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National Fuel Gas' CEO Discusses Q3 2012 Results - Earnings Call Transcript

Despite voluntary curtailments into the constrained and discounted Tennessee 300 Line, we achieved just a few days ago our major milestone of 200 million cubic feet per day of net production from the Marcellus Shale.

We expect production will continue to grow as we bring on additional wells like Lycoming County in the coming quarters. In California, Seneca’s after hedging crude oil prices increased by more than 6%, while production increased by about 7.5% over the prior year. Our California team has done a terrific job of extracting value from those assets. To put the reference into perspective, oil production from Seneca’s California acreage is now at its highest level since 2003. At today prices, these properties continue to generate significant cash flow nearly $175 million of EBITDA for the first nine months of the fiscal year.

Looking ahead to the next year, our Seneca operated program will be largely unchanged from what we presented on our last call. Seneca’s three rig program in Appalachia will focus primarily on a scale down development plan at Tracts 100 and 595, and on Utica & Marcellus delineation efforts in our western development area. Even with this reduced program and considering lower than anticipated production from the joint venture with EOG. We expect Appalachian production will increase by nearly 30% in fiscal 2013.

We think this is the right measured rate at which to grow in the current price environment. Should gas prices further improve, we’ll consider increasing the pace of Seneca’s program. In the meantime, as most of you know, we’re under no pressure to drill up our acreage, most of our natural gas rates are held in fee and the vast majority of our non-fee acreage is either held by production or has several years remaining on its lease term.

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