(The following statement was released by the rating agency)
NEW YORK, March 25 (Fitch) Fitch Ratings has affirmed National
Company's (National Fuel) Issuer Default Rating (IDR) at 'BBB+'.
See the full
list of rating actions at the end of this press release.
The Outlook is Stable. Approximately $1.6 billion of total debt
KEY RATINGS DRIVERS
Factors that support the rating include stable earnings from
gas distribution utilities, relatively predictable cash flows
FERC-regulated interstate pipeline and storage segments, an
model, strong financial performance supported by historically
modest use of
leverage and a prudent growth strategy.
Rating concerns center on an increased emphasis on oil and gas
production, exposure to commodity price volatility, and a
expenditure budget. In fiscal year (FY) 2012, upstream
operations accounted for
54% of segment EBITDA, up from 47% at the end of FY 2009.
INTEGRATED BUSINESS MODEL BENEFITS THE CREDIT PROFILE
National Fuel benefits from the diversity of its integrated
assets with stable
cash flows from the utility and pipeline and storage segments.
operations have volatile cash flows but low-cost production
particularly in its
sizeable Marcellus position and a mix of natural gas and oil
--UTILITY (23% of segment EBITDA in FY 2012): In FY 2012, the
saw a decrease in EBITDA due to warmer weather. This segment
should benefit if
weather is more normal in FY 2013. The utility provides National
fairly steady cash flows while requiring only modest capex
--PIPELINE & STORAGE (22%): In the recent fiscal year, this
segment saw a 43%
increase in EBITDA as throughputs increased 16% due to the
completion of two
expansion projects in late 2011. In late 2012, the company put
another two pipeline expansions. These projects should continue
results going forward. Fitch expects this segment to have steady
--EXPLORATION & PRODUCTION (55%): With growing production in the
upstream operations saw a 4% increase in EBITDA. A sharp decline
average prices for gas after hedging was more than offset by an
While upstream operations have cash flow volatility and require
capex, there is a mix of low-cost natural gas production (79% of
2012 production) and low-cost crude oil production in California
production). A hedging program is in place to reduce earnings
expects to see EBITDA growth in FY 2013 as gas production
continues to grow in
the Marcellus. Overall FY 2013 production is expected to rise
against FY 2012.
For the quarter ending Dec. 31, 2012, National Fuel's leverage
was 2.3x, up
slightly from 2.2x at the end of FY 2012 and from 1.7x at the
end of FY 2011.
The increase in leverage is attributed higher levels of debt to
company's capex program. Fitch expects leverage to be in the
range of 2.2 to
2.5x at the end of FY 2013.
Liquidity is currently adequate for National Fuel. At Dec. 31,
2012, cash and
temporary cash investments totaled $61 million. There were no
borrowings on the
company's $750 million committed credit facility which matures
in 2017 but with
$220 million of commercial paper outstanding, revolver
availability was $530
million. The revolver has a financial covenant which does not
allow debt to
capital to exceed 65%.
National Fuel also had $317 million available on its $335
million of uncommitted
credit lines. There are no significant debt maturities until
The company expects capex in FY 2013 to be in the range of $665
million to $795
million and the preliminary forecast for fiscal year 2014 is
$770 million to
$945 million. Spending for upstream operations is projected to
70% of the total capex budget in each of those fiscal years. In
fiscal year, spending should be well below the $1 billion spent
in FY 2012.
FREE CASH FLOW
Free cash flow remains negative and cash flow was negative $389
million for the
LTM ending 1Q'13. High capex has had an impact on cash flows.
With plans for
reduced spending in FY 2013, Fitch expects free cash flow to
remain negative but
improve by $150 million to $200 million.
Fitch affirmed National Fuel's ratings as follows:
--Long-term IDR at 'BBB+';
--Senior unsecured debt at 'BBB+';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
Positive: Future developments that may, individually or
collectively, lead to
positive rating action include:
--Positive rating action is not viewed as likely; however, a
decrease in leverage or a reduction in upstream operations could
Negative: Future developments that may, individually or
collectively, lead to a
negative rating action include:
-- A significant and prolonged drop in natural gas prices
without an appropriate
adjustment to spending;
--Expansion beyond Fitch's expectations of the upstream
--Increases in leverage beyond 2.5-2.75x for a sustained period
operations remain the company's focus.
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
The ratings above
were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' Aug. 8, 2012;
--'2013 Outlook: North American Oil & Gas' Dec. 13, 2012
--'2013 Outlook: Natural Gas Pipelines and MLPs' Nov. 29, 2012;
--'2013 Outlook: Midstream Services and MLPs' Nov. 29, 2012;
--'Pipelines, Midstream, and MLP Stats Quarterly - Third Quarter
2012' Jan. 15,
--'Marcellus Shale Report: Midstream and Pipeline Sector
Opportunities' June 10, 2012;
--'Top Ten Questions Asked by Pipeline, Midstream, and MLP
Investors' May 1,
--'Natural Gas Pipelines: Hot Topics' Oct. 13, 2011.
Applicable Criteria and Related Research
Natural Gas Pipelines: Hot Topics -- Long-Term Trends Affecting
Top Ten Questions Asked by Pipeline, Midstream and MLP Investors
Marcellus Shale Report: Midstream and Pipeline Sector --
Pipelines, Midstream, and MLP Stats Quarterly â€”Third-Quarter
2013 Outlook: Midstream Services and MLPs
2013 Outlook: Natural Gas Pipelines & MLPs
2013 Outlook: North American Oil & Gas
Corporate Rating Methodology
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