investor Mario Gabelli’s GAMCO Investors, which owns a 9.1% in National Fuel Gas (NFG), is pressuring the company to spin off its gas utility segment and focus more on its exploration and production (E&P) and midstream assets. In this article, we’ll compare National Fuel Gas with some of its larger E&P peers that operate in the Marcellus Shale.

The E&P segment accounted for more than half of NFG’s total earnings in the latest fiscal quarter.

NFG comps

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We noted previously in this series that NFG’s Seneca is one of the top Marcellus acreage holders. The company controls the natural gas interests associated with approximately 780,000 net acres within the Marcellus Shale. Range Resources (RRC), EQT (EQT), Southwestern Energy (SWN), and Cabot Oil & Gas Corporation (COG) are some of NFG’s peers operating in the Marcellus Shale.

EV/EBITDA multiple lower than peer average

NFG’s enterprise value (or EV) to earnings before interest, tax, depreciation, and amortization (or EBITDA) multiple is slightly lower than the peer group average. EQT and Range Resources have a high EV-to-EBITDA multiple among the peer group.

Creates shareholder value via dividends

GAMCO Investors noted in its investor commentary that NFG has increased its dividend for over 40 consecutive years. The current dividend yield stands at 2.2%, and it’s the highest among its peer group.

The fund noted, “NFG’s regulated utility and pipeline businesses, as well as its California oil production business, provide stable earnings and cash flows to support the dividend, while the natural gas production business offers significant upside potential.”

Why natural gas–leveraged E&P’s have declined recently

U.S. natural gas–leveraged E&P’s (energy and production companies) have recently underperformed the broader market, with analysts and industry experts noting a weak demand for gas due to the milder weather during the so-called “shoulder season.” This season occurs between the summer’s cooling season and winter’s heating demand season. The companies in this space have felt pressure due to weak demand amid robust production.

The U.S. Energy Information Administration (or EIA) released its “Short-Term Energy Outlook” (or STEO) on October 7. The STEO projects a 5.4% year-over-year increase in total marketed natural gas production to just over 74 billion cubic feet per day (or bcf/d) in 2014 from ~70.2 bcf/d in 2013. For more on this outlook from Market Realist, please read Why winter demand and natural gas production levels don’t agree.


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