NATIONAL FUEL GAS CO, 10-Q filed on 8/2/2019
Quarterly Report
v3.19.2
Document And Entity Information - $ / shares
9 Months Ended
Jun. 30, 2019
Jul. 31, 2019
Cover page.    
Amendment Flag false  
City Area Code 716  
Current Fiscal Year End Date --09-30  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2019  
Document Period End Date Jun. 30, 2019  
Document Quarterly Report true  
Document Transition Report false  
Document Type 10-Q  
Entity Address, Address Line One 6363 Main Street  
Entity Address, City or Town Williamsville,  
Entity Address, State or Province NY  
Entity Address, Postal Zip Code 14221  
Entity Central Index Key 0000070145  
Entity Common Stock, Shares Outstanding   86,314,863
Entity Current Reporting Status Yes  
Entity Emerging Growth Company false  
Entity File Number 1-3880  
Entity Filer Category Large Accelerated Filer  
Entity Incorporation, State or Country Code NJ  
Entity Interactive Data Current Yes  
Entity Registrant Name NATIONAL FUEL GAS COMPANY  
Entity Shell Company false  
Entity Small Business false  
Entity Tax Identification Number 13-1086010  
Local Phone Number 857-7000  
Title of 12(b) Security Common Stock, par value $1.00 per share  
Trading Symbol NFG  
Security Exchange Name NYSE  
Entity Listing, Par Value Per Share $ 1.00  
v3.19.2
Consolidated Statements Of Income And Earnings Reinvested In The Business (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
INCOME        
Operating Revenues $ 357,200 $ 342,912 $ 1,399,991 $ 1,303,473
Operating Expenses:        
Property, Franchise and Other Taxes 21,506 20,595 68,046 64,245
Depreciation, Depletion and Amortization 71,072 60,817 200,990 177,802
Total Operating Expenses 244,373 228,909 972,122 868,412
Operating Income 112,827 114,003 427,869 435,061
Other Income (Expense):        
Other Income (Deductions) (1,456) (3,612) (16,977) (20,205)
Interest Expense on Long-Term Debt (25,303) (27,177) (76,016) (82,412)
Other Interest Expense (1,202) (1,006) (4,061) (2,742)
Income Before Income Taxes 84,866 82,208 330,815 329,702
Income Tax Expense (Benefit) 21,113 19,183 73,806 (23,825)
Net Income Available for Common Stock 63,753 63,025 257,009 353,527
EARNINGS REINVESTED IN THE BUSINESS        
Balance at Beginning of Period 1,236,657 1,070,939 1,098,900 851,669
Beginning Retained Earnings Unappropriated And Current Period Net Income 1,300,410 1,133,964 1,355,909 1,205,196
Dividends on Common Stock (37,543) (36,526) (110,885) (107,758)
Balance at June 30 $ 1,262,867 $ 1,097,438 $ 1,262,867 $ 1,097,438
Earnings Per Common Share, Basic:        
Net Income Available for Common Stock (in dollars per share) $ 0.74 $ 0.73 $ 2.98 $ 4.12
Earnings Per Common Share, Diluted:        
Net Income Available for Common Stock (in dollars per share) $ 0.73 $ 0.73 $ 2.96 $ 4.09
Weighted Average Common Shares Outstanding:        
Used in Basic Calculation (shares) 86,306,434 85,930,289 86,208,766 85,789,279
Used in Diluted Calculation (shares) 86,839,841 86,501,194 86,765,781 86,370,900
Dividends Per Common Share:        
Dividends Declared (in dollars per share) $ 0.435 $ 0.425 $ 1.285 $ 1.255
Purchased Gas [Member]        
Operating Expenses:        
Purchased Gas $ 47,839 $ 52,211 $ 381,537 $ 322,854
Utility and Energy Marketing [Member]        
INCOME        
Operating Revenues 151,312 154,088 781,059 719,234
Operating Expenses:        
Operation and Maintenance 39,607 39,560 132,082 130,348
Exploration and Production and Other [Member]        
INCOME        
Operating Revenues 159,864 137,492 470,267 425,811
Operating Expenses:        
Operation and Maintenance 35,674 30,682 108,610 104,891
Pipeline and Storage and Gathering [Member]        
INCOME        
Operating Revenues 46,024 51,332 148,665 158,428
Operating Expenses:        
Operation and Maintenance 28,675 25,044 80,857 68,272
Guidance for Recognition and Measurement of Financial Assets and Liabilities [Member]        
EARNINGS REINVESTED IN THE BUSINESS        
Cumulative Effect of Adoption of Authoritative Guidance 0 0 7,437 0
Guidance for Reclassification of Stranded Tax Effects [Member]        
EARNINGS REINVESTED IN THE BUSINESS        
Cumulative Effect of Adoption of Authoritative Guidance $ 0 $ 0 $ 10,406 $ 0
v3.19.2
Consolidated Statements Of Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net Income Available for Common Stock $ 63,753 $ 63,025 $ 257,009 $ 353,527
Other Comprehensive Income (Loss), Before Tax:        
Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period 0 (121) 0 (843)
Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period 34,211 (37,452) 53,619 (55,534)
Reclassification Adjustment for Realized (Gains) Losses on Securities Available for Sale in Net Income 0 0 0 (430)
Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income (3,869) 3,771 20,498 (5,577)
Reclassification Adjustment for the Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities to Earnings Reinvested in the Business 0 0 (11,738) 0
Other Comprehensive Income (Loss), Before Tax 30,342 (33,802) 62,379 (62,384)
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period 0 42 0 (275)
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period 9,835 (10,416) 15,434 (16,240)
Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Securities Available for Sale in Net Income 0 0 0 (158)
Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Derivative Financial Instruments in Net Income (1,113) 1,208 5,756 (3,438)
Reclassification Adjustment for Income Tax Benefit (Expense) on the Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities to Earnings Reinvested in the Business 0 0 (4,301) 0
Reclassification Adjustment for Stranded Tax Effects Related to the 2017 Tax Reform Act to Earnings Reinvested in the Business 0 0 10,406 0
Income Taxes – Net 8,722 (9,166) 27,295 (20,111)
Other Comprehensive Income (Loss) 21,620 (24,636) 35,084 (42,273)
Comprehensive Income $ 85,373 $ 38,389 $ 292,093 $ 311,254
v3.19.2
Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2019
Sep. 30, 2018
ASSETS    
Property, Plant and Equipment $ 10,988,435 $ 10,439,839
Less - Accumulated Depreciation, Depletion and Amortization 5,636,065 5,462,696
Property, Plant and Equipment, Net, Total 5,352,370 4,977,143
Current Assets    
Cash and Temporary Cash Investments 87,515 229,606
Hedging Collateral Deposits [1] 6,835 3,441
Receivables – Net of Allowance for Uncollectible Accounts of $29,137 and $24,537, Respectively 178,762 141,498
Unbilled Revenue 18,047 24,182
Gas Stored Underground 17,075 37,813
Materials and Supplies - at average cost 39,010 35,823
Unrecovered Purchased Gas Costs 0 4,204
Other Current Assets 56,052 68,024
Total Current Assets 403,296 544,591
Other Assets    
Recoverable Future Taxes 113,619 115,460
Unamortized Debt Expense 14,432 15,975
Other Regulatory Assets 107,206 112,918
Deferred Charges 33,627 40,025
Other Investments 137,847 132,545
Goodwill 5,476 5,476
Prepaid Post-Retirement Benefit Costs 88,939 82,733
Fair Value of Derivative Financial Instruments 36,803 9,518
Other 42,632 102
Total Other Assets 580,581 514,752
Total Assets 6,336,247 6,036,486
Capitalization:    
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding - 86,306,593 Shares and 85,956,814 Shares, Respectively 86,307 85,957
Paid in Capital 827,243 820,223
Earnings Reinvested in the Business 1,262,867 1,098,900
Accumulated Other Comprehensive Loss (32,666) (67,750)
Total Comprehensive Shareholders’ Equity 2,143,751 1,937,330
Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs 2,133,101 2,131,365
Total Capitalization 4,276,852 4,068,695
Current and Accrued Liabilities    
Notes Payable to Banks and Commercial Paper 0 0
Current Portion of Long-Term Debt 0 0
Accounts Payable 112,782 160,031
Amounts Payable to Customers 14,546 3,394
Dividends Payable 37,543 36,532
Interest Payable on Long-Term Debt 29,461 19,062
Customer Advances 166 13,609
Customer Security Deposits 16,801 25,703
Other Accruals and Current Liabilities 180,063 132,693
Fair Value of Derivative Financial Instruments 4,563 49,036
Total Current and Accrued Liabilities 395,925 440,060
Deferred Credits    
Deferred Income Taxes 647,602 512,686
Taxes Refundable to Customers 366,184 370,628
Cost of Removal Regulatory Liability 218,340 212,311
Other Regulatory Liabilities 159,259 146,743
Pension and Other Post-Retirement Liabilities 53,142 66,103
Asset Retirement Obligations 104,732 108,235
Other Deferred Credits 114,211 111,025
Total Deferred Credits 1,663,470 1,527,731
Commitments and Contingencies (Note 7) 0 0
Total Capitalization and Liabilities $ 6,336,247 $ 6,036,486
[1]
Netting Adjustments represent the impact of legally-enforceable master netting arrangements that allow the Company to net gain and loss positions held with the same counterparties. The net asset or net liability for each counterparty is recorded as an asset or liability on the Company’s balance sheet.
v3.19.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2019
Sep. 30, 2018
Statement of Financial Position [Abstract]    
Receivables, Allowance for Uncollectible Accounts $ 29,137 $ 24,537
Common Stock, Par Value $ 1 $ 1
Common Stock, Shares Authorized 200,000,000 200,000,000
Common Stock, Shares Issued 86,306,593 85,956,814
Common Stock, Shares Outstanding 86,306,593 85,956,814
v3.19.2
Consolidated Statements Of Cash Flows (Unaudited) - USD ($)
$ in Thousands
9 Months Ended
Jun. 30, 2019
Jun. 30, 2018
OPERATING ACTIVITIES    
Net Income Available for Common Stock $ 257,009 $ 353,527
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:    
Depreciation, Depletion and Amortization 200,990 177,802
Deferred Income Taxes 111,123 (43,537)
Stock-Based Compensation 16,144 11,770
Other 7,964 12,311
Change in:    
Receivables and Unbilled Revenue (31,584) (35,021)
Gas Stored Underground and Materials and Supplies 17,551 18,832
Unrecovered Purchased Gas Costs 4,204 4,623
Other Current Assets 11,972 (1,185)
Accounts Payable (16,132) 2,327
Amounts Payable to Customers 11,152 16,833
Customer Advances (13,443) (15,504)
Customer Security Deposits (8,902) (1,904)
Other Accruals and Current Liabilities 36,040 26,538
Other Assets (34,594) (10,770)
Other Liabilities 1,061 1,441
Net Cash Provided by Operating Activities 570,555 518,083
INVESTING ACTIVITIES    
Capital Expenditures (587,442) (403,994)
Net Proceeds from Sale of Oil and Gas Producing Properties 0 55,506
Other (3,071) (1,759)
Net Cash Used in Investing Activities (590,513) (350,247)
Financing Activities    
Reduction of Long-Term Debt 0 (307,047)
Dividends Paid on Common Stock (109,875) (106,732)
Net Repurchases of Common Stock (8,864)  
Net Proceeds from Issuance of Common Stock   4,262
Net Cash Used in Financing Activities (118,739) (409,517)
Net Decrease in Cash, Cash Equivalents, and Restricted Cash (138,697) (241,681)
Cash, Cash Equivalents and Restricted Cash at October 1 233,047 557,271
Cash, Cash Equivalents and Restricted Cash at June 30 94,350 315,590
Supplemental Disclosure of Cash Flow Information, Non-Cash Investing Activities:    
Non-Cash Capital Expenditures $ 79,425 $ 71,410
v3.19.2
Summary Of Significant Accounting Policies
9 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies Summary of Significant Accounting Policies
 
Principles of Consolidation.  The Company consolidates all entities in which it has a controlling financial interest.  All significant intercompany balances and transactions are eliminated. The Company uses proportionate consolidation when accounting for drilling arrangements related to oil and gas producing properties accounted for under the full cost method of accounting.
 
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Reclassifications.  In November 2016, the FASB issued authoritative guidance related to the presentation of restricted cash on the statement of cash flows. The new guidance requires restricted cash and cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows, and requires disclosure of how cash and cash equivalents on the statement of cash flows reconciles to the balance sheet. The Company considers Hedging Collateral Deposits to be restricted cash. The Company adopted this guidance effective October 1, 2018 on a retrospective basis. As a result, prior periods have been reclassified to conform to the current year presentation. Additional discussion is provided below at Consolidated Statement of Cash Flows.

In March 2017, the FASB issued authoritative guidance related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance requires segregation of the service cost component from the other components of net periodic pension cost and net periodic postretirement benefit cost for financial reporting purposes. The service cost component is to be presented on the income statement in the same line items as other compensation costs included within Operating Expenses and the other components of net periodic pension cost and net periodic postretirement benefit cost are to be presented on the income statement below the subtotal labeled Operating Income (Loss). Under this guidance, the service cost component is eligible to be capitalized as part of the cost of inventory or property, plant and equipment while the other components of net periodic pension cost and net periodic postretirement benefit cost are generally not eligible for capitalization, unless allowed by a regulator. The Company adopted this guidance effective October 1, 2018. The Company applied the guidance retrospectively for the pension and postretirement benefit costs using amounts disclosed in prior period financial statement notes as estimates for the reclassifications in accordance with a practical expedient allowed under the guidance. For the quarter and nine months ended June 30, 2018, Operating Income increased $6.2 million and $28.6 million, respectively, and Other Income (Deductions) decreased by the same amounts as a result of the reclassifications. For the quarter and nine months ended June 30, 2019, Other Income (Deductions) includes $5.7 million and $25.5 million, respectively, of pension and postretirement benefit costs.

Earnings for Interim Periods.  The Company, in its opinion, has included all adjustments (which consist of only normally recurring adjustments, unless otherwise disclosed in this Form 10-Q) that are necessary for a fair statement of the results of operations for the reported periods. The consolidated financial statements and notes thereto, included herein, should be read in conjunction with the financial statements and notes for the years ended September 30, 2018, 2017 and 2016 that are included in the Company's 2018 Form 10-K.  The consolidated financial statements for the year ended September 30, 2019 will be audited by the Company's independent registered public accounting firm after the end of the fiscal year.
 
The earnings for the nine months ended June 30, 2019 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2019.  Most of the business of the Utility and Energy Marketing segments is seasonal in nature and is influenced by weather conditions.  Due to the seasonal nature of the heating business in the Utility and Energy Marketing segments, earnings during the winter months normally represent a substantial part of the earnings that those segments are expected to achieve for the entire fiscal year.  The Company’s business segments are discussed more fully in Note 8 – Business Segment Information.
 
Consolidated Statements of Cash Flows.  The components, as reported on the Company’s Consolidated Balance Sheets, of the total cash, cash equivalents, and restricted cash presented on the Statement of Cash Flows are as follows (in thousands):
 
Nine Months Ended 
 June 30, 2019
 
Nine Months Ended 
 June 30, 2018
 
Balance at October 1, 2018
 
Balance at June 30, 2019
 
Balance at October 1, 2017
 
Balance at June 30, 2018
 
 
 
 
 
 
 
 
Cash and Temporary Cash Investments
$
229,606

 
$
87,515

 
$
555,530

 
$
313,307

Hedging Collateral Deposits
3,441

 
6,835

 
1,741

 
2,283

Cash, Cash Equivalents, and Restricted Cash
$
233,047

 
$
94,350

 
$
557,271

 
$
315,590



The Company considers all highly liquid debt instruments purchased with a maturity date of generally three months or less to be cash equivalents. The Company’s restricted cash is composed entirely of amounts reported as Hedging Collateral Deposits on the Consolidated Balance Sheets. Hedging Collateral Deposits is an account title for cash held in margin accounts funded by the Company to serve as collateral for hedging positions. In accordance with its accounting policy, the Company does not offset hedging collateral deposits paid or received against related derivative financial instruments liability or asset balances.

Gas Stored Underground.  In the Utility segment, gas stored underground is carried at lower of cost or net realizable value, on a LIFO method.  Gas stored underground normally declines during the first and second quarters of the year and is replenished during the third and fourth quarters.  In the Utility segment, the current cost of replacing gas withdrawn from storage is recorded in the Consolidated Statements of Income and a reserve for gas replacement is recorded in the Consolidated Balance Sheets under the caption “Other Accruals and Current Liabilities.”  Such reserve, which amounted to $16.3 million at June 30, 2019, is reduced to zero by September 30 of each year as the inventory is replenished.
 
Property, Plant and Equipment.  In the Company’s Exploration and Production segment, oil and gas property acquisition, exploration and development costs are capitalized under the full cost method of accounting. Under this methodology, all costs associated with property acquisition, exploration and development activities are capitalized, including internal costs directly identified with acquisition, exploration and development activities. The internal costs that are capitalized do not include any costs related to production, general corporate overhead, or similar activities. The Company does not recognize any gain or loss on the sale or other disposition of oil and gas properties unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center.
 
Capitalized costs include costs related to unproved properties, which are excluded from amortization until proved reserves are found or it is determined that the unproved properties are impaired.  Such costs amounted to $82.0 million and $62.2 million at June 30, 2019 and September 30, 2018, respectively.  All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred. The amount of any impairment is transferred to the pool of capitalized costs being amortized.
 
Capitalized costs are subject to the SEC full cost ceiling test. The ceiling test, which is performed each quarter, determines a limit, or ceiling, on the amount of property acquisition, exploration and development costs that can be capitalized. The ceiling under this test represents (a) the present value of estimated future net cash flows, excluding future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, using a discount factor of 10%, which is computed by applying prices of oil and gas (as adjusted for hedging) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet, less estimated future expenditures, plus (b) the cost of unevaluated properties not being depleted, less (c) income tax effects related to the differences between the book and tax basis of the properties. The natural gas and oil prices used to calculate the full cost ceiling are based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the twelve-month period prior to the end of the reporting period. If capitalized costs, net of accumulated depreciation, depletion and amortization and related deferred income taxes, exceed the ceiling at the end of any quarter, a permanent impairment is required to be charged to earnings in that quarter.  At June 30, 2019, the ceiling exceeded the book value of the oil and gas properties by approximately $566.8 million. In adjusting estimated future cash flows for hedging under the ceiling test at June 30, 2019, estimated future net cash flows were decreased by $23.9 million.
    
Accumulated Other Comprehensive Loss.  The components of Accumulated Other Comprehensive Loss and changes for the nine months ended June 30, 2019 and 2018, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands): 
 
Gains and Losses on Derivative Financial Instruments
 
Gains and Losses on Securities Available for Sale
 
Funded Status of the Pension and Other Post-Retirement Benefit Plans
 
Total
Three Months Ended June 30, 2019
 
 
 
 
 
 
 
Balance at April 1, 2019
$
4,562

 
$

 
$
(58,848
)
 
$
(54,286
)
Other Comprehensive Gains and Losses Before Reclassifications
24,376

 

 

 
24,376

Amounts Reclassified From Other Comprehensive Income (Loss)
(2,756
)
 

 

 
(2,756
)
Balance at June 30, 2019
$
26,182

 
$

 
$
(58,848
)
 
$
(32,666
)
Nine Months Ended June 30, 2019
 
 
 
 
 
 
 
Balance at October 1, 2018
$
(28,611
)
 
$
7,437

 
$
(46,576
)
 
$
(67,750
)
Other Comprehensive Gains and Losses Before Reclassifications
38,185

 

 

 
38,185

Amounts Reclassified From Other Comprehensive Income (Loss)
14,742

 

 

 
14,742

Reclassification Adjustment for the Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities

 
(7,437
)
 

 
(7,437
)
Reclassification of Stranded Tax Effects Related to the 2017 Tax Reform Act
1,866

 

 
(12,272
)
 
(10,406
)
Balance at June 30, 2019
$
26,182

 
$

 
$
(58,848
)
 
$
(32,666
)
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
Balance at April 1, 2018
$
3,841

 
$
6,885

 
$
(58,486
)
 
$
(47,760
)
Other Comprehensive Gains and Losses Before Reclassifications
(27,036
)
 
(163
)
 

 
(27,199
)
Amounts Reclassified From Other Comprehensive Income (Loss)
2,563

 

 

 
2,563

Balance at June 30, 2018
$
(20,632
)
 
$
6,722

 
$
(58,486
)
 
$
(72,396
)
Nine Months Ended June 30, 2018
 
 
 
 
 
 
 
Balance at October 1, 2017
$
20,801

 
$
7,562

 
$
(58,486
)
 
$
(30,123
)
Other Comprehensive Gains and Losses Before Reclassifications
(39,294
)
 
(568
)
 

 
(39,862
)
Amounts Reclassified From Other Comprehensive Income (Loss)
(2,139
)
 
(272
)
 

 
(2,411
)
Balance at June 30, 2018
$
(20,632
)
 
$
6,722

 
$
(58,486
)
 
$
(72,396
)

In February 2018, the FASB issued authoritative guidance that allows an entity to elect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Reform Act and requires certain disclosures about stranded tax effects. The Company adopted this authoritative guidance effective January 1, 2019 and recorded a cumulative effect adjustment related to deferred income taxes associated with hedging activities and pension and post-retirement benefit obligations during the quarter ended March 31, 2019 to increase retained earnings by $10.4 million and decrease accumulated other comprehensive income by the same amount.

In January 2016, the FASB issued authoritative guidance regarding the recognition and measurement of financial assets and liabilities. The authoritative guidance primarily affects the accounting for equity investments and the presentation and disclosure requirements for financial instruments. All equity investments in unconsolidated entities will be measured at fair value through earnings rather than through accumulated other comprehensive income. The Company adopted this authoritative guidance effective
October 1, 2018 and, as called for by the modified retrospective method of adoption, recorded a cumulative effect adjustment during the quarter ended December 31, 2018 to increase retained earnings by $7.4 million and decrease accumulated other comprehensive income by the same amount.
    
Reclassifications Out of Accumulated Other Comprehensive Loss.  The details about the reclassification adjustments out of accumulated other comprehensive loss for the nine months ended June 30, 2019 and 2018 are as follows (amounts in parentheses indicate debits to the income statement) (in thousands):
Details About Accumulated Other Comprehensive Loss Components
 
Amount of Gain or (Loss) Reclassified from
Accumulated Other Comprehensive Loss
 
Affected Line Item in the Statement Where Net Income is Presented
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
Gains (Losses) on Derivative Financial Instrument Cash Flow Hedges:
 
 
 
 
 
 
 
 
 
 
     Commodity Contracts
 

$4,091

 

($3,249
)
 

($18,692
)
 

$6,125

 
Operating Revenues
     Commodity Contracts
 

 
5

 
(1,182
)
 
952

 
Purchased Gas
     Foreign Currency Contracts
 
(222
)
 
(527
)
 
(624
)
 
(1,500
)
 
Operating Revenues
Gains (Losses) on Securities Available for Sale
 

 

 

 
430

 
Other Income (Deductions)
 
 
3,869

 
(3,771
)
 
(20,498
)
 
6,007

 
Total Before Income Tax
 
 
(1,113
)
 
1,208

 
5,756

 
(3,596
)
 
Income Tax Expense
 
 

$2,756

 

($2,563
)
 

($14,742
)
 

$2,411

 
Net of Tax

Other Current Assets.  The components of the Company’s Other Current Assets are as follows (in thousands):
                            
At June 30, 2019
 
At September 30, 2018
 
 
 
 
Prepayments
$
13,777

 
$
10,770

Prepaid Property and Other Taxes
11,501

 
14,444

Federal Income Taxes Receivable
6,554

 
22,457

State Income Taxes Receivable
8,773

 
8,822

Fair Values of Firm Commitments
5,618

 
1,739

Regulatory Assets
9,829

 
9,792

 
$
56,052

 
$
68,024



Other Assets.  The components of the Company’s Other Assets are as follows (in thousands):
                            
At June 30, 2019
 
At September 30, 2018
 
 
 
 
Federal Income Taxes Receivable
$
42,546

 
$

Other
86

 
102

 
$
42,632

 
$
102


 
Other Accruals and Current Liabilities.  The components of the Company’s Other Accruals and Current Liabilities are as follows (in thousands):
                            
At June 30, 2019
 
At September 30, 2018
 
 
 
 
Accrued Capital Expenditures
$
60,082

 
$
38,354

Regulatory Liabilities
50,233

 
57,425

Reserve for Gas Replacement
16,251

 

Liability for Royalty and Working Interests
19,846

 
12,062

Other
33,651

 
24,852

 
$
180,063

 
$
132,693


 
Earnings Per Common Share.  Basic earnings per common share is computed by dividing income or loss by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.  For purposes of determining earnings per common share, the potentially dilutive securities the Company had outstanding were SARs, restricted stock units and performance shares.  For the quarter and nine months ended June 30, 2019, the diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these securities as determined using the Treasury Stock Method.  SARs, restricted stock units and performance shares that are antidilutive are excluded from the calculation of diluted earnings per common share. There were 120,546 securities and 122,327 securities excluded as being antidilutive for the quarter and nine months ended June 30, 2019, respectively. There were 1,095,838 securities and 316,279 securities excluded as being antidilutive for the quarter and nine months ended June 30, 2018, respectively.
 
Stock-Based Compensation.  The Company granted 244,734 performance shares during the nine months ended June 30, 2019. The weighted average fair value of such performance shares was $55.67 per share for the nine months ended June 30, 2019. Performance shares are an award constituting units denominated in common stock of the Company, the number of which may be adjusted over a performance cycle based upon the extent to which performance goals have been satisfied.  Earned performance shares may be distributed in the form of shares of common stock of the Company, an equivalent value in cash or a combination of cash and shares of common stock of the Company, as determined by the Company. The performance shares do not entitle the participant to receive dividends during the vesting period.
 
Half of the performance shares granted during the nine months ended June 30, 2019 must meet a performance goal related to relative return on capital over a three-year performance cycle.  The performance goal over the performance cycle is the Company’s total return on capital relative to the total return on capital of other companies in a group selected by the Compensation Committee (“Report Group”).  Total return on capital for a given company means the average of the Report Group companies’ returns on capital for each twelve month period corresponding to each of the Company’s fiscal years during the performance cycle, based on data reported for the Report Group companies in the Bloomberg database.  The number of these performance shares that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company.  The fair value of these performance shares is calculated by multiplying the expected number of shares that will be issued by the average market price of Company common stock on the date of grant reduced by the present value of forgone dividends over the vesting term of the award.  The fair value is recorded as compensation expense over the vesting term of the award.  The other half of the performance shares granted during the nine months ended June 30, 2019 must meet a performance goal related to relative total shareholder return over a three-year performance cycle.  The performance goal over the performance cycle is the Company’s three-year total shareholder return relative to the three-year total shareholder return of the other companies in the Report Group.  Three-year total shareholder return for a given company will be based on the data reported for that company (with the starting and ending stock prices over the performance cycle calculated as the average closing stock price for the prior calendar month and with dividends reinvested in that company’s securities at each ex-dividend date) in the Bloomberg database.  The number of these total shareholder return performance shares ("TSR performance shares") that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company.  The fair value price at the date of grant for the TSR performance shares is determined using a Monte Carlo simulation technique, which includes a reduction in value for the present value of forgone dividends over the vesting term of the award.  This price is multiplied by the number of TSR performance shares awarded, the result of which is recorded as compensation expense over the vesting term of the award.
 
The Company granted 112,608 nonperformance-based restricted stock units during the nine months ended June 30, 2019.  The weighted average fair value of such nonperformance-based restricted stock units was $49.70 per share for the nine months ended June 30, 2019.  Restricted stock units represent the right to receive shares of common stock of the Company (or the
equivalent value in cash or a combination of cash and shares of common stock of the Company, as determined by the Company) at the end of a specified time period. These nonperformance-based restricted stock units do not entitle the participant to receive dividends during the vesting period. The accounting for nonperformance-based restricted stock units is the same as the accounting for restricted share awards, except that the fair value at the date of grant of the restricted stock units must be reduced by the present value of forgone dividends over the vesting term of the award.
 
New Authoritative Accounting and Financial Reporting Guidance. In February 2016, the FASB issued authoritative guidance, which has subsequently been amended, requiring organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by all leases, regardless of whether they are considered to be capital leases or operating leases. The FASB’s previous authoritative guidance required organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by capital leases while excluding operating leases from balance sheet recognition. The new authoritative guidance will be effective as of the Company’s first quarter of fiscal 2020, with early adoption permitted. The Company does not anticipate early adoption.

The Company will adopt the new authoritative guidance using the optional transition method, which permits an entity to initially apply the new lease accounting standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company plans to apply practical expedients provided in the authoritative guidance that allow, among other things, an entity not to reassess contracts that commenced prior to the adoption date and to exclude all land easement arrangements that exist prior to the adoption date from treatment under the guidance. The Company also expects to elect a policy not to recognize right of use assets and lease liabilities related to short-term leases.

The Company has finalized a plan for the adoption and implementation of the authoritative guidance and performed an initial assessment of its existing leasing arrangements and other contractual obligations. The Company also continues to evaluate and document technical accounting issues, policy considerations, financial reporting and disclosure implications, and changes to internal controls and businesses processes. While the Company continues to assess the impact on its financial statements, the Company expects that adoption of the authoritative guidance will result in an increase to its assets and liabilities on its consolidated balance sheet.

In August 2017, the FASB issued authoritative guidance which changes the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities and to simplify the application of hedge accounting. The new guidance will be effective as of the Company’s first quarter of fiscal 2020, with early adoption permitted. The Company does not expect adoption of this guidance to have a significant impact on its consolidated financial statements and is currently evaluating the impact of this guidance.
v3.19.2
Revenue from Contracts with Customers
9 Months Ended
Jun. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue from Contracts with Customers Revenue from Contracts with Customers
 
The Company adopted authoritative guidance regarding revenue recognition on October 1, 2018 using the modified retrospective method of adoption for open contracts as of October 1, 2018. A cumulative effect adjustment to retained earnings was not necessary since no revenue recognition differences were identified when comparing the revenue recognition criteria under the new authoritative guidance to the previous guidance. The Company records revenue related to its derivative financial instruments in the Exploration and Production segment as well as in the Energy Marketing segment. The Company also records revenue related to alternative revenue programs in its Utility segment. Revenue related to derivative financial instruments and alternative revenue programs are excluded from the scope of the new authoritative guidance since they are accounted for under other existing accounting guidance.

The following tables provide a disaggregation of the Company's revenues for the quarter and nine months ended June 30, 2019, presented by type of service from each reportable segment.
Quarter Ended June 30, 2019 (Thousands)
 
 
 
 

 
 

 
 

 
 

Revenues By Type of Service
Exploration and Production
 
Pipeline and Storage
 
Gathering
 
Utility
 
Energy Marketing
 
All Other
 
Corporate and Intersegment Eliminations
 
Total Consolidated
Production of Natural Gas
$
113,975

 
$

 
$

 
$

 
$

 
$

 
$

 
$
113,975

Production of Crude Oil
38,823

 

 

 

 

 

 

 
38,823

Natural Gas Processing
731

 

 

 

 

 

 

 
731

Natural Gas Gathering Services

 

 
32,875

 

 

 

 
(32,875
)
 

Natural Gas Transportation Service

 
50,001

 

 
23,010

 

 

 
(17,672
)
 
55,339

Natural Gas Storage Service

 
18,598

 

 

 

 

 
(8,060
)
 
10,538

Natural Gas Residential Sales

 

 

 
96,146

 

 

 

 
96,146

Natural Gas Commercial Sales

 

 

 
12,107

 

 

 

 
12,107

Natural Gas Industrial Sales

 

 

 
1,032

 

 

 

 
1,032

Natural Gas Marketing

 

 

 

 
22,212

 

 
(681
)
 
21,531

Other
152

 
368

 

 
161

 
5

 
854

 
(20
)
 
1,520

Total Revenues from Contracts with Customers
153,681

 
68,967

 
32,875

 
132,456

 
22,217

 
854

 
(59,308
)
 
351,742

Alternative Revenue Programs

 

 

 
465

 

 

 

 
465

Derivative Financial Instruments
5,194

 

 

 

 
(201
)
 

 

 
4,993

Total Revenues
$
158,875

 
$
68,967

 
$
32,875

 
$
132,921

 
$
22,016

 
$
854

 
$
(59,308
)
 
$
357,200


Nine Months Ended June 30, 2019 (Thousands)
 
 
 
 

 
 

 
 

 
 

Revenues By Type of Service
Exploration and Production
 
Pipeline and Storage
 
Gathering
 
Utility
 
Energy Marketing
 
All Other
 
Corporate and Intersegment Eliminations
 
Total Consolidated
Production of Natural Gas
$
371,710

 
$

 
$

 
$

 
$

 
$

 
$

 
$
371,710

Production of Crude Oil
111,256

 

 

 

 

 

 

 
111,256

Natural Gas Processing
2,676

 

 

 

 

 

 

 
2,676

Natural Gas Gathering Services

 

 
91,931

 

 

 

 
(91,931
)
 

Natural Gas Transportation Service

 
158,376

 

 
103,723

 

 

 
(54,556
)
 
207,543

Natural Gas Storage Service

 
56,887

 

 

 

 

 
(24,367
)
 
32,520

Natural Gas Residential Sales

 

 

 
492,267

 

 

 

 
492,267

Natural Gas Commercial Sales

 

 

 
68,408

 

 

 

 
68,408

Natural Gas Industrial Sales

 

 

 
4,400

 

 

 

 
4,400

Natural Gas Marketing

 

 

 

 
130,015

 

 
(1,056
)
 
128,959

Other
1,028

 
3,112

 
2

 
(8,662
)
 
15

 
2,170

 
(529
)
 
(2,864
)
Total Revenues from Contracts with Customers
486,670

 
218,375

 
91,933

 
660,136

 
130,030

 
2,170

 
(172,439
)
 
1,416,875

Alternative Revenue Programs

 

 

 
(1,528
)
 

 

 

 
(1,528
)
Derivative Financial Instruments
(18,817
)
 

 

 

 
3,461

 

 

 
(15,356
)
Total Revenues
$
467,853

 
$
218,375

 
$
91,933

 
$
658,608

 
$
133,491

 
$
2,170

 
$
(172,439
)
 
$
1,399,991



Exploration and Production Segment Revenue

The Company’s Exploration and Production segment records revenue from the sale of the natural gas and oil that it produces and natural gas liquids (NGLs) processed based on entitlement, which means that revenue is recorded based on the actual amount of natural gas or oil that is delivered to a pipeline, or upon pick-up in the case of NGLs, and the Company’s ownership interest. Natural gas production occurs primarily in the Appalachian region of the United States and crude oil production occurs primarily in the West Coast region of the United States. If a production imbalance occurs between what was supposed to be delivered to a pipeline and what was actually produced and delivered, the Company accrues the difference as an imbalance.  The sales contracts generally require the Company to deliver a specific quantity of a commodity per day for a specific number of days at a price that is either fixed or variable and considers the delivery of each unit (MMBtu or Bbl) to be a separate performance obligation that is satisfied upon delivery.  

The transaction price for the sale of natural gas, oil and NGLs is contractually agreed upon based on prevailing market pricing (primarily tied to a market index with certain adjustments based on factors such as delivery location and prevailing supply and demand conditions) or fixed pricing.  The Company allocates the transaction price to each performance obligation on the basis of the relative standalone selling price of each distinct unit sold. Revenue is recognized at a point in time when the transfer of the commodity occurs at the delivery point per the contract. The amount billable, as determined by the contracted quantity and price, indicates the value to the customer, and is used for revenue recognition purposes by the Exploration and Production segment as specified by the “invoice practical expedient” (the amount that the Exploration and Production segment has the right to invoice) under the authoritative guidance for revenue recognition. The contracts typically require payment within 30 days of the end of the calendar month in which the natural gas and oil is delivered, or picked up in the case of NGLs.

The Company uses derivative financial instruments to manage commodity price risk in the Exploration and Production segment related to sales of the natural gas and oil that it produces. Gains or losses on such derivative financial instruments are recorded as adjustments to revenue; however, they are not considered to be revenue from contracts with customers.

Pipeline and Storage Segment Revenue

The Company’s Pipeline and Storage segment records revenue for natural gas transportation and storage services in New York and Pennsylvania at tariff-based rates regulated by the FERC. Customers secure their own gas supply and the Pipeline and Storage segment provides transportation and/or storage services to move the customer-supplied gas to the intended location, including injections into or withdrawals from the storage field. This performance obligation is satisfied over time. The rate design for the Pipeline and Storage segment’s customers generally includes a combination of volumetric or commodity charges as well as monthly “fixed” charges (including charges commonly referred to as capacity charges, demand charges, or reservation charges). These types of fixed charges represent compensation for standing ready over the period of the month to deliver quantities of gas, regardless of whether the customer takes delivery of any quantity of gas. The performance obligation under these circumstances is satisfied based on the passage of time and meter reads, if applicable, which correlates to the period for which the charges are eligible to be invoiced. The amount billable, as determined by the meter read and the “fixed” monthly charge, indicates the value to the customer, and is used for revenue recognition purposes by the Pipeline and Storage segment as specified by the “invoice practical expedient” (the amount that the Pipeline and Storage segment has the right to invoice) under the authoritative guidance for revenue recognition. Customers are billed after the end of each calendar month, with payment typically due by the 25th day of the month in which the invoice is received.

The Company’s Pipeline and Storage segment expects to recognize the following revenue amounts in future periods related to “fixed” charges associated with remaining performance obligations for transportation and storage contracts: $41.8 million for the remainder of fiscal 2019; $158.9 million for fiscal 2020; $135.3 million for fiscal 2021; $114.1 million for fiscal 2022; $82.3 million for fiscal 2023; and $370.5 million thereafter.

Gathering Segment Revenue

The Company’s Gathering segment provides gathering and processing services in the Appalachian region of Pennsylvania, primarily for Seneca. The Gathering segment’s primary performance obligation is to deliver gathered natural gas volumes from Seneca’s wells into interstate pipelines at contractually agreed upon per unit rates. This obligation is satisfied over time. The performance obligation is satisfied based on the passage of time and meter reads, which correlates to the period for which the charges are eligible to be invoiced. The amount billable, as determined by the meter read and the contracted volumetric rate, indicates the value to the customer, and is used for revenue recognition purposes by the Gathering segment as specified by the “invoice practical expedient” (the amount that the Gathering segment has the right to invoice) under the authoritative guidance for revenue recognition. Customers are billed after the end of each calendar month, with payment typically due by the 10th day after the invoice is received.
 
Utility Segment Revenue

The Company’s Utility segment records revenue for natural gas sales and natural gas transportation services in western New York and northwestern Pennsylvania at tariff-based rates regulated by the NYPSC and the PaPUC. Natural gas sales and transportation services are provided largely to residential, commercial and industrial customers. The Utility segment’s performance obligation to its customers is to deliver natural gas, an obligation which is satisfied over time. This obligation generally remains in effect as long as the customer consumes the natural gas provided by the Utility segment. The Utility segment recognizes revenue when it satisfies its performance obligation by delivering natural gas to the customer. Natural gas is delivered and consumed by the customer simultaneously. The satisfaction of the performance obligation is measured by the turn of the meter dial. The amount billable, as determined by the meter read and the tariff-based rate, indicates the value to the customer, and is used for revenue recognition purposes by the Utility segment as specified by the “invoice practical expedient” (the amount that the Utility segment has the right to invoice) under the authoritative guidance for revenue recognition. Since the Utility segment bills its customers in cycles having billing dates that do not generally coincide with the end of a calendar month, a receivable is recorded for natural gas delivered but not yet billed to customers based on an estimate of the amount of natural gas delivered between the last meter reading date and the end of the accounting period. Such receivables are a component of Unbilled Revenue on the Consolidated Balance Sheets. The Utility segment’s tariffs allow customers to utilize budget billing. In this situation, since the amount billed may differ from the amount of natural gas delivered to the customer in any given month, revenue is recognized monthly based on the amount of natural gas consumed. The differential between the amount billed and the amount consumed is recorded as a component of Receivables or Customer Advances on the Consolidated Balance Sheets. All receivables or advances related to budget billing are settled within one year.

Utility Segment Alternative Revenue Programs

As indicated in the revenue table shown above, the Company’s Utility segment has alternative revenue programs that are excluded from the scope of the new authoritative guidance regarding revenue recognition. The NYPSC has authorized alternative revenue programs that are designed to mitigate the impact that weather and conservation have on margin. The NYPSC has also authorized additional alternative revenue programs that adjust billings for the effects of broad external factors or to compensate the Company for demand-side management initiatives. These alternative revenue programs primarily allow the Company and customer to share in variances from imputed margins due to migration of transportation customers, allow for adjustments to the gas cost recovery mechanism for fluctuations in uncollectible expenses associated with gas costs, and allow the Company to pass on to customers costs associated with customer energy efficiency programs. In general, revenue is adjusted monthly for these programs and is collected from or passed back to customers within 24 months of the annual reconciliation period.

Energy Marketing Segment Revenue

The Company’s Energy Marketing segment records revenue for competitively priced natural gas sales in western and central New York and northwestern Pennsylvania. Sales are provided largely to industrial, wholesale, commercial, public authority and residential customers. The Energy Marketing segment’s performance obligation to its customers is to deliver natural gas, an obligation which is satisfied over time. This obligation generally remains in effect as long as the customer consumes the natural gas provided by the Energy Marketing segment. The Energy Marketing segment recognizes revenue when it satisfies its performance obligation by delivering natural gas to the customer. Natural gas is delivered and consumed by the customer simultaneously. The satisfaction of the performance obligation is measured by the turn of the meter dial. The amount billable, as determined by the meter read and the contracted or market based rate, indicates the value to the customer, and is used for revenue recognition purposes by the Energy Marketing segment as specified by the “invoice practical expedient” (the amount that the Energy Marketing segment has the right to invoice) under the authoritative guidance for revenue recognition. Since the Energy Marketing segment bills its residential customers in cycles having billing dates that do not generally coincide with the end of a calendar month, a receivable is recorded for natural gas delivered but not yet billed to customers based on an estimate of the amount of natural gas delivered between the last meter reading date and the end of the accounting period. Such receivables are a component of Unbilled Revenue on the Consolidated Balance Sheets. The Energy Marketing segment also allows customers to utilize budget billing. In this situation, since the amount billed may differ from the amount of natural gas delivered to the customer in any given month, revenue is recognized monthly based on the amount of natural gas consumed. The differential between the amount billed and the amount consumed is recorded as a component of Receivables or Customer Advances on the Consolidated Balance Sheets. All receivables or advances related to budget billing are settled within one year.

The Company uses derivative financial instruments to manage commodity price risk in the Energy Marketing segment related to the sale of natural gas to its customers. Gains or losses on such derivative financial instruments are recorded as adjustments to revenue; however, they are not considered to be revenue from contracts with customers.
v3.19.2
Fair Value Measurements
9 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
 
The FASB authoritative guidance regarding fair value measurements establishes a fair-value hierarchy and prioritizes the inputs used in valuation techniques that measure fair value. Those inputs are prioritized into three levels. Level 1 inputs are unadjusted quoted prices in active markets for assets or liabilities that the Company can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly at the measurement date. Level 3 inputs are unobservable inputs for the asset or liability at the measurement date. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
 
The following table sets forth, by level within the fair value hierarchy, the Company's financial assets and liabilities (as applicable) that were accounted for at fair value on a recurring basis as of June 30, 2019 and September 30, 2018.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value presentation for over the counter swaps combines gas and oil swaps because a significant number of the counterparties enter into both gas and oil swap agreements with the Company.  
Recurring Fair Value Measures
At fair value as of June 30, 2019
(Thousands of Dollars)   
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments(1)
 
Total(1)
Assets:
 

 
 

 
 

 
 

 
 

Cash Equivalents – Money Market Mutual Funds
$
75,375

 
$

 
$

 
$

 
$
75,375

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
1,367

 

 

 
(1,367
)
 

Over the Counter Swaps – Gas and Oil

 
44,929

 

 
(6,850
)
 
38,079

Foreign Currency Contracts

 
78

 

 
(1,500
)
 
(1,422
)
Other Investments:
 

 
 

 
 

 
 

 
 

Balanced Equity Mutual Fund
40,313

 

 

 

 
40,313

Fixed Income Mutual Fund
55,034

 

 

 

 
55,034

Common Stock – Financial Services Industry
1,841

 

 

 

 
1,841

Hedging Collateral Deposits
6,835

 

 

 

 
6,835

Total                                           
$
180,765

 
$
45,007

 
$

 
$
(9,717
)
 
$
216,055

 
 
 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

 
 

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
$
5,686

 
$

 
$

 
$
(1,367
)
 
$
4,319

Over the Counter Swaps – Gas and Oil

 
7,071

 

 
(6,850
)
 
221

Foreign Currency Contracts

 
1,523

 

 
(1,500
)
 
23

Total
$
5,686

 
$
8,594

 
$

 
$
(9,717
)
 
$
4,563

Total Net Assets/(Liabilities)
$
175,079

 
$
36,413

 
$

 
$

 
$
211,492

 
Recurring Fair Value Measures
At fair value as of September 30, 2018
(Thousands of Dollars)   
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments(1)
 
Total(1)
Assets:
 

 
 

 
 

 
 

 
 

Cash Equivalents – Money Market Mutual Funds
$
215,272

 
$

 
$

 
$

 
$
215,272

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
1,075

 

 

 
(1,075
)
 

Over the Counter Swaps – Gas and Oil

 
26,074

 

 
(17,041
)
 
9,033

Foreign Currency Contracts

 
443

 

 
(443
)
 

Other Investments:
 

 
 

 
 

 
 

 
 

Balanced Equity Mutual Fund
38,468

 

 

 

 
38,468

Fixed Income Mutual Fund
51,331

 

 

 

 
51,331

Common Stock – Financial Services Industry
2,776

 

 

 

 
2,776

Hedging Collateral Deposits
3,441

 

 

 

 
3,441

Total                                           
$
312,363

 
$
26,517

 
$

 
$
(18,559
)
 
$
320,321

 
 
 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

 
 

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
$
2,412

 
$

 
$

 
$
(1,075
)
 
$
1,337

Over the Counter Swaps – Gas and Oil

 
64,224

 

 
(17,041
)
 
47,183

     Foreign Currency Contracts

 
959

 

 
(443
)
 
516

Total
$
2,412

 
$
65,183

 
$

 
$
(18,559
)
 
$
49,036

Total Net Assets/(Liabilities)
$
309,951

 
$
(38,666
)
 
$

 
$

 
$
271,285


(1) 
Netting Adjustments represent the impact of legally-enforceable master netting arrangements that allow the Company to net gain and loss positions held with the same counterparties. The net asset or net liability for each counterparty is recorded as an asset or liability on the Company’s balance sheet.
 
Derivative Financial Instruments
 
At June 30, 2019 and September 30, 2018, the derivative financial instruments reported in Level 1 consist of natural gas NYMEX and ICE futures contracts used in the Company’s Energy Marketing segment. Hedging collateral deposits were $6.8 million at June 30, 2019 and $3.4 million at September 30, 2018, which were associated with these futures contracts and have been reported in Level 1 as well. The derivative financial instruments reported in Level 2 at June 30, 2019 and September 30, 2018 consist of natural gas price swap agreements used in the Company’s Exploration and Production and Energy Marketing segments, crude oil price swap agreements used in the Company’s Exploration and Production segment, basis hedge swap agreements used in the Company's Energy Marketing segment and foreign currency contracts used in the Company's Exploration and Production segment. The fair value of the Level 2 price swap agreements is based on an internal, discounted cash flow model that uses observable inputs (i.e. LIBOR based discount rates and basis differential information, if applicable, at active natural gas and crude oil trading markets). The fair value of the Level 2 foreign currency contracts is determined using the market approach based on observable market transactions of forward Canadian currency rates. 
 
The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities.  At June 30, 2019, the Company determined that nonperformance risk would have no material impact on its financial position or results of operation.  To assess nonperformance risk, the Company considered information such as any applicable collateral posted, master netting arrangements, and applied a market-based method by using the counterparty's (assuming the derivative is in a gain position) or the Company’s (assuming the derivative is in a loss position) credit default swaps rates.
 
For the quarters ended June 30, 2019 and June 30, 2018, there were no assets or liabilities measured at fair value and classified as Level 3. For the quarters ended June 30, 2019 and June 30, 2018, no transfers in or out of Level 1 or Level 2 occurred.
v3.19.2
Financial Instruments
9 Months Ended
Jun. 30, 2019
Financial Instruments, Owned, at Fair Value [Abstract]  
Financial Instruments Financial Instruments
 
Long-Term Debt.  The fair market value of the Company’s debt, as presented in the table below, was determined using a discounted cash flow model, which incorporates the Company’s credit ratings and current market conditions in determining the yield, and subsequently, the fair market value of the debt.  Based on these criteria, the fair market value of long-term debt, including current portion, was as follows (in thousands): 
 
June 30, 2019
 
September 30, 2018
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-Term Debt
$
2,133,101

 
$
2,252,231

 
$
2,131,365

 
$
2,121,861


 
The fair value amounts are not intended to reflect principal amounts that the Company will ultimately be required to pay. Carrying amounts for other financial instruments recorded on the Company’s Consolidated Balance Sheets approximate fair value. The fair value of long-term debt was calculated using observable inputs (U.S. Treasuries/LIBOR for the risk free component and company specific credit spread information – generally obtained from recent trade activity in the debt).  As such, the Company considers the debt to be Level 2.
 
Any temporary cash investments, notes payable to banks and commercial paper are stated at cost. Temporary cash investments are considered Level 1, while notes payable to banks and commercial paper are considered to be Level 2.  Given the short-term nature of the notes payable to banks and commercial paper, the Company believes cost is a reasonable approximation of fair value.

Other Investments. The components of the Company's Other Investments are as follows (in thousands):
 
At June 30, 2019
 
At September 30, 2018
 
 
 
 
Life Insurance Contracts
$
40,659

 
$
39,970

Equity Mutual Fund
40,313

 
38,468

Fixed Income Mutual Fund
55,034

 
51,331

Marketable Equity Securities
1,841

 
2,776

 
$
137,847

 
$
132,545


 
Investments in life insurance contracts are stated at their cash surrender values or net present value. Investments in an equity mutual fund, a fixed income mutual fund and the stock of an insurance company (marketable equity securities) are stated at fair value based on quoted market prices with changes in fair value recognized in net income. The insurance contracts and marketable equity and fixed income securities are primarily informal funding mechanisms for various benefit obligations the Company has to certain employees.
 
Derivative Financial Instruments.  The Company uses derivative financial instruments to manage commodity price risk in the Exploration and Production segment as well as the Energy Marketing segment. The Company enters into futures contracts and over-the-counter swap agreements for natural gas and crude oil to manage the price risk associated with forecasted sales of gas and oil. In addition, the Company also enters into foreign exchange forward contracts to manage the risk of currency fluctuations associated with transportation costs denominated in Canadian currency in the Exploration and Production segment. These instruments are accounted for as cash flow hedges. The Company also enters into futures contracts and swaps, which are accounted for as cash flow hedges, to manage the price risk associated with forecasted gas purchases. The Company enters into futures contracts and swaps to mitigate risk associated with fixed price sales commitments, fixed price purchase commitments, and the decline in value of natural gas held in storage. These instruments are accounted for as fair value hedges. The duration of the Company’s combined cash flow and fair value commodity hedges does not typically exceed 5 years while the foreign currency forward contracts do not exceed 7 years. The Exploration and Production segment holds the majority of the Company’s derivative financial instruments.

The Company has presented its net derivative assets and liabilities as “Fair Value of Derivative Financial Instruments” on its Consolidated Balance Sheets at June 30, 2019 and September 30, 2018.  Substantially all of the derivative financial instruments reported on those line items relate to commodity contracts and a small portion relates to foreign currency forward contracts.
 
Cash Flow Hedges
 
For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period or periods during which the hedged transaction affects earnings.  Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. 

As of June 30, 2019, the Company had the following commodity derivative contracts (swaps and futures contracts) outstanding:
Commodity
Units

 
Natural Gas
80.2

 Bcf (short positions)
Natural Gas
3.7

 Bcf (long positions)
Crude Oil
3,225,000

 Bbls (short positions)
    
As of June 30, 2019, the Company was hedging a total of $79.7 million of forecasted transportation costs denominated in Canadian dollars with foreign currency forward contracts (long positions).
As of June 30, 2019, the Company had $36.7 million ($26.2 million after tax) of net hedging gains included in the accumulated other comprehensive income (loss) balance. It is expected that $28.7 million ($20.5 million after tax) of unrealized gains will be reclassified into the Consolidated Statement of Income within the next 12 months as the underlying hedged transactions are recorded in earnings.
The Effect of Derivative Financial Instruments on the Statement of Financial Performance for the
Three Months Ended June 30, 2019 and 2018 (Thousands of Dollars)
Derivatives in Cash Flow Hedging Relationships
Amount of Derivative Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on the Consolidated Statement of Comprehensive Income (Loss) (Effective Portion) for the Three Months Ended June 30,
Location of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income (Effective Portion)
Amount of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income (Effective Portion) for the Three Months Ended June 30,
Location of Derivative Gain or (Loss) Recognized in the Consolidated Statement of Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Derivative Gain or (Loss) Recognized in the Consolidated Statement of Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) for the Three Months Ended June 30,
 
2019
2018
 
2019
2018
 
2019
2018
Commodity Contracts
$
33,531

$
(35,976
)
Operating Revenue
$
4,091

$
(3,249
)
Operating Revenue
$
1,020

$
(339
)
Commodity Contracts
150

124

Purchased Gas

5

Not Applicable


Foreign Currency Contracts
530