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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____ to_____
Commission File Number 1-3880
NATIONAL FUEL GAS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey13-1086010
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
6363 Main Street 
Williamsville,New York14221
(Address of principal executive offices)(Zip Code)

(716) 857-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol
Name of Each Exchange
on Which Registered
Common Stock, par value $1.00 per shareNFGNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.      
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES    NO 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common stock, par value $1.00 per share, outstanding at January 31, 2021: 91,163,446 shares.


Table of Contents

GLOSSARY OF TERMS
 
Frequently used abbreviations, acronyms, or terms used in this report:
 
National Fuel Gas Companies
Company
The Registrant, the Registrant and its subsidiaries or the Registrant’s subsidiaries as appropriate in the context of the disclosure
Distribution CorporationNational Fuel Gas Distribution Corporation
EmpireEmpire Pipeline, Inc.
Midstream Company
National Fuel Gas Midstream Company, LLC
National FuelNational Fuel Gas Company
NFRNational Fuel Resources, Inc.
RegistrantNational Fuel Gas Company
SenecaSeneca Resources Company, LLC
Supply CorporationNational Fuel Gas Supply Corporation
Regulatory Agencies
CFTCCommodity Futures Trading Commission
EPAUnited States Environmental Protection Agency
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
NYDECNew York State Department of Environmental Conservation
NYPSCState of New York Public Service Commission
PaDEPPennsylvania Department of Environmental Protection
PaPUCPennsylvania Public Utility Commission
PHMSAPipeline and Hazardous Materials Safety Administration
SECSecurities and Exchange Commission
Other
2020 Form 10-KThe Company’s Annual Report on Form 10-K for the year ended September 30, 2020
2017 Tax Reform Act
Tax legislation referred to as the "Tax Cuts and Jobs Act," enacted December 22, 2017.
BblBarrel (of oil)
BcfBillion cubic feet (of natural gas)
Bcfe (or Mcfe) –  represents Bcf (or Mcf) Equivalent
The total heat value (Btu) of natural gas and oil expressed as a volume of natural gas. The Company uses a conversion formula of 1 barrel of oil = 6 Mcf of natural gas.
Btu
British thermal unit; the amount of heat needed to raise the temperature of one pound of water one degree Fahrenheit
Capital expenditure
Represents additions to property, plant, and equipment, or the amount of money a company spends to buy capital assets or upgrade its existing capital assets.
Cashout revenues
A cash resolution of a gas imbalance whereby a customer (e.g. a marketer) pays for gas the customer receives in excess of amounts delivered into pipeline/storage or distribution systems by the customer’s shipper.
CLCPA
Legislation referred to as the "Climate Leadership & Community Protection Act," enacted by the State of New York on July 18, 2019.
Degree day
A measure of the coldness of the weather experienced, based on the extent to which the daily average temperature falls below a reference temperature, usually 65 degrees Fahrenheit.
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Derivative
A financial instrument or other contract, the terms of which include an underlying variable (a price, interest rate, index rate, exchange rate, or other variable) and a notional amount (number of units, barrels, cubic feet, etc.).  The terms also permit for the instrument or contract to be settled net and no initial net investment is required to enter into the financial instrument or contract.  Examples include futures contracts, forward contracts, options, no cost collars and swaps.
Development costs
Costs incurred to obtain access to proved oil and gas reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection Act.
Dth
Decatherm; one Dth of natural gas has a heating value of 1,000,000 British thermal units, approximately equal to the heating value of 1 Mcf of natural gas.
Exchange ActSecurities Exchange Act of 1934, as amended
Expenditures for long-lived assets
Includes capital expenditures, stock acquisitions and/or investments in partnerships.
Exploration costs
Costs incurred in identifying areas that may warrant examination, as well as costs incurred in examining specific areas, including drilling exploratory wells.
Exploratory well
A well drilled in unproven or semi-proven territory for the purpose of ascertaining the presence underground of a commercial hydrocarbon deposit.
FERC 7(c) application
An application to the FERC under Section 7(c) of the federal Natural Gas Act for authority to construct, operate (and provide services through) facilities to transport or store natural gas in interstate commerce.
Firm transportation and/or storage
The transportation and/or storage service that a supplier of such service is obligated by contract to provide and for which the customer is obligated to pay whether or not the service is utilized.
GAAP
Accounting principles generally accepted in the United States of America
Goodwill
An intangible asset representing the difference between the fair value of a company and the price at which a company is purchased.
Hedging
A method of minimizing the impact of price, interest rate, and/or foreign currency exchange rate changes, often times through the use of derivative financial instruments.
Hub
Location where pipelines intersect enabling the trading, transportation, storage, exchange, lending and borrowing of natural gas.
ICE
Intercontinental Exchange. An exchange which maintains a futures market for crude oil and natural gas.
Interruptible transportation and/or storage
The transportation and/or storage service that, in accordance with contractual arrangements, can be interrupted by the supplier of such service, and for which the customer does not pay unless utilized.
LDCLocal distribution company
LIBORLondon Interbank Offered Rate
LIFOLast-in, first-out
Marcellus Shale
A Middle Devonian-age geological shale formation that is present nearly a mile or more below the surface in the Appalachian region of the United States, including much of Pennsylvania and southern New York.
MbblThousand barrels (of oil)
McfThousand cubic feet (of natural gas)
MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations
MDthThousand decatherms (of natural gas)
MMBtu
Million British thermal units (heating value of one decatherm of natural gas)
MMcfMillion cubic feet (of natural gas)
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NGA
The Natural Gas Act of 1938, as amended; the federal law regulating interstate natural gas pipeline and storage companies, among other things, codified beginning at 15 U.S.C. Section 717.
NYMEX
New York Mercantile Exchange.  An exchange which maintains a futures market for crude oil and natural gas.
Open Season
A bidding procedure used by pipelines to allocate firm transportation or storage capacity among prospective shippers, in which all bids submitted during a defined time period are evaluated as if they had been submitted simultaneously.
Precedent Agreement
An agreement between a pipeline company and a potential customer to sign a service agreement after specified events (called “conditions precedent”) happen, usually within a specified time.
Proved developed reserves
Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.
Proved undeveloped (PUD) reserves
Reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required to make these reserves productive.
Reserves
The unproduced but recoverable oil and/or gas in place in a formation which has been proven by production.
Revenue decoupling mechanism
A rate mechanism which adjusts customer rates to render a utility financially indifferent to throughput decreases resulting from conservation.
S&PStandard & Poor’s Rating Service
SARStock appreciation right
Service agreement
The binding agreement by which the pipeline company agrees to provide service and the shipper agrees to pay for the service.
Stock acquisitionsInvestments in corporations
Utica Shale
A Middle Ordovician-age geological formation lying several thousand feet below the Marcellus Shale in the Appalachian region of the United States, including much of Ohio, Pennsylvania, West Virginia and southern New York.
VEBAVoluntary Employees’ Beneficiary Association
WNC
Weather normalization clause; a clause in utility rates which adjusts customer rates to allow a utility to recover its normal operating costs calculated at normal temperatures.  If temperatures during the measured period are warmer than normal, customer rates are adjusted upward in order to recover projected operating costs.  If temperatures during the measured period are colder than normal, customer rates are adjusted downward so that only the projected operating costs will be recovered.



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INDEXPage
  
6 
  
  
 
Item 3.  Defaults Upon Senior Securities 
Item 4.  Mine Safety Disclosures 
Item 5.  Other Information 
 
• The Company has nothing to report under this item.
 
    All references to a certain year in this report are to the Company’s fiscal year ended September 30 of that year, unless otherwise noted.

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Part I.  Financial Information
 
Item 1.  Financial Statements
National Fuel Gas Company
Consolidated Statements of Income and Earnings
Reinvested in the Business
(Unaudited)
 Three Months Ended
December 31,
(Thousands of U.S. Dollars, Except Per Common Share Amounts)20202019
INCOME
Operating Revenues:
Utility and Energy Marketing Revenues$189,466 $228,026 
Exploration and Production and Other Revenues192,035 167,193 
Pipeline and Storage and Gathering Revenues59,659 48,969 
441,160 444,188 
Operating Expenses:
Purchased Gas51,620 92,272 
Operation and Maintenance:
Utility and Energy Marketing44,886 43,256 
Exploration and Production and Other42,027 36,693 
Pipeline and Storage and Gathering28,098 25,885 
Property, Franchise and Other Taxes22,781 23,144 
Depreciation, Depletion and Amortization83,120 74,918 
Impairment of Oil and Gas Producing Properties76,152  
 
348,684 296,168 
Gain on Sale of Timber Properties51,066  
Operating Income143,542 148,020 
Other Income (Expense):
Other Income (Deductions)(2,176)(3,040)
Interest Expense on Long-Term Debt(32,256)(25,443)
Other Interest Expense(1,919)(1,551)
Income Before Income Taxes107,191 117,986 
Income Tax Expense29,417 31,395 
Net Income Available for Common Stock77,774 86,591 
EARNINGS REINVESTED IN THE BUSINESS
Balance at Beginning of Period991,630 1,272,601 
 1,069,404 1,359,192 
Dividends on Common Stock(40,560)(37,650)
Cumulative Effect of Adoption of Authoritative Guidance for Hedging (950)
Balance at December 31$1,028,844 $1,320,592 
Earnings Per Common Share:
Basic:
Net Income Available for Common Stock$0.85 $1.00 
Diluted:
Net Income Available for Common Stock$0.85 $1.00 
Weighted Average Common Shares Outstanding:
Used in Basic Calculation91,007,657 86,378,450 
Used in Diluted Calculation91,508,259 86,883,152 
Dividends Per Common Share:
Dividends Declared$0.445 $0.435 
See Notes to Condensed Consolidated Financial Statements
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National Fuel Gas Company
Consolidated Statements of Comprehensive Income
(Unaudited)
                                                      Three Months Ended
December 31,
(Thousands of U.S. Dollars)                                  20202019
Net Income Available for Common Stock$77,774 $86,591 
Other Comprehensive Income (Loss), Before Tax:
Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period
48,021 495 
Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income
311 (7,352)
Cumulative Effect of Adoption of Authoritative Guidance for Hedging
 1,313 
Other Comprehensive Income (Loss), Before Tax48,332 (5,544)
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period
13,230 119 
Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Derivative Financial Instruments in Net Income
86 (2,031)
Income Tax Benefit (Expense) on Cumulative Effect of Adoption of Authoritative Guidance for Hedging
 363 
Income Taxes – Net13,316 (1,549)
Other Comprehensive Income (Loss)35,016 (3,995)
Comprehensive Income$112,790 $82,596 
 































See Notes to Condensed Consolidated Financial Statements
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National Fuel Gas Company
Consolidated Balance Sheets
(Unaudited)
 
December 31,
2020
September 30, 2020
(Thousands of U.S. Dollars)  
ASSETS  
Property, Plant and Equipment$12,495,227 $12,351,852 
Less - Accumulated Depreciation, Depletion and Amortization6,503,561 6,353,785 
 5,991,666 5,998,067 
Assets Held for Sale, Net 53,424 
Current Assets  
Cash and Temporary Cash Investments109,413 20,541 
Receivables – Net of Allowance for Uncollectible Accounts of $26,221 and $22,810, Respectively
178,584 143,583 
Unbilled Revenue45,829 17,302 
Gas Stored Underground19,648 33,338 
Materials, Supplies and Emission Allowances51,694 51,877 
Unrecovered Purchased Gas Costs367  
Other Current Assets47,904 47,557 
           453,439 314,198 
Other Assets  
Recoverable Future Taxes117,431 118,310 
Unamortized Debt Expense11,870 12,297 
Other Regulatory Assets153,172 156,106 
Deferred Charges61,986 67,131 
Other Investments145,921 154,502 
Goodwill5,476 5,476 
Prepaid Post-Retirement Benefit Costs80,032 76,035 
Fair Value of Derivative Financial Instruments18,094 9,308 
Other81 81 
                   594,063 599,246 
Total Assets$7,039,168 $6,964,935 










See Notes to Condensed Consolidated Financial Statements


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National Fuel Gas Company
Consolidated Balance Sheets
(Unaudited)
                                  December 31,
2020
September 30, 2020
(Thousands of U.S. Dollars)  
CAPITALIZATION AND LIABILITIES  
Capitalization:  
Comprehensive Shareholders’ Equity  
Common Stock, $1 Par Value
  
Authorized  - 200,000,000 Shares; Issued And Outstanding – 91,152,710 Shares
and 90,954,696 Shares, Respectively
$91,153 $90,955 
Paid in Capital1,004,369 1,004,158 
Earnings Reinvested in the Business1,028,844 991,630 
Accumulated Other Comprehensive Loss(79,741)(114,757)
Total Comprehensive Shareholders’ Equity2,044,625 1,971,986 
Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs
2,130,473 2,629,576 
Total Capitalization4,175,098 4,601,562 
Current and Accrued Liabilities  
Notes Payable to Banks and Commercial Paper25,000 30,000 
Current Portion of Long-Term Debt500,000  
Accounts Payable96,905 134,126 
Amounts Payable to Customers5,823 10,788 
Dividends Payable40,560 40,475 
Interest Payable on Long-Term Debt45,350 27,521 
Customer Advances16,032 15,319 
Customer Security Deposits17,623 17,199 
Other Accruals and Current Liabilities154,377 140,176 
Fair Value of Derivative Financial Instruments4,513 43,969 
                                                 906,183 459,573 
Deferred Credits  
Deferred Income Taxes735,236 696,054 
Taxes Refundable to Customers357,354 357,508 
Cost of Removal Regulatory Liability234,641 230,079 
Other Regulatory Liabilities168,188 161,573 
Pension and Other Post-Retirement Liabilities124,097 127,181 
Asset Retirement Obligations192,682 192,228 
Other Deferred Credits145,689 139,177 
                                                 1,957,887 1,903,800 
Commitments and Contingencies (Note 8)  
Total Capitalization and Liabilities$7,039,168 $6,964,935 
 
See Notes to Condensed Consolidated Financial Statements
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National Fuel Gas Company
Consolidated Statements of Cash Flows
(Unaudited)
                                                        Three Months Ended
December 31,
(Thousands of U.S. Dollars)20202019
OPERATING ACTIVITIES  
Net Income Available for Common Stock$77,774 $86,591 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:  
Gain on Sale of Timber Properties(51,066) 
Impairment of Oil and Gas Producing Properties76,152  
Depreciation, Depletion and Amortization83,120 74,918 
Deferred Income Taxes26,591 51,366 
Stock-Based Compensation3,933 3,266 
Other2,887 1,911 
Change in:  
Receivables and Unbilled Revenue(63,606)(58,655)
Gas Stored Underground and Materials, Supplies and Emission Allowances13,873 6,985 
Unrecovered Purchased Gas Costs(367)627 
Other Current Assets(251)14 
Accounts Payable(541)8,280 
Amounts Payable to Customers(4,965)(573)
Customer Advances713 683 
Customer Security Deposits424 (700)
Other Accruals and Current Liabilities27,615 15,438 
Other Assets10,066 (28,259)
Other Liabilities2,391 5,857 
Net Cash Provided by Operating Activities204,743 167,749 
INVESTING ACTIVITIES  
Capital Expenditures(183,301)(198,495)
Net Proceeds from Sale of Timber Properties104,582  
Other11,849 5,212 
Net Cash Used in Investing Activities(66,870)(193,283)
FINANCING ACTIVITIES  
Changes in Notes Payable to Banks and Commercial Paper(5,000)84,600 
Dividends Paid on Common Stock(40,475)(37,547)
Net Repurchases of Common Stock(3,526)(4,147)
Net Cash Provided by (Used in) Financing Activities(49,001)42,906 
Net Increase in Cash, Cash Equivalents, and Restricted Cash88,872 17,372 
Cash, Cash Equivalents, and Restricted Cash at October 120,541 27,260 
Cash, Cash Equivalents, and Restricted Cash at December 31$109,413 $44,632 
Supplemental Disclosure of Cash Flow Information
Non-Cash Investing Activities:  
Non-Cash Capital Expenditures$52,142 $93,838 

 See Notes to Condensed Consolidated Financial Statements
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National Fuel Gas Company
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1 – 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.

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, 2020, 2019 and 2018 that are included in the Company's 2020 Form 10-K.  The consolidated financial statements for the year ended September 30, 2021 will be audited by the Company's independent registered public accounting firm after the end of the fiscal year.
 
    The earnings for the three months ended December 31, 2020 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2021.  Most of the business of the Utility segment is seasonal in nature and is influenced by weather conditions.  Due to the seasonal nature of the heating business in the Utility segment, earnings during the winter months normally represent a substantial part of the earnings that this business is expected to achieve for the entire fiscal year.  The Company’s business segments are discussed more fully in Note 9 – 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):
Three Months Ended
December 31, 2020
Three Months Ended
December 31, 2019
 Balance at
October 1, 2020
Balance at
December 31, 2020
Balance at
October 1, 2019
Balance at
December 31, 2019
Cash and Temporary Cash Investments$20,541 $109,413 $20,428 $34,966 
Hedging Collateral Deposits  6,832 9,666 
Cash, Cash Equivalents, and Restricted Cash$20,541 $109,413 $27,260 $44,632 

    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.

Allowance for Uncollectible Accounts. The allowance for uncollectible accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is determined based on historical experience, the age of customer accounts, other specific information about customer accounts, and the economic environment. Account balances are charged off against the allowance twelve months after the account is final billed or when it is anticipated that the receivable will not be recovered. In response to the COVID-19 pandemic, the Company has suspended collection and termination activity for non-payments in its Utility service territories. To date, despite the economic conditions that have arisen as a result of the COVID-19 pandemic, the Company has not experienced a significant reduction in the rate at which its customers pay their bills. However, as the winter heating season progresses, the Company is anticipating that customer non-payment may increase given higher natural gas usage and the resulting increase in costs for customers.
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Activity in the allowance for uncollectible accounts for the three months ended December 31, 2020 are as follows:

Balance at Beginning of PeriodAdditions Charged to Costs and ExpensesAdd:
Discounts on Purchased Receivables
Deduct:
Net Accounts Receivable Written-Off
Balance at End of Period
Three Months Ended December 31, 2020
Allowance for Uncollectible Accounts$22,810 $4,679 $170 $1,438 $26,221 

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 $1.8 million at December 31, 2020, is reduced to zero by September 30 of each year as the inventory is replenished.

Materials, Supplies and Emission Allowances. The components of the Company's materials, supplies and emission allowances are as follows:
At December 31, 2020At September 30, 2020
Materials and Supplies - at average cost$33,676 $33,859 
Emission Allowances18,018 18,018 
$51,694 $51,877 

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. The Company's capitalized costs relating to oil and gas producing activities, net of accumulated depreciation, depletion and amortization, were $1.7 billion and $1.8 billion at December 31, 2020 and September 30, 2020, respectively.
 
    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 $134.9 million and $148.1 million at December 31, 2020 and September 30, 2020, 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 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 non-cash impairment is required to be charged to earnings in that quarter.  The book value of the oil and gas properties exceeded the ceiling at December 31, 2020. As such, the Company recognized a non-cash, pre-tax impairment charge of $76.2 million for the quarter ended December 31, 2020. A deferred income tax benefit of $21.0 million related to the non-cash impairment charge was also recognized for the quarter ended December 31, 2020. In
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adjusting estimated future cash flows for hedging under the ceiling test at December 31, 2020, estimated future net cash flows were increased by $183.0 million.
    
    The principal assets of the Utility, Pipeline and Storage and Gathering segments, consisting primarily of gas distribution pipelines, transmission pipelines, storage facilities, gathering lines and compressor stations, are recorded at historical cost. Despite the economic conditions arising from the COVID-19 pandemic, there were no indications of any impairments to property, plant and equipment in the Utility, Pipeline and Storage and Gathering segments at December 31, 2020. Management will continue to monitor the situation on a quarterly basis.

Accumulated Other Comprehensive Income (Loss).  The components of Accumulated Other Comprehensive Income (Loss) and changes for the three months ended December 31, 2020 and 2019, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands): 
 Gains and Losses on Derivative Financial InstrumentsFunded Status of the Pension and Other Post-Retirement Benefit PlansTotal
Three Months Ended December 31, 2020
Balance at October 1, 2020$(24,865)$(89,892)$(114,757)
Other Comprehensive Gains and Losses Before Reclassifications
34,791  34,791 
Amounts Reclassified From Other Comprehensive Income (Loss)
225  225 
Balance at December 31, 2020$10,151 $(89,892)$(79,741)
Three Months Ended December 31, 2019
Balance at October 1, 2019$34,675 $(86,830)$(52,155)
Other Comprehensive Gains and Losses Before Reclassifications
376  376 
Amounts Reclassified From Other Comprehensive Income (Loss)
(5,321) (5,321)
Cumulative Effect of Adoption of Authoritative Guidance for Hedging950  950 
Balance at December 31, 2019$30,680 $(86,830)$(56,150)

    In August 2017, the FASB issued authoritative guidance which changed 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 Company adopted this authoritative guidance effective October 1, 2019, recognizing a cumulative effect adjustment that decreased retained earnings by $1.0 million and increased accumulated other comprehensive income by the same amount.
    
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Reclassifications Out of Accumulated Other Comprehensive Income (Loss).  The details about the reclassification adjustments out of accumulated other comprehensive income (loss) for the three months ended December 31, 2020 and 2019 are as follows (amounts in parentheses indicate debits to the income statement) (in thousands):
Details About Accumulated Other Comprehensive Income (Loss) ComponentsAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive
Income (Loss)
Affected Line Item in the Statement Where Net Income is Presented
Three Months Ended
December 31,
20202019
Gains (Losses) on Derivative Financial Instrument Cash Flow Hedges:
 
     Commodity Contracts($310)$7,541 Operating Revenues
     Commodity Contracts 2 Purchased Gas
     Foreign Currency Contracts(1)(191)Operating Revenues
 (311)7,352 Total Before Income Tax
 86 (2,031)Income Tax Expense
 ($225)$5,321 Net of Tax

Other Current Assets.  The components of the Company’s Other Current Assets are as follows (in thousands):
                            At December 31, 2020At September 30, 2020
Prepayments$10,203 $12,851 
Prepaid Property and Other Taxes14,821 14,269 
State Income Taxes Receivable1,439 3,828 
Regulatory Assets21,441 16,609 
 $47,904 $47,557 
 
Other Accruals and Current Liabilities.  The components of the Company’s Other Accruals and Current Liabilities are as follows (in thousands):
                            At December 31, 2020At September 30, 2020
Accrued Capital Expenditures$34,840 $33,344 
Regulatory Liabilities41,402 44,890 
Reserve for Gas Replacement1,778  
Liability for Royalty and Working Interests22,869 15,665 
Non-Qualified Benefit Plan Liability14,460 14,460 
Other39,028 31,817 
 $154,377 $140,176 
 
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 ended December 31, 2020, 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 373,378 securities and 733,617 securities excluded as being antidilutive for the quarters ended December 31, 2020 and December 31, 2019, respectively.

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Stock-Based Compensation.  The Company granted 309,470 performance shares during the quarter ended December 31, 2020. The weighted average fair value of such performance shares was $39.19 per share for the quarter ended December 31, 2020. 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 quarter ended December 31, 2020 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 quarter ended December 31, 2020 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 170,113 restricted stock units during the quarter ended December 31, 2020.  The weighted average fair value of such restricted stock units was $38.00 per share for the quarter ended December 31, 2020.  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 restricted stock units do not entitle the participant to receive dividends during the vesting period. The accounting for 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. On October 1, 2020, the Company adopted authoritative guidance regarding the measurement of credit losses on financial assets measured at amortized cost. The new guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected, which means that companies are required to recognize an allowance for credit losses for the difference between the amortized cost basis of the financial asset and the amount expected to be collected over the contractual life of the asset. Prior to adoption, the Company analyzed its financial assets measured at amortized cost, primarily trade receivables. The adoption of this guidance did not have a material impact to the Company’s financial statements.

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Note 2 – Asset Acquisitions and Divestitures

    On December 10, 2020, the Company completed the sale of substantially all timber properties in Pennsylvania to Lyme Emporium Highlands III LLC and Lyme Allegheny Land Company II LLC for net proceeds of $104.6 million. At September 30, 2020, these assets, amounting to $53.4 million, which previously were recorded as Net Property, Plant and Equipment, were presented as Assets Held for Sale, Net on the Consolidated Balance Sheet. The assets were a component of the Company’s All Other category and did not have a major impact on the Company’s operations or financial results. After purchase price adjustments and transaction costs, a gain of $51.1 million was recognized on the sale of these assets. Since the sale did not represent a strategic shift in focus for the Company, the financial results associated with operating these assets as well as the gain on sale have not been reported as discontinued operations.

    The sale of the timber properties completed a reverse like-kind exchange pursuant to Section 1031 of the Internal Revenue Code, as amended (“Reverse 1031 Exchange”). On July 31, 2020, the Company completed its acquisition of certain upstream assets and midstream gathering assets in Pennsylvania from SWEPI LP, a subsidiary of Royal Dutch Shell plc (“Shell”) for total consideration of $506.3 million. The purchase and sale agreement with Shell was structured, in part, as a Reverse 1031 Exchange. In connection with the Reverse 1031 Exchange, the Company, through a subsidiary, assigned the rights to acquire legal title to certain oil and natural gas properties to a Variable Interest Entity ("VIE") formed by an exchange accommodation titleholder. From July 31, 2020 to December 10, 2020, a subsidiary of the Company operated the properties pursuant to a lease agreement with the VIE. As the Company was deemed to be the primary beneficiary of the VIE, the VIE was included in the consolidated financial statements of the Company. Upon completion of the sale of the timber properties on December 10, 2020, the affected properties were conveyed to the Company and the VIE structure was terminated. Refer to Note B – Asset Acquisitions and Divestitures of the Company’s 2020 Form 10-K for additional information concerning the Company’s acquisition of certain upstream assets and midstream gathering assets from Shell.

Note 3 – Revenue from Contracts with Customers
 
    The following tables provide a disaggregation of the Company's revenues for the three months ended December 31, 2020 and 2019, presented by type of service from each reportable segment.
Quarter Ended December 31, 2020 (Thousands)   
Revenues By Type of ServiceExploration and ProductionPipeline and StorageGatheringUtilityAll OtherCorporate and Intersegment EliminationsTotal Consolidated
Production of Natural Gas$166,442 $ $ $ $ $ $166,442 
Production of Crude Oil24,499      24,499 
Natural Gas Processing553      553 
Natural Gas Gathering Service  47,009   (46,658)351 
Natural Gas Transportation Service 64,825  29,021  (19,590)74,256 
Natural Gas Storage Service 20,517    (8,763)11,754 
Natural Gas Residential Sales   137,881   137,881 
Natural Gas Commercial Sales   17,195   17,195 
Natural Gas Industrial Sales   922   922 
Natural Gas Marketing    585 (20)565 
Other211 2,422  (1,612)545 (108)1,458 
Total Revenues from Contracts with Customers191,705 87,764 47,009 183,407 1,130 (75,139)435,876 
Alternative Revenue Programs   5,594   5,594 
Derivative Financial Instruments(310)     (310)
Total Revenues$191,395 $87,764 $47,009 $189,001 $1,130 $(75,139)$441,160 
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Quarter Ended December 31, 2019 (Thousands)   
Revenues By Type of ServiceExploration and ProductionPipeline and StorageGatheringUtilityAll OtherCorporate and Intersegment EliminationsTotal Consolidated
Production of Natural Gas$119,874 $ $ $ $ $ $119,874 
Production of Crude Oil37,664      37,664 
Natural Gas Processing688      688 
Natural Gas Gathering Service  34,788   (34,788)