National Fuel Gas (NYSE:NFG) is a diversified and relatively low-profile energy company with interests ranging from exploration and production to pipelines and storage along with a regulated utility operation that distributes natural gas in the Northeastern United States. The company plans a major ramp up in activity in the Marcellus Shale in 2011.

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In the twelve months ending 6/30/2010, National Fuel Gas reported total income from continuing operations of $217.3 million. The exploration and production segment represented 52% of this income, with Pipeline and Storage and Utility were 17% and 28%, respectively.

Exploration and Production
National Fuel Gas conducts its exploration and production activities through Seneca Resources Corporation, a wholly owned subsidiary of the company. The company has production and reserves in several domestic areas including California, the Gulf of Mexico and the Appalachian region.

On a resource basis, National Fuel Gas is diversified with 53% of its proved reserves composed of oil at September 30, 2009. On a production basis, the company reported that 41% of its production was oil in the twelve months ending June 30, 2010.

The current focus of National Fuel Gas is to develop the company's properties that are prospective for the Marcellus Shale. The company has 738,000 net acres in Appalachia with much of the acreage royalty-free and with no lease expirations issues.

National Fuel Gas is in a joint venture with EOG Resources (NYSE:EOG) in some areas to develop acreage, and has reported successful results to date.

The company is planning a major ramp in development of the Marcellus Shale in 2011. National Fuel Gas plans to drill between 100 and 130 wells in fiscal 2011 (ending September 30, 2011), up from only 24 wells in fiscal 2009. If the development plan is successful, the company expects to be producing more than 100 million cubic feet per day of natural gas net to the company by the end of fiscal 2011.

Although California is not a major focus for National Fuel Gas, the company is attempting to keep its production flat there. In July 2009, National Fuel Gas purchased properties at the South Midway Field from Ivanhoe Energy (Nasdaq:IVAN). National Fuel Gas recently completed a 14 well steam flood redevelopment and hopes to increase production by 80% from this field by mid 2011.

Pipeline and Storage
National Fuel Gas also has a thriving Pipeline and Storage business, which is centered in Appalachia. The company has several major expansion planned over the next year, which will be needed due to the rapid expansion of drilling in the area.

Companies in other shale plays are also securing capacity to gather and transport natural gas. Swift Energy Company (NYSE:SFY) and Anadarko Petroleum (NYSE:APC) just signed agreements with third parties to provide pipeline and gas gathering services in the Eagle Ford Shale.

National Fuel Gas also has a regulated utility operation where the company distributes natural gas to customers in New York and Pennsylvania. In New York, the company earned a 9.7% return on a rate base of $730 million. In Pennsylvania, the company earned a 14.3% return on a base of $305.2 million. While this business is not as desired by some investors in energy, it does help protect earnings for the company in a downturn.

The Bottom Line
National Fuel Gas is planning to shed its image as a utility as the company initiates a major expansion into the Marcellus Shale by its exploration and production business in 2011. (For related reading, take a look at our Oil And Gas Industry Primer)

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