Aug. 8--Lower oil and natural gas prices caused National Fuel Gas Co.'s third-quarter profits to drop by 28 percent, but the Amherst-based energy company also raised its earnings forecast for this year because of higher oil and gas production.

The third-quarter earnings beat analyst forecasts by 9 cents per share, and company executives said Friday that they expect earnings in the coming years to be bolstered by double-digit increases in National Fuel's oil and natural gas production.

National Fuel executives said they are encouraged by the early results from the company's efforts to drill wells on the nearly 1 million acres of land it controls in the potentially lucrative Marcellus Shale in northwestern Pennsylvania.

That land could hold between 4 trillion to 8 trillion cubic feet of natural gas, and the company expects to increase its oil and gas production by 10 percent during the fiscal year that begins in October, with increases approaching 20 percent annually during the following two years.

The reason is that the wells that National Fuel expects to drill in the Marcellus Shale region have the potential to produce between 2 million to 3 million cubic feet of natural gas per day, far higher than the typical Appalachian well.

That optimism is based on the results from the handful of wells that National Fuel has drilled in the Marcellus region, either on its own or through its joint venture with EOG Resources. The four wells that National Fuel has drilled in the region have been producing about 2.3 million cubic feet of gas per day.

"We are encouraged by what we have learned to date," said David Smith, National Fuel's president and chief executive officer, during a conference call with analysts.

As a result, National Fuel now expects its oil and gas production to grow by about 10 percent next year to 42 billion to 48 billion cubic feet, and then growing by about 20 percent during 2011 and 2012 as the Marcellus drilling program expands. By the end of 2011, National Fuel's production could reach 50 billion to 70 billion cubic feet, said Matthew Cabell, who runs the company's oil and gas drilling business.

National Fuel also is building a small-scale pipeline system that will run for about 30 miles through in Tioga+ and Lycoming counties in Pennsylvania to gather the gas produced at the new Marcellus wells and bring it to nearby higher-capacity pipelines that can access major U. S. markets.

National Fuel's third-quarter profits fell to $42.9 million, or 53 cents per share, from $59.9 million, or 72 cents per share, as a 33 percent drop in oil and natural gas prices cut into earnings at its oil and gas drilling business.

As its oil and gas production increases, National Fuel expects its profits to range between $1.20 to $1.30 per share during the fiscal year that ends in September, up from its previous forecast of 95 cents to $1.10 per share but far below the $3.18 per share it earned last year, when oil and gas prices reached record highs. Its earnings for the upcoming fiscal year are expected to roughly double to between $2.30 to $2.60 per share.

drobinson@buffnews.com

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