NATIONAL FUEL GAS CO 10-Q

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) 2022 2021 INCOME Operating Revenues: Utility Revenues $ 311,619 $ 236,684 Exploration and Production and Other Revenues 276,973 244,281 Pipeline and Storage and Gathering Revenues 70,267 65,592 658,859 546,557 Operating Expenses: Purchased Gas 171,197 101,628 Operation and Maintenance: Utility 50,352 46,644 Exploration and Production and Other 26,874 45,619 Pipeline and Storage and Gathering 33,261 29,928 Property, Franchise and Other Taxes 26,205 24,501 Depreciation, Depletion and Amortization 96,600 88,578 404,489 336,898 Operating Income 254,370 209,659 Other Income (Expense): Other Income (Deductions) 6,318 ( 1,079 ) Interest Expense on Long-Term Debt ( 29,604 ) ( 30,130 ) Other Interest Expense ( 3,843 ) ( 1,161 ) Income Before Income Taxes 227,241 177,289 Income Tax Expense 57,552 44,897 Net Income Available for Common Stock 169,689 132,392 EARNINGS REINVESTED IN THE BUSINESS Balance at Beginning of Period 1,587,085 1,191,175 1,756,774 1,323,567 Dividends on Common Stock ( 43,598 ) ( 41,604 ) Balance at December 31 $ 1,713,176 $ 1,281,963 Earnings Per Common Share: Basic: Net Income Available for Common Stock $ 1.85 $ 1.45 Diluted: Net Income Available for Common Stock $ 1.84 $ 1.44 Weighted Average Common Shares Outstanding: Used in Basic Calculation 91,579,814 91,266,300 Used in Diluted Calculation 92,268,210 92,032,775 Dividends Per Common Share: Dividends Declared $ 0.475 $ 0.455 See Notes to Condensed Consolidated Financial Statements 6 Table of Contents National Fuel Gas Company Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended December 31, (Thousands of U.S. Dollars) 2022 2021 Net Income Available for Common Stock $ 169,689 $ 132,392 Other Comprehensive Income, Before Tax: Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period 297,593 163,132 Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income 159,342 162,588 Other Comprehensive Income, Before Tax 456,935 325,720 Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period 81,377 44,649 Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Derivative Financial Instruments in Net Income 43,571 44,500 Income Taxes – Net 124,948 89,149 Other Comprehensive Income 331,987 236,571 Comprehensive Income $ 501,676 $ 368,963 See Notes to Condensed Consolidated Financial Statements 7 Table of Contents National Fuel Gas Company Consolidated Balance Sheets (Unaudited) December 31, 2022 September 30, 2022 (Thousands of U.S. Dollars) ASSETS Property, Plant and Equipment $ 12,773,470 $ 12,551,909 Less - Accumulated Depreciation, Depletion and Amortization 6,074,626 5,985,432 6,698,844 6,566,477 Current Assets Cash and Temporary Cash Investments 244,475 46,048 Hedging Collateral Deposits 1,600 91,670 Receivables – Net of Allowance for Uncollectible Accounts of $ 43,925 and $ 40,228 , Respectively 332,410 361,626 Unbilled Revenue 87,110 30,075 Gas Stored Underground 23,780 32,364 Materials and Supplies - at average cost 43,599 40,637 Unrecovered Purchased Gas Costs 78,739 99,342 Other Current Assets 61,117 59,369 872,830 761,131 Other Assets Recoverable Future Taxes 107,467 106,247 Unamortized Debt Expense 8,473 8,884 Other Regulatory Assets 73,321 67,101 Deferred Charges 75,253 77,472 Other Investments 72,870 95,025 Goodwill 5,476 5,476 Prepaid Pension and Post-Retirement Benefit Costs 206,629 196,597 Fair Value of Derivative Financial Instruments 12,170 9,175 Other 1,581 2,677 563,240 568,654 Total Assets $ 8,134,914 $ 7,896,262 See Notes to Condensed Consolidated Financial Statements 8 Table of Contents National Fuel Gas Company Consolidated Balance Sheets (Unaudited) December 31, 2022 September 30, 2022 (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 – 91,786,806 Shares and 91,478,064 Shares, Respectively $ 91,787 $ 91,478 Paid in Capital 1,025,639 1,027,066 Earnings Reinvested in the Business 1,713,176 1,587,085 Accumulated Other Comprehensive Loss ( 293,746 ) ( 625,733 ) Total Comprehensive Shareholders’ Equity 2,536,856 2,079,896 Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs 2,084,363 2,083,409 Total Capitalization 4,621,219 4,163,305 Current and Accrued Liabilities Notes Payable to Banks and Commercial Paper 250,000 60,000 Current Portion of Long-Term Debt 399,000 549,000 Accounts Payable 168,387 178,945 Amounts Payable to Customers 154 419 Dividends Payable 43,598 43,452 Interest Payable on Long-Term Debt 43,142 17,376 Customer Advances 31,314 26,108 Customer Security Deposits 28,829 24,283 Other Accruals and Current Liabilities 239,097 257,327 Fair Value of Derivative Financial Instruments 331,521 785,659 1,535,042 1,942,569 Other Liabilities Deferred Income Taxes 879,676 698,229 Taxes Refundable to Customers 360,276 362,098 Cost of Removal Regulatory Liability 263,707 259,947 Other Regulatory Liabilities 191,499 188,803 Other Post-Retirement Liabilities 2,998 3,065 Asset Retirement Obligations 161,221 161,545 Other Liabilities 119,276 116,701 1,978,653 1,790,388 Commitments and Contingencies (Note 8) — — Total Capitalization and Liabilities $ 8,134,914 $ 7,896,262 See Notes to Condensed Consolidated Financial Statements 9 Table of Contents National Fuel Gas Company Consolidated Statements of Cash Flows (Unaudited) Three Months Ended December 31, (Thousands of U.S. Dollars) 2022 2021 OPERATING ACTIVITIES Net Income Available for Common Stock $ 169,689 $ 132,392 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation, Depletion and Amortization 96,600 88,578 Deferred Income Taxes 53,457 44,122 Stock-Based Compensation 5,575 5,487 Other 4,078 4,675 Change in: Receivables and Unbilled Revenue ( 29,522 ) ( 98,688 ) Gas Stored Underground and Materials, Supplies and Emission Allowances 5,622 17,111 Unrecovered Purchased Gas Costs 20,603 526 Other Current Assets ( 1,748 ) ( 4,654 ) Accounts Payable 6,091 ( 10,888 ) Amounts Payable to Customers ( 265 ) 15 Customer Advances 5,206 ( 2,603 ) Customer Security Deposits 4,546 981 Other Accruals and Current Liabilities 4,523 5,044 Other Assets ( 20,238 ) ( 6,838 ) Other Liabilities 3,122 ( 3,777 ) Net Cash Provided by Operating Activities 327,339 171,483 INVESTING ACTIVITIES Capital Expenditures ( 233,473 ) ( 213,491 ) Sale of Fixed Income Mutual Fund Shares in Grantor Trust 10,000 30,000 Other 14,637 13,781 Net Cash Used in Investing Activities ( 208,836 ) ( 169,710 ) FINANCING ACTIVITIES Proceeds from Issuance of Short-Term Note Payable to Bank 250,000 — Net Change in Other Short-Term Notes Payable to Banks and Commercial Paper ( 60,000 ) 7,500 Reduction of Long-Term Debt ( 150,000 ) — Dividends Paid on Common Stock ( 43,452 ) ( 41,487 ) Net Repurchases of Common Stock ( 6,694 ) ( 8,859 ) Net Cash Used in Financing Activities ( 10,146 ) ( 42,846 ) Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash 108,357 ( 41,073 ) Cash, Cash Equivalents, and Restricted Cash at October 1 137,718 120,138 Cash, Cash Equivalents, and Restricted Cash at December 31 $ 246,075 $ 79,065 Supplemental Disclosure of Cash Flow Information Non-Cash Investing Activities: Non-Cash Capital Expenditures $ 110,314 $ 81,010 See Notes to Condensed Consolidated Financial Statements 10 Table of Contents 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, 2022, 2021 and 2020 that are included in the Company's 2022 Form 10-K. The consolidated financial statements for the year ended September 30, 2023 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, 2022 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2023. 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, 2022 Three Months Ended December 31, 2021 Balance at December 31, 2022 Balance at October 1, 2022 Balance at December 31, 2021 Balance at October 1, 2021 Cash and Temporary Cash Investments $ 244,475 $ 46,048 $ 79,065 $ 31,528 Hedging Collateral Deposits 1,600 91,670 — 88,610 Cash, Cash Equivalents, and Restricted Cash $ 246,075 $ 137,718 $ 79,065 $ 120,138 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 derivative financial instruments in an unrealized loss position. 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, the majority of which is in the Utility segment, is determined based on historical experience, the age of customer accounts, other specific information about customer accounts, and the economic and regulatory environment. Account balances are charged off against the allowance approximately twelve months after the account is final billed or when it is anticipated that the receivable will not be recovered. 11 Table of Contents Activity in the allowance for uncollectible accounts for the three months ended December 31, 2022 and 2021 are as follows (in thousands): Balance at Beginning of Period Additions Charged to Costs and Expenses Discounts on Purchased Receivables Net Accounts Receivable Recovered (Written-Off) Balance at End of Period Three Months Ended December 31, 2022 Allowance for Uncollectible Accounts $ 40,228 $ 5,035 $ 228 $ ( 1,566 ) $ 43,925 Three Months Ended December 31, 2021 Allowance for Uncollectible Accounts $ 31,639 $ 3,742 $ 161 $ 57 $ 35,599 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 $ 17.7 million at December 31, 2022, 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. The Company's capitalized costs relating to oil and gas producing activities, net of accumulated depreciation, depletion and amortization, were $ 2.1 billion and $ 1.9 billion at December 31, 2022 and September 30, 2022, 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 $ 67.5 million and $ 66.0 million at December 31, 2022 and September 30, 2022, 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 unproved 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. At December 31, 2022, the ceiling exceeded the book value of the oil and gas properties by approximately $ 3.3 billion. The estimated future net cash flows were decreased by $ 954.3 million for hedging under the ceiling test at December 31, 2022. 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. There were no indications of any impairments to property, plant and equipment in the Utility, Pipeline and Storage and Gathering segments at December 31, 2022. 12 Table of Contents Accumulated Other Comprehensive Loss. The components of Accumulated Other Comprehensive Loss and changes for the three months ended December 31, 2022 and 2021, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands): Gains and Losses on Derivative Financial Instruments Funded Status of the Pension and Other Post-Retirement Benefit Plans Total Three Months Ended December 31, 2022 Balance at October 1, 2022 $ ( 572,163 ) $ ( 53,570 ) $ ( 625,733 ) Other Comprehensive Gains and Losses Before Reclassifications 216,216 — 216,216 Amounts Reclassified From Other Comprehensive Income 115,771 — 115,771 Balance at December 31, 2022 $ ( 240,176 ) $ ( 53,570 ) $ ( 293,746 ) Three Months Ended December 31, 2021 Balance at October 1, 2021 $ ( 449,962 ) $ ( 63,635 ) $ ( 513,597 ) Other Comprehensive Gains and Losses Before Reclassifications 118,483 — 118,483 Amounts Reclassified From Other Comprehensive Income 118,088 — 118,088 Balance at December 31, 2021 $ ( 213,391 ) $ ( 63,635 ) $ ( 277,026 ) Reclassifications Out of Accumulated Other Comprehensive Loss. The details about the reclassification adjustments out of accumulated other comprehensive loss for the three months ended December 31, 2022 and 2021 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 December 31, 2022 2021 Gains (Losses) on Derivative Financial Instrument Cash Flow Hedges: Commodity Contracts ($ 159,162 ) ($ 162,629 ) Operating Revenues Foreign Currency Contracts ( 180 ) 41 Operating Revenues ( 159,342 ) ( 162,588 ) Total Before Income Tax 43,571 44,500 Income Tax Expense ($ 115,771 ) ($ 118,088 ) Net of Tax 13 Table of Contents Other Current Assets . The components of the Company’s Other Current Assets are as follows (in thousands): At December 31, 2022 At September 30, 2022 Prepayments $ 19,828 $ 17,757 Prepaid Property and Other Taxes 14,564 14,321 Prepaid State Income Taxes 5,608 5,933 Regulatory Assets 21,117 21,358 $ 61,117 $ 59,369 Other Accruals and Current Liabilities . The components of the Company’s Other Accruals and Current Liabilities are as follows (in thousands): At December 31, 2022 At September 30, 2022 Accrued Capital Expenditures $ 71,421 $ 64,720 Regulatory Liabilities 32,357 31,293 Reserve for Gas Replacement 17,695 — Liability for Royalty and Working Interests 43,122 86,206 Non-Qualified Benefit Plan Liability 17,474 17,474 Other 57,028 57,634 $ 239,097 $ 257,327 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 restricted stock units and performance shares. For the quarter ended December 31, 2022, 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. Restricted stock units and performance shares that are antidilutive are excluded from the calculation of diluted earnings per common share. There were 1,987 securities and 8,732 securities excluded as being antidilutive for the quarters ended December 31, 2022 and December 31, 2021, respectively. Stock-Based Compensation. The Company granted 202,259 performance shares during the quarter ended December 31, 2022. The weighted average fair value of such performance shares was $ 64.28 per share for the quarter ended December 31, 2022. 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. The performance shares granted during the quarter ended December 31, 2022 include awards that must meet a performance goal related to either relative return on capital over a three-year performance cycle ("ROC performance shares"), methane intensity and greenhouse gas emissions reductions over a three-year performance cycle ("ESG performance shares") or relative shareholder return over a three-year performance cycle ("TSR performance shares"). The performance goal related to the ROC performance shares over the three-year 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 ROC 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 the ROC 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. 14 Table of Contents The performance goal related to the ESG performance shares over the three-year performance cycle consists of two parts: reductions in the rates of intensity of methane emissions for each of the Company's operating segments, and reduction of the consolidated Company's total greenhouse gas emissions. The Company's Compensation Committee set specific target levels for methane intensity rates and total greenhouse gas emissions, and the performance goal is intended to incentivize and reward performance to the extent management achieves methane intensity and greenhouse gas reduction targets making progress towards the Company's 2030 goals. The number of these ESG performance shares that will vest and be paid out will depend upon the number of methane intensity segment targets achieved and whether the Company meets the total greenhouse gas emissions target. The fair value of these ESG 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 performance goal related to the TSR performance shares over the three-year 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 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 115,073 restricted stock units during the quarter ended December 31, 2022. The weighted average fair value of such restricted stock units was $ 59.69 per share for the quarter ended December 31, 2022. 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 fair value at the date of grant of the restricted stock units (represented by the market value of Company common stock on the date of the award) must be reduced by the present value of forgone dividends over the vesting term of the award. The fair value of restricted stock units on the date of award is recorded as compensation expense over the vesting period. Note 2 – Asset Acquisitions and Divestitures On June 30, 2022, the Company completed the sale of Seneca’s California assets, all of which are in the Exploration and Production segment, to Sentinel Peak Resources California LLC for a total sale price of $ 253.5 million, consisting of $ 240.9 million in cash and contingent consideration valued at $ 12.6 million at closing. The Company pursued this sale given the strong commodity price environment and the Company's strategic focus in the Appalachian Basin. Under the terms of the purchase and sale agreement, the Company can receive up to three annual contingent payments between calendar year 2023 and calendar year 2025, not to exceed $ 10 million per year, with the amount of each annual payment calculated as $ 1.0 million for each $ 1 per barrel that the ICE Brent Average for each calendar year exceeds $ 95 per barrel up to $ 105 per barrel. The sale price, which reflected an effective date of April 1, 2022, was reduced for production revenues less expenses that were retained by Seneca from the effective date to the closing date. Under the full cost method of accounting for oil and natural gas properties, $ 220.7 million of the sale price at closing was accounted for as reduction of capitalized costs since the disposition did not alter the relationship between capitalized costs and proved reserves of oil and gas attributable to the cost center. The remainder of the sale price ($ 32.8 million) was applied against assets that are not subject to the full cost method of accounting, with the Company recognizing a gain of $ 12.7 million on the sale of such assets. The majority of this gain related to the sale of emission allowances. The Company also eliminated the asset retirement obligation associated with Seneca’s California oil and gas assets. This obligation amounted to $ 50.1 million and was accounted for as a reduction of capitalized costs under the full cost method of accounting. 15 Table of Contents 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, 2022 and 2021, presented by type of service from each reportable segment. Quarter Ended December 31, 2022 (Thousands) Revenues By Type of Service Exploration and Production Pipeline and Storage Gathering Utility All Other Corporate and Intersegment Eliminations Total Consolidated Production of Natural Gas $ 432,359 $ — $ — $ — $ — $ — $ 432,359 Production of Crude Oil 628 — — — — — 628 Natural Gas Processing 374 — — — — — 374 Natural Gas Gathering Service — — 56,413 — — ( 53,767 ) 2,646 Natural Gas Transportation Service — 76,201 — 28,378 — ( 20,817 ) 83,762 Natural Gas Storage Service — 21,286 — — — ( 8,996 ) 12,290 Natural Gas Residential Sales — — — 244,306 — — 244,306 Natural Gas Commercial Sales — — — 34,495 — — 34,495 Natural Gas Industrial Sales — — — 1,638 — — 1,638 Other 2,774 168 — ( 259 ) — ( 283 ) 2,400 Total Revenues from Contracts with Customers 436,135 97,655 56,413 308,558 — ( 83,863 ) 814,898 Alternative Revenue Programs — — — 3,123 — — 3,123 Derivative Financial Instruments ( 159,162 ) — — — — — ( 159,162 ) Total Revenues $ 276,973 $ 97,655 $ 56,413 $ 311,681 $ — $ ( 83,863 ) $ 658,859 Quarter Ended December 31, 2021 (Thousands) Revenues By Type of Service Exploration and Production Pipeline and Storage Gathering Utility All Other Corporate and Intersegment Eliminations Total Consolidated Production of Natural Gas $ 361,282 $ — $ — $ — $ — $ — $ 361,282 Production of Crude Oil 42,371 — — — — — 42,371 Natural Gas Processing 1,029 — — — — — 1,029 Natural Gas Gathering Service — — 52,225 — — ( 48,180 ) 4,045 Natural Gas Transportation Service — 66,269 — 27,775 — ( 17,625 ) 76,419 Natural Gas Storage Service — 20,800 — — — ( 9,024 ) 11,776 Natural Gas Residential Sales — — — 179,011 — — 179,011 Natural Gas Commercial Sales — — — 23,998 — — 23,998 Natural Gas Industrial Sales — — — 1,147 — — 1,147 Other 2,145 1,281 — ( 2,000 ) 6 ( 152 ) 1,280 Total Revenues from Contracts with Customers 406,827 88,350 52,225 229,931 6 ( 74,981 ) 702,358 Alternative Revenue Programs — — — 6,828 — — 6,828 Derivative Financial Instruments ( 162,629 ) — — — — — ( 162,629 ) Total Revenues $ 244,198 $ 88,350 $ 52,225 $ 236,759 $ 6 $ ( 74,981 ) $ 546,557 The Company records revenue related to its derivative financial instruments in the Exploration and Production 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 authoritative guidance regarding revenue recognition since they are accounted for under other existing accounting guidance. 16 Table of Contents 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: $ 157.6 million for the remainder of fiscal 2023; $ 195.2 million for fiscal 2024; $ 169.6 million for fiscal 2025; $ 145.7 million for fiscal 2026; $ 123.0 million for fiscal 2027; and $ 692.6 million thereafter. Note 4 – 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 December 31, 2022 and September 30, 2022. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Recurring Fair Value Measures At fair value as of December 31, 2022 (Thousands of Dollars) Level 1 Level 2 Level 3 Netting Adjustments (1) Total (1) Assets: Cash Equivalents – Money Market Mutual Funds $ 228,919 $ — $ — $ — $ 228,919 Hedging Collateral Deposits 1,600 — — — 1,600 Derivative Financial Instruments: Over the Counter Swaps – Gas — 9,091 — ( 6,881 ) 2,210 Over the Counter No Cost Collars – Gas — 13,915 — ( 12,274 ) 1,641 Contingent Consideration for Asset Sale — 8,374 — — 8,374 Foreign Currency Contracts — 211 — ( 266 ) ( 55 ) Other Investments: Balanced Equity Mutual Fund 14,929 — — — 14,929 Fixed Income Mutual Fund 15,608 — — — 15,608 Total $ 261,056 $ 31,591 $ — $ ( 19,421 ) $ 273,226 Liabilities: Derivative Financial Instruments: Over the Counter Swaps – Gas $ — $ 233,112 $ — $ ( 6,881 ) $ 226,231 Over the Counter No Cost Collars – Gas — 116,352 — ( 12,274 ) 104,078 Foreign Currency Contracts — 1,478 — ( 266 ) 1,212 Total $ — $ 350,942 $ — $ ( 19,421 ) $ 331,521 Total Net Assets/(Liabilities) $ 261,056 $ ( 319,351 ) $ — $ — $ ( 58,295 ) 17 Table of Contents Recurring Fair Value Measures At fair value as of September 30, 2022 (Thousands of Dollars) Level 1 Level 2 Level 3 Netting Adjustments (1) Total (1) Assets: Cash Equivalents – Money Market Mutual Funds $ 35,015 $ — $ — $ — $ 35,015 Hedging Collateral Deposits 91,670 — — — 91,670 Derivative Financial Instruments: Over the Counter Swaps – Gas — 5,177 — ( 4,178 ) 999 Contingent Consideration for Asset Sale — 8,176 — — 8,176 Foreign Currency Contracts — 128 — ( 128 ) — Other Investments: Balanced Equity Mutual Fund 19,506 — — — 19,506 Fixed Income Mutual Fund 33,348 — — — 33,348 Total $ 179,539 $ 13,481 $ — $ ( 4,306 ) $ 188,714 Liabilities: Derivative Financial Instruments: Over the Counter Swaps – Gas $ — $ 517,464 $ — $ ( 4,178 ) $ 513,286 Over the Counter No Cost Collars – Gas — 270,453 — — 270,453 Foreign Currency Contracts — 2,048 — ( 128 ) 1,920 Total $ — $ 789,965 $ — $ ( 4,306 ) $ 785,659 Total Net Assets/(Liabilities) $ 179,539 $ ( 776,484 ) $ — $ — $ ( 596,945 ) (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 The derivative financial instruments reported in Level 2 at December 31, 2022 and September 30, 2022 include natural gas price swap agreements, natural gas no cost collars, and foreign currency contracts, all of which are used in the Company’s Exploration and Production segment. Hedging collateral deposits of $ 1.6 million (at December 31, 2022) and $ 91.7 million (at September 30, 2022), which were associated with the price swap agreements, no cost collars and foreign currency contracts, have been reported in Level 1. The fair value of the Level 2 price swap agreements and no cost collars is based on an internal cash flow model that uses observable inputs (i.e. SOFR based discount rates for the price swap agreements 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 authoritative guidance 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 December 31, 2022, the Company determined that nonperformance risk associated with the price swap agreements, no cost collars and foreign currency contracts 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. Derivative financial instruments reported in Level 2 at December 31, 2022 also includes the contingent consideration associated with the sale of the Exploration and Production segment's California assets on June 30, 2022, which is discussed at Note 2 – Asset Acquisitions and Divestitures and at Note 5 – Financial Instruments. The fair value of the contingent consideration was calculated using a Monte Carlo simulation model that uses observable inputs, including the ICE Brent closing price as of the valuation date, initial and max trigger price, volatility, risk free rate, time of maturity and counterparty risk. For the quarters ended December 31, 2022 and December 31, 2021, there were no assets or liabilities measured at fair value and classified as Level 3. 18 Table of Contents Note 5 – 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): December 31, 2022 September 30, 2022 Carrying Amount Fair Value Carrying Amount Fair Value Long-Term Debt $ 2,483,363 $ 2,320,923 $ 2,632,409 $ 2,453,209 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 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 December 31, 2022 At September 30, 2022 Life Insurance Contracts $ 42,333 $ 42,171 Equity Mutual Fund 14,929 19,506 Fixed Income Mutual Fund 15,608 33,348 $ 72,870 $ 95,025 Investments in life insurance contracts are stated at their cash surrender values or net present value. Investments in an equity mutual fund and a fixed income mutual fund are stated at fair value based on quoted market prices with changes in fair value recognized in net income. The insurance contracts and equity mutual fund are primarily informal funding mechanisms for various benefit obligations the Company has to certain employees. The fixed income mutual fund is primarily an informal funding mechanism for certain regulatory obligations that the Company has to Utility segment customers in its Pennsylvania jurisdiction, as discussed in Note 11 – Regulatory Matters, and 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. The Company enters into over-the-counter no cost collars and over-the-counter swap agreements for natural gas to manage the price risk associated with forecasted sales of natural gas. 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 duration of the Company’s cash flow hedges does not typically exceed 5 years while the foreign currency forward contracts do not exceed 8 years. On June 30, 2022, the Company completed the sale of Seneca’s California assets. Under the terms of the purchase and sale agreement, the Company can receive up to three annual contingent payments between calendar year 2023 and calendar year 2025, not to exceed $ 10 million per year, with the amount of each annual payment calculated as $ 1.0 million for each $ 1 per barrel that the ICE Brent Average for each calendar year exceeds $ 95 per barrel up to $ 105 per barrel. The Company has determined that this contingent consideration meets the definition of a derivative under the authoritative accounting guidance. Changes in the fair value of this contingent consideration are marked-to-market each reporting period, with changes in fair value recognized in Other Income (Deductions) on the Consolidated Statement of Income. The fair value of this contingent 19 Table of Contents consideration was estimated to be $ 8.4 million and $ 8.2 million at December 31, 2022 and September 30, 2022, respectively. A $ 0.2 million mark-to-market adjustment was recorded during the quarter ended December 31, 2022. The Company has presented its net derivative assets and liabilities as “Fair Value of Derivative Financial Instruments” on its Consolidated Balance Sheets at December 31, 2022 and September 30, 2022. Cash Flow Hedges For derivative financial instruments that are designated and qualify as a cash flow hedge, 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. As of December 31, 2022, the Company had 389.0 Bcf of natural gas commodity derivative contracts (swaps and no cost collars) outstanding. As of December 31, 2022, the Company was hedging a total of $ 54.7 million of forecasted transportation costs denominated in Canadian dollars with foreign currency forward contracts. As of December 31, 2022, the Company had $ 327.8 million ($ 240.2 million after-tax) of net hedging losses included in the accumulated other comprehensive income (loss) balance. It is expected that $ 180.6 million ($ 132.4 million after-tax) of such unrealized losses 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 December 31, 2022 and 2021 (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) for the Three Months Ended December 31, Location of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income Amount of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income for the Three Months Ended December 31, 2022 2021 2022 2021 Commodity Contracts $ 297,120 $ 163,126 Operating Revenue $ ( 159,162 ) $ ( 162,629 ) Foreign Currency Contracts 473 6 Operating Revenue ( 180 ) 41 Total $ 297,593 $ 163,132 $ ( 159,342 ) $ ( 162,588 ) Credit Risk The Company may be exposed to credit risk on any of the derivative financial instruments that are in a gain position. Credit risk relates to the risk of loss that the Company would incur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. To mitigate such credit risk, management performs a credit check, and then on a quarterly basis monitors counterparty credit exposure. The majority of the Company’s counterparties are financial institutions and energy traders. The Company has over the-counter swap positions, no cost collars and applicable foreign currency forward contracts with fifteen counterparties of which one is in a net gain position. The Company had $ 3.8 million of credit exposure with the counterparty in a gain position at December 31, 2022. As of December 31, 2022, no collateral was received from the counterparties by the Company. The Company's gain position on such derivative financial instruments had not exceeded the established thresholds at which the counterparties would be required to post collateral, nor had the counterparties' credit ratings declined to levels at which the counterparties were required to post collateral. As of December 31, 2022, thirteen of the fifteen counterparties to the Company’s outstanding derivative financial contracts (specifically the over-the-counter swaps, over-the-counter no cost collars and applicable foreign currency forward contracts) had a common credit-risk related contingency feature. In the event the Company’s credit rating increases or falls below a certain threshold (applicable debt ratings), the available credit extended to the Company would either increase or 20 Table of Contents decrease. A decline in the Company’s credit rating, in and of itself, would not cause the Company to be required to post or increase the level of its hedging collateral deposits (in the form of cash deposits, letters of credit or treasury debt instruments). If the Company’s outstanding derivative financial contracts with a credit-risk contingency feature were in a liability position (or if the liability were larger) and/or the Company’s credit rating declined, then hedging collateral deposits or an increase to such deposits could be required. At December 31, 2022, the fair market value of the derivative financial instrument liabilities with a credit-risk related contingency feature was $ 224.9 million according to the Company’s internal model (discussed in Note 4 – Fair Value Measurements), and the Company posted $ 1.6 million in hedging collateral deposits. Depending on the movement of commodity prices in the future, it is possible that these liability positions could swing into asset positions, at which point the Company would be exposed to credit risk on its derivative financial instruments. In that case, the Company's counterparties could be required to post hedging collateral deposits. The Company’s requirement to post hedging collateral deposits and the Company's right to receive hedging collateral deposits is based on the fair value determined by the Company’s counterparties, which may differ from the Company’s assessment of fair value. Note 6 – Income Taxes The effective tax rate was 25.3 % for both of the quarters ended December 31, 2022 and December 31, 2021. During the quarter ended December 31, 2022, the Company was unable to utilize the Enhanced Oil Recovery tax credit, which it was able to utilize during the quarter ended December 31, 2021. However, the effective tax rate remained the same for both periods as the Company continues to record a benefit of the reduction in the Pennsylvania state income tax rate that was enacted in July 2022. Note 7 – Capitalization Summary of Changes in Common Stock Equity Common Stock Paid In Capital Earnings Reinvested in the Business Accumulated Other Comprehensive Income (Loss) Shares Amount (Thousands, except per share amounts) Balance at October 1, 2022 91,478 $ 91,478 $ 1,027,066 $ 1,587,085 $ ( 625,733 ) Net Income Available for Common Stock 169,689 Dividends Declared on Common Stock ($ 0.475 Per Share) ( 43,598 ) Other Comprehensive Income, Net of Tax 331,987 Share-Based Payment Expense (1) 5,118 Common Stock Issued (Repurchased) Under Stock and Benefit Plans 309 309 ( 6,545 ) Balance at December 31, 2022 91,787 $ 91,787 $ 1,025,639 $ 1,713,176 $ ( 293,746 ) Balance at October 1, 2021 91,182 $ 91,182 $ 1,017,446 $ 1,191,175 $ ( 513,597 ) Net Income Available for Common Stock 132,392 Dividends Declared on Common Stock ($ 0.455 Per Share) ( 41,604 ) Other Comprehensive Income, Net of Tax 236,571 Share-Based Payment Expense (1) 5,039 Common Stock Issued (Repurchased) Under Stock and Benefit Plans 255 255 ( 8,664 ) Balance at December 31, 2021 91,437 $ 91,437 $ 1,013,821 $ 1,281,963 $ ( 277,026 ) (1) Paid in Capital includes compensation costs associated with performance shares and/or restricted stock awards. The expense is included within Net Income Available For Common Stock, net of tax benefits. Common Stock. During the three months ended December 31, 2022, the Company issued 12,055 original issue shares of common stock as a result of SARs exercises, 113,531 original issue shares of common stock for restricted stock units that vested and 278,687 original issue shares of common stock for performance shares that vested. The Company also issued 7,230 original issue shares of common stock to the non-employee directors of the Company who receive compensation under the Company’s 2009 Non-Employee Director Equity Compensation Plan, including the reinvestment of dividends for certain non- 21 Table of Contents employee directors who elected to defer their shares pursuant to the dividend reinvestment feature of the Company's Deferred Compensation Plan for Directors and Officers during the three months ended December 31, 2022. Holders of stock-based compensation awards will often tender shares of common stock to the Company for payment of applicable withholding taxes. During the three months ended December 31, 2022, 102,761 shares of common stock were tendered to the Company for such purposes. The Company considers all shares tendered as cancelled shares restored to the status of authorized but unissued shares, in accordance with New Jersey law. Short-Term Borrowings. On June 30, 2022, the Company entered into a new 364-Day Credit Agreement (the "364-Day Credit Agreement") with a syndicate of five banks, all of which are also lenders under the Credit Agreement. The 364-Day Credit Agreement provides an additional $ 250.0 million unsecured committed delayed draw term loan credit facility with a maturity date of June 29, 2023. The Company elected to draw $ 250.0 million under the facility on October 27, 2022. The Company is using the proceeds for general corporate purposes, which included the redemption in November 2022 of $ 150.0 million of the Company's outstanding long-term debt maturing in March 2023. Current Portion of Long-Term Debt. The Current Portion of Long-Term Debt at December 31, 2022 consists of $ 350.0 million of 3.75 % notes and $ 49.0 million of 7.395 % notes that mature in March 2023. The Current Portion of Long-Term Debt at September 30, 2022 consisted of $ 500.0 million of 3.75 % notes and $ 49.0 million of 7.395 % notes. The Company redeemed $ 150.0 million of the 3.75 % notes on November 25, 2022 using a portion of the proceeds from short-term borrowings, as discussed above. Note 8 – Commitments and Contingencies Environmental Matters. The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. The Company has established procedures for the ongoing evaluation of its operations to identify potential environmental exposures and to comply with regulatory requirements. It is the Company’s policy to accrue estimated environmental clean-up costs (investigation and remediation) when such amounts can reasonably be estimated and it is probable that the Company will be required to incur such costs. At December 31, 2022, the Company has estimated its remaining clean-up costs related to former manufactured gas plant sites will be approximately $ 4.0 million. The Company's liability for such clean-up costs has been recorded in Other Liabilities on the Consolidated Balance Sheet at December 31, 2022. The Company expects to recover its environmental clean-up costs through rate recovery over a period of approximately one year and is currently not aware of any material additional exposure to environmental liabilities. However, changes in environmental laws and regulations, new information or other factors could have an adverse financial impact on the Company. Northern Access Project. On February 3, 2017, Supply Corporation and Empire received FERC approval of the Northern Access project described herein. Shortly thereafter, the NYDEC issued a Notice of Denial of the federal Clean Water Act Section 401 Water Quality Certification and other state stream and wetland permits for the New York portion of the project (the Water Quality Certification for the Pennsylvania portion of the project was received in January of 2017). Subsequently, FERC issued an Order finding that the NYDEC exceeded the statutory time frame to take action under the Clean Water Act and, therefore, waived its opportunity to approve or deny the Water Quality Certification. FERC denied rehearing requests associated with its Order and FERC's decisions were appealed. The Second Circuit Court of Appeals issued an order upholding the FERC waiver orders. In addition, in the Company's state court litigation challenging the NYDEC's actions with regard to various state permits, the New York State Supreme Court issued a decision finding these permits to be preempted. The Company remains committed to the project and, on June 29, 2022, received an extension of time from FERC, until December 31, 2024, to construct the project. As of December 31, 2022, the Company has spent approximately $ 55.9 million on the project, all of which is recorded on the balance sheet. Other. The Company is involved in other litigation and regulatory matters arising in the normal course of business. These other matters may include, for example, negligence claims and tax, regulatory or other governmental audits, inspections, investigations and other proceedings. These matters may involve state and federal taxes, safety, compliance with regulations, rate base, cost of service and purchased gas cost issues, among other things. While these other matters arising in the normal course of business could have a material effect on earnings and cash flows in the period in which they are resolved, an estimate of the possible loss or range of loss, if any, cannot be made at this time. 22 Table of Contents Note 9 – Business Segment Information The Company reports financial results for four segments: Exploration and Production, Pipeline and Storage, Gathering and Utility. The division of the Company’s operations into reportable segments is based upon a combination of factors including differences in products and services, regulatory environment and geographic factors. The data presented in the tables below reflect financial information for the segments and reconcile to consolidated amounts. As stated in the 2022 Form 10-K, the Company evaluates segment performance based on income before discontinued operations (when applicable). When this is not applicable, the Company evaluates performance based on net income. There have not been any changes in the basis of segmentation nor in the basis of measuring segment profit or loss from those used in the Company’s 2022 Form 10-K. A listing of segment assets at December 31, 2022 and September 30, 2022 is shown in the tables below. Quarter Ended December 31, 2022 (Thousands) Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated Revenue from External Customers $ 276,973 $ 67,621 $ 2,646 $ 311,619 $ 658,859 $ — $ — $ 658,859 Intersegment Revenues $ — $ 30,034 $ 53,767 $ 62 $ 83,863 $ — $( 83,863 ) $ — Segment Profit: Net Income (Loss) $ 91,192 $ 29,476 $ 24,738 $ 23,817 $ 169,223 $( 280 ) $ 746 $ 169,689 (Thousands) Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated Segment Assets: At December 31, 2022 $ 2,531,218 $ 2,355,063 $ 894,564 $ 2,392,682 $ 8,173,527 $ 1,681 $( 40,294 ) $ 8,134,914 At September 30, 2022 $ 2,507,541 $ 2,394,697 $ 878,796 $ 2,299,473 $ 8,080,507 $ 2,036 $( 186,281 ) $ 7,896,262 Quarter Ended December 31, 2021 (Thousands) Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated Revenue from External Customers $ 244,198 $ 61,547 $ 4,045 $ 236,684 $ 546,474 $ — $ 83 $ 546,557 Intersegment Revenues $ — $ 26,803 $ 48,180 $ 75 $ 75,058 $ 6 $( 75,064 ) $ — Segment Profit: Net Income (Loss) $ 62,369 $ 25,168 $ 23,137 $ 22,130 $ 132,804 $( 7 ) $( 405 ) $ 132,392 23 Table of Contents Note 10 – Retirement Plan and Other Post-Retirement Benefits Components of Net Periodic Benefit Cost (in thousands): Retirement Plan Other Post-Retirement Benefits Three Months Ended December 31, 2022 2021 2022 2021 Service Cost $ 1,297 $ 2,190 $ 147 $ 332 Interest Cost 10,629 5,707 3,912 2,267 Expected Return on Plan Assets ( 16,648 ) ( 13,074 ) ( 6,403 ) ( 7,340 ) Amortization of Prior Service Cost (Credit) 109 134 ( 107 ) ( 107 ) Amortization of (Gains) Losses ( 1,920 ) 6,601 ( 2,189 ) ( 1,903 ) Net Amortization and Deferral for Regulatory Purposes (Including Volumetric Adjustments) (1) 5,378 4,420 3,820 6,246 Net Periodic Benefit Cost (Income) $ ( 1,155 ) $ 5,978 $ ( 820 ) $ ( 505 ) (1) The Company’s policy is to record retirement plan and other post-retirement benefit costs in the Utility segment on a volumetric basis to reflect the fact that the Utility segment experiences higher throughput of natural gas in the winter months and lower throughput of natural gas in the summer months. The components of net periodic benefit cost other than service cost are presented in Other Income (Deductions) on the Consolidated Statements of Income. Employer Contributions. The Company did not make any contributions to its tax-qualified, noncontributory defined benefit retirement plan (Retirement Plan) or its VEBA trusts for its other post-retirement benefits during the three months ended December 31, 2022, and does not anticipate making any such contributions during the remainder of fiscal 2023. Note 11 – Regulatory Matters New York Jurisdiction Distribution Corporation's current delivery rates in its New York jurisdiction were approved by the NYPSC in an order issued on April 20, 2017 with rates becoming effective May 1, 2017. The order provided for a return on equity of 8.7 %, and directed the implementation of an earnings sharing mechanism to be in place beginning on April 1, 2018. The order also authorized the Company to recover approximately $ 15 million annually for pension and other post-employment benefit ("OPEB") expenses from customers. Because the Company’s future pension and OPEB costs were projected to be satisfied with existing funds held in reserve, in July, Distribution Corporation made a filing with the NYPSC to effectuate a pension and OPEB surcredit to customers to offset these amounts being collected in base rates effective October 1, 2022. On September 16, 2022, the NYPSC issued an order approving the filing. The surcredit will remain in effect until modified by the NYPSC in another proceeding, or until December 31, 2024, whichever is earlier. With the implementation of this surcredit, Distribution Corporation will no longer be funding the Retirement Plan or its VEBA trusts in its New York jurisdiction. On August 13, 2021, the NYPSC issued an order extending the date through which qualified pipeline replacement costs incurred by the Company can be recovered using the existing system modernization tracker for two years (until March 31, 2023). The extension is contingent on the Company not filing a base rate case that would result in new rates becoming effective prior to April 1, 2023. On December 9, 2022, the Company filed a petition with the NYPSC to effectuate a system improvement tracker through which qualified pipeline replacement costs would be tracked and recovered, and to recover certain deferred costs associated with the existing system modernization tracker, effective April 1, 2023. That petition has been noticed for public comment and a determination is pending. On January 19, 2023, the NYPSC issued an order in its Effects of COVID-19 on Utility Service (20-M-0266) and Energy Affordability for Low Income Utility Customers (14-M-0565) proceedings whereby a Phase 2 Utility Arrears Relief Program was authorized. Specifically, the order directed Distribution Corporation and certain other New York utilities to, among other things, address arrears on residential non-energy affordability program ratepayer accounts that did not receive a credit under the NYPSC’s Phase 1 program and small commercial ratepayer accounts by issuing a one-time bill credit to such customers to reduce or eliminate accrued arrears through May 1, 2022. The credits shall be processed within 90 days of the 24 Table of Contents effective date of the order, provided that residential non-EAP customers who had their service disconnected for non-payment in 2022 shall be allowed the opportunity to have their service reinstated in order to receive the credit through June 30, 2023. The order further directs utilities to suspend residential service terminations for non-payment while arrears credits are applied to accounts through March 1, 2023, or 30 days after credits have been applied, whichever is later. The order authorizes the utilities to recover the Phase 2 costs (the arrears credits and associated carrying charges) through a surcharge. Utilities proposed various offsets to Phase 2 program costs, and Distribution Corporation has proposed certain offsets as part of an uncollectible expense reconciliation proposal. Distribution Corporation will make a filing with the NYPSC seeking approval of its uncollectible expense reconciliation mechanism no later than 30 days from the January 19, 2023 effective date of the order. Application of the proposed offsets and collection periods will be determined when the NYPSC rules on the uncollectible expense reconciliation filing. Pennsylvania Jurisdiction Distribution Corporation’s current delivery rates in its Pennsylvania jurisdiction were approved by the PaPUC on November 30, 2006 as part of a settlement agreement that became effective January 1, 2007. On October 28, 2022, Distribution Corporation made a filing with the PaPUC seeking an increase in its annual base rate operating revenues of $ 28.1 million with a proposed effective date of December 27, 2022. The Company is also proposing, among other things, to implement a weather normalization adjustment (WNA) mechanism and a new energy efficiency and conservation pilot program for residential customers. On December 8, 2022, the PaPUC issued an order suspending the filing until July 27, 2023 by operation of law unless directed otherwise by the PaPUC. The matter has been assigned to an administrative law judge and remains pending. Effective October 1, 2021, pursuant to a tariff supplement filed with the PaPUC, Distribution Corporation reduced base rates by $ 7.7 million in order to stop collecting OPEB expenses from customers. It also began to refund customers overcollected OPEB expenses in the amount of $ 50.0 million. Certain other matters in the tariff supplement were unresolved. These matters were resolved with the PaPUC’s approval of an Administrative Law Judge’s Recommended Decision on February 24, 2022. Concurrent with that decision, the Company discontinued regulatory accounting for OPEB expenses and recorded an $ 18.5 million adjustment during the quarter ended March 31, 2022 to reduce its regulatory liability for previously deferred OPEB income amounts through September 30, 2021 and to increase Other Income (Deductions) on the consolidated financial statements by a like amount. The Company also increased customer refunds of overcollected OPEB expenses from $ 50.0 million to $ 54.0 million. All refunds specified in the tariff supplement are being funded entirely by grantor trust assets held by the Company, most of which are included in a fixed income mutual fund that is a component of Other Investments on the Company’s Consolidated Balance Sheet. With the elimination of OPEB expenses in base rates, Distribution Corporation is no longer funding the grantor trust or its VEBA trusts in its Pennsylvania jurisdiction. FERC Jurisdiction Supply Corporation’s 2020 rate settlement provides that no party may make a rate filing for new rates to be effective before February 1, 2024, except that Supply Corporation may file an NGA general Section 4 rate case to change rates if the corporate federal income tax rate is increased. If no case has been filed, Supply Corporation must file for rates to be effective February 1, 2025. Empire’s 2019 rate settlement provides that Empire must make a rate case filing no later than May 1, 2025. 25 Table of Contents