Nov. 7--Tumbling oil and natural gas prices took a toll on National Fuel Gas Co.'s fourth-quarter profits.

The Amherst-based energy company's earnings slid by 38 percent and fell 3 cents short of analyst forecasts as the price of the oil and natural gas produced at its oil and gas drilling business dropped by an average of 28 percent.

But National Fuel executives remain bullish on the oil and gas production portion of the business, which is expanding its drilling operations in the potentially lucrative Marcellus Shale region of northwestern Pennsylvania.

The company said it is speeding up its plans to drill new wells in the Marcellus Shale, with 50 to 60 new horizontal wells now expected to be drilled in the region next year between National Fuel's own exploration program and a joint venture it operates with EOG Resources.

The company plans to spend 50 percent more than it initially outlined in August to drill wells in the Marcellus region, with plans now calling for National Fuel to spend $180 million to $200 million during the current fiscal year.

Behind that increase is the strong results the company has reported from the first two horizontal wells National Fuel has drilled in the region.

The first well yielded 5.8 million cubic feet of gas per day during its initial seven-day test, while a second well completed recently produced at a 4.7 million cubic feet daily rate over its first seven days. Those results were roughly two to three times the average yields National Fuel executives had expected from the potentially high-producing wells in the region.

As a result, National Fuel raised its

estimate of the amount of oil and natural gas it expects to produce during the fiscal year that began Oct. 1 to the equivalent of 42 million to 50 million barrels of oil -- exceeding the top end of its previous prediction of 48 million barrels.

"This is just the beginning," Matthew D. Cabell, the president of National Fuel's oil and gas drilling business, said during a conference call Friday. "I expect a greater increase in Marcellus spending in fiscal 2011 as we add rigs and begin development of additional focus areas."

National Fuel also increased the top end of its earnings guidance for the fiscal year, saying it now expects to earn $2.30 per share to $2.65 per share, which increases the upper range of its forecast by 5 cents. National Fuel earned $2.60 per share during the fiscal year that ended Sept. 30.

During the fourth quarter, National Fuel's profits dropped to $27 million, or 33 cents per share, from $43.3 million, or 52 cents per share, mainly because of the impact the lower commodity prices had on its oil and gas drilling business.

Excluding a $2.8 million impairment charge on a landfill gas project, the earnings came in 3 cents a share short of analysts' expectations.

Earnings at its exploration and production segment fell by 26 percent to $28.1 million, or 34 cents per share, as the decline in commodity prices offset a more than 20 percent increase in oil and gas production.

Operating profits at National Fuel's pipeline and natural gas storage business dropped by 56 percent because of the lower commodity prices and declining efficiency gas revenues. The company's utility business in Western New York and northwestern Pennsylvania, which typically posts its weakest results during the summer months, lost $1.6 million, or 2 cents per share, during the quarter.

drobinson@buffnews.com

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