UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

NATIONAL FUEL GAS COMPANY

(Exact name of registrant as specified in its charter)

New Jersey		13-1086010
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6363 Main Street
Williamsville, New York		14221
(Address of principal executive offices)		(Zip Code)

(716) 857-7000
(Registrant’s telephone number, including area code)

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 and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES o NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common stock, $1 par value, outstanding at July 31, 2009: 80,234,282 shares.

 

 

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
Data-Track		Data-Track Account Services, Inc.
Distribution Corporation		National Fuel Gas Distribution Corporation
Empire		Empire Pipeline, Inc.
ESNE		Energy Systems North East, LLC
Highland		Highland Forest Resources, Inc.
Horizon		Horizon Energy Development, Inc.
Horizon LFG		Horizon LFG, Inc.
Horizon Power		Horizon Power, Inc.
Leidy Hub		Leidy Hub, Inc.
Midstream Corporation		National Fuel Gas Midstream Corporation
Model City		Model City Energy, LLC
National Fuel		National Fuel Gas Company
NFR		National Fuel Resources, Inc.
Registrant		National Fuel Gas Company
SECI		Seneca Energy Canada Inc.
Seneca		Seneca Resources Corporation
Seneca Energy		Seneca Energy II, LLC
Supply Corporation		National Fuel Gas Supply Corporation
Regulatory Agencies
EPA		United States Environmental Protection Agency
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
NYDEC		New York State Department of Environmental Conservation
NYPSC		State of New York Public Service Commission
PaPUC		Pennsylvania Public Utility Commission
SEC		Securities and Exchange Commission
Other
2008 Form 10-K		The Company’s Annual Report on Form 10-K for the year ended September 30, 2008, as amended
ARB 51		Accounting Research Bulletin No. 51, Consolidated Financial Statements
Bbl		Barrel (of oil)
Bcf		Billion cubic feet (of natural gas)
Board foot		A measure of lumber and/or timber equal to 12 inches in length by 12 inches in width by one inch in thickness.
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.
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.
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, options, no cost collars and swaps.
Development costs		Costs incurred to obtain access to proved reserves and to provide
		facilities for extracting, treating, gathering and storing the oil and gas.
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 Act		Securities Exchange Act of 1934, as amended

GLOSSARY OF TERMS (Cont.)
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.
FIN		FASB Interpretation Number
FIN 48		FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of SFAS 109
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.
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.
LIBOR		London Interbank Offered Rate
LIFO		Last-in, first-out
Mbbl		Thousand barrels (of oil)
Mcf		Thousand cubic feet (of natural gas)
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MDth		Thousand decatherms (of natural gas)
MMBtu		Million British thermal units
MMcf		Million cubic feet (of natural gas)
NYMEX		New York Mercantile Exchange. An exchange which maintains a futures market for crude oil and natural gas.
Proved developed reserves		Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.
Proved undeveloped 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.
Restructuring		Generally referring to partial “deregulation” of the pipeline and/or utility industries by a statutory or regulatory process. Restructuring of federally regulated natural gas pipelines has resulted in the separation (or “unbundling”) of gas commodity service from transportation service for wholesale and large-volume retail markets. State restructuring programs attempt to extend the same process to retail mass markets.
S&P		Standard & Poor’s Ratings Service
SAR		Stock-settled stock appreciation right
SFAS		Statement of Financial Accounting Standards
SFAS 87		Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions
SFAS 88		Statement of Financial Accounting Standards No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits
SFAS 106		Statement of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions
SFAS 109		Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes

GLOSSARY OF TERMS (Concl.)
SFAS 123R		Statement of Financial Accounting Standards No. 123R, Share-Based Payment
SFAS 131		Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information
SFAS 132R		Statement of Financial Accounting Standards No. 132R, Employers’ Disclosures about Pensions and Other Postretirement Benefits
SFAS 133		Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
SFAS 141R		Statement of Financial Accounting Standards No. 141R, Business Combinations
SFAS 157		Statement of Financial Accounting Standards No. 157, Fair Value Measurements
SFAS 158		Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of SFAS 87, 88, 106, and 132R
SFAS 160		Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51
SFAS 161		Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of SFAS 133
SFAS 165		Statement of Financial Accounting Standards No. 165, Subsequent Events
SFAS 168		Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles — a Replacement of FASB Statement No. 162
Stock acquisitions		Investments in corporations.
Unbundled service		A service that has been separated from other services, with rates charged that reflect only the cost of the separated service.
VEBA		Voluntary 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.

INDEX

		Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
a. Consolidated Statements of Income and Earnings Reinvested in the Business — Three and Nine Months Ended June 30, 2009 and 2008			6 - 7
b. Consolidated Balance Sheets — June 30, 2009 and September 30, 2008			8 - 9
c. Consolidated Statement of Cash Flows — Nine Months Ended June 30, 2009 and 2008			10
d. Consolidated Statements of Comprehensive Income — Three and Nine Months Ended June 30, 2009 and 2008			11
e. Notes to Consolidated Financial Statements			12 - 31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32 - 55
Item 3. Quantitative and Qualitative Disclosures About Market Risk			55
Item 4. Controls and Procedures			55
Part II. Other Information
Item 1. Legal Proceedings			55
Item 1 A. Risk Factors			55 - 57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			57 - 58
Item 3. Defaults Upon Senior Securities			•
Item 4. Submission of Matters to a Vote of Security Holders			•
Item 5. Other Information			•
Item 6. Exhibits			58
Signatures			59

     Reference to the “Company” in this report means the Registrant or the Registrant and its subsidiaries collectively, as appropriate in the context of the disclosure. 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.

     This Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements should be read with the cautionary statements and important factors included in this Form 10-Q at Item 2 — MD&A, under the heading “Safe Harbor for Forward-Looking Statements.” Forward-looking statements are all statements other than statements of historical fact, including, without limitation, statements regarding future prospects, plans, objectives, goals, projections, strategies, future events or performance and underlying assumptions, capital structure, anticipated capital expenditures, completion of construction and other projects, projections for pension and other post-retirement benefit obligations, impacts of the adoption of new accounting rules, and possible outcomes of litigation or regulatory proceedings, as well as statements that are identified by the use of the words “anticipates,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “predicts,” “projects,” “believes,” “seeks,” “will,” “may,” and similar expressions.

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
		June 30,
(Thousands of Dollars, Except Per Common Share Amounts)		2009				2008
INCOME
Operating Revenues		$	367,111			$	548,382
Operating Expenses
Purchased Gas			126,969				272,893
Operation and Maintenance			90,821				102,602
Property, Franchise and Other Taxes			17,576				19,135
Depreciation, Depletion and Amortization			43,659				42,804
			279,025				437,434
Operating Income			88,086				110,948
Other Income (Expense):
Income from Unconsolidated Subsidiaries			627				1,561
Interest Income			1,460				3,086
Other Income			664				1,649
Interest Expense on Long-Term Debt			(21,756	)			(19,468	)
Other Interest Expense			(2,539	)			(1,199	)
Income Before Income Taxes			66,542				96,577
Income Tax Expense			23,638				36,722
Net Income Available for Common Stock			42,904				59,855
EARNINGS REINVESTED IN THE BUSINESS
Balance at April 1			932,119				1,008,084
			975,023				1,067,939
Share Repurchases			—				(17,083	)
Dividends on Common Stock (2009 — $0.335 per share; 2008 — $0.325 per share)			(26,761	)			(26,479	)
Balance at June 30		$	948,262			$	1,024,377
Earnings Per Common Share:
Basic:
Net Income Available for Common Stock		$	0.54			$	0.74
Diluted:
Net Income Available for Common Stock		$	0.53			$	0.72
Weighted Average Common Shares Outstanding:
Used in Basic Calculation			79,551,195				81,342,788
Used in Diluted Calculation			80,391,402				83,712,193

See Notes to Condensed Consolidated Financial Statements

Item 1. Financial Statements (Cont.)

National Fuel Gas Company
Consolidated Statements of Income and Earnings
Reinvested in the Business
(Unaudited)

		Nine Months Ended
		June 30,
(Thousands of Dollars, Except Per Common Share Amounts)		2009				2008
INCOME
Operating Revenues		$	1,778,919			$	2,002,503
Operating Expenses
Purchased Gas			941,171				1,082,340
Operation and Maintenance			310,605				325,642
Property, Franchise and Other Taxes			56,709				58,206
Depreciation, Depletion and Amortization			127,715				129,337
Impairment of Oil and Gas Producing Properties			182,811				—
			1,619,011				1,595,525
Operating Income			159,908				406,978
Other Income (Expense):
Income from Unconsolidated Subsidiaries			915				4,866
Interest Income			4,358				8,356
Other Income			6,459				4,982
Interest Expense on Long-Term Debt			(57,357	)			(52,045	)
Other Interest Expense			(5,013	)			(4,209	)
Income Before Income Taxes			109,270				368,928
Income Tax Expense			35,560				143,465
Net Income Available for Common Stock			73,710				225,463
EARNINGS REINVESTED IN THE BUSINESS
Balance at October 1			953,799				983,776
			1,027,509				1,209,239
Share Repurchases			—				(106,647	)
Cumulative Effect of the Adoption of FIN 48			—				(406	)
Adoption of SFAS 158 Measurement Date Provision			(804	)			—
Dividends on Common Stock (2009 — $0.985 per share; 2008 — $0.945 per share)			(78,443	)			(77,809	)
Balance at June 30		$	948,262			$	1,024,377
Earnings Per Common Share:
Basic:
Net Income Available for Common Stock		$	0.93			$	2.72
Diluted:
Net Income Available for Common Stock		$	0.92			$	2.65
Weighted Average Common Shares Outstanding:
Used in Basic Calculation			79,450,838				82,789,748
Used in Diluted Calculation			80,248,787				85,000,381

See Notes to Condensed Consolidated Financial Statements

Item 1. Financial Statements (Cont.)

National Fuel Gas Company
Consolidated Balance Sheets
(Unaudited)

		June 30,				September 30,
(Thousands of Dollars)		2009				2008
ASSETS
Property, Plant and Equipment		$	5,078,088			$	4,873,969
Less — Accumulated Depreciation, Depletion and Amortization			2,010,584				1,719,869
			3,067,504				3,154,100
Current Assets
Cash and Temporary Cash Investments			433,230				68,239
Cash Held in Escrow			2,000				—
Hedging Collateral Deposits			6,359				1
Receivables — Net of Allowance for Uncollectible Accounts of $45,209 and $33,117, Respectively			200,594				185,397
Unbilled Utility Revenue			14,568				24,364
Gas Stored Underground			27,721				87,294
Materials and Supplies — at average cost			24,768				31,317
Unrecovered Purchased Gas Costs			1,900				37,708
Other Current Assets			32,477				65,158
Deferred Income Taxes			33,009				—
			776,626				499,478
Other Assets
Recoverable Future Taxes			83,543				82,506
Unamortized Debt Expense			15,345				13,978
Other Regulatory Assets			196,278				189,587
Deferred Charges			1,790				4,417
Other Investments			73,174				80,640
Investments in Unconsolidated Subsidiaries			15,094				16,279
Goodwill			5,476				5,476
Intangible Assets			24,627				26,174
Prepaid Post-Retirement Benefit Costs			21,738				21,034
Fair Value of Derivative Financial Instruments			66,193				28,786
Other			7,914				7,732
			511,172				476,609
Total Assets		$	4,355,302			$	4,130,187

See Notes to Condensed Consolidated Financial Statements

Item 1. Financial Statements (Cont.)

National Fuel Gas Company
Consolidated Balance Sheets
(Unaudited)

		June 30,				September 30,
		2009				2008
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders’ Equity
Common Stock, $1 Par Value Authorized — 200,000,000 Shares; Issued and Outstanding — 79,881,482 Shares and 79,120,544 Shares, Respectively		$	79,881			$	79,121
Paid in Capital			589,295				567,716
Earnings Reinvested in the Business			948,262				953,799
Total Common Shareholder Equity Before Items of Other Comprehensive Income			1,617,438				1,600,636
Accumulated Other Comprehensive Income			17,234				2,963
Total Comprehensive Shareholders’ Equity			1,634,672				1,603,599
Long-Term Debt, Net of Current Portion			1,249,000				999,000
Total Capitalization			2,883,672				2,602,599
Current and Accrued Liabilities
Notes Payable to Banks and Commercial Paper			—				—
Current Portion of Long-Term Debt			—				100,000
Accounts Payable			69,762				142,520
Amounts Payable to Customers			45,772				2,753
Dividends Payable			26,761				25,714
Interest Payable on Long-Term Debt			18,722				22,114
Customer Advances			3,229				33,017
Other Accruals and Current Liabilities			198,057				45,220
Deferred Income Taxes			—				1,871
Fair Value of Derivative Financial Instruments			1,815				1,362
			364,118				374,571
Deferred Credits
Deferred Income Taxes			589,380				634,372
Taxes Refundable to Customers			18,459				18,449
Unamortized Investment Tax Credit			4,165				4,691
Cost of Removal Regulatory Liability			107,245				103,100
Other Regulatory Liabilities			115,617				91,933
Pension and Other Post-Retirement Liabilities			61,404				78,909
Asset Retirement Obligations			86,559				93,247
Other Deferred Credits			124,683				128,316
			1,107,512				1,153,017
Commitments and Contingencies			—				—
Total Capitalization and Liabilities		$	4,355,302			$	4,130,187

See Notes to Condensed Consolidated Financial Statements

Item 1. Financial Statements (Cont.)

National Fuel Gas Company
Consolidated Statement of Cash Flows
(Unaudited)

		Nine Months Ended
		June 30,
(Thousands of Dollars)		2009				2008
OPERATING ACTIVITIES
Net Income Available for Common Stock		$	73,710			$	225,463
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Impairment of Oil and Gas Producing Properties			182,811				—
Depreciation, Depletion and Amortization			127,715				129,337
Deferred Income Taxes			(85,494	)			27,603
Income from Unconsolidated Subsidiaries, Net of Cash Distributions			180				1,340
Impairment of Investment in Partnership			1,804				—
Excess Tax Benefits Associated with Stock-Based Compensation Awards			(5,927	)			(16,275	)
Other			9,365				(1,120	)
Change in:
Hedging Collateral Deposits			(6,358	)			(26,712	)
Receivables and Unbilled Utility Revenue			(5,520	)			(129,102	)
Gas Stored Underground and Materials and Supplies			71,491				14,819
Unrecovered Purchased Gas Costs			35,808				9,089
Prepayments and Other Current Assets			37,904				17,370
Accounts Payable			(82,146	)			53,081
Amounts Payable to Customers			43,019				2,455
Customer Advances			(29,788	)			(22,863	)
Other Accruals and Current Liabilities			166,217				94,031
Other Assets			(8,517	)			19,178
Other Liabilities			(14,453	)			17,373
Net Cash Provided by Operating Activities			511,821				415,067
INVESTING ACTIVITIES
Capital Expenditures			(237,126	)			(264,728	)
Investment in Partnership			(800	)			—
Cash Held in Escrow			(2,000	)			58,397
Net Proceeds from Sale of Oil and Gas Producing Properties			3,701				5,675
Other			(1,674	)			(3,414	)
Net Cash Used in Investing Activities			(237,899	)			(204,070	)
FINANCING ACTIVITIES
Excess Tax Benefits Associated with Stock-Based Compensation Awards			5,927				16,275
Shares Repurchased under Repurchase Plan			—				(129,592	)
Net Proceeds from Issuance of Long-Term Debt			247,780				296,655
Reduction of Long-Term Debt			(100,000	)			(200,024	)
Dividends Paid on Common Stock			(77,398	)			(77,204	)
Net Proceeds from Issuance of Common Stock			14,760				17,285
Net Cash Provided by (Used in) Financing Activities			91,069				(76,605	)
Net Increase in Cash and Temporary Cash Investments			364,991				134,392
Cash and Temporary Cash Investments at October 1			68,239				124,806
Cash and Temporary Cash Investments at June 30		$	433,230			$	259,198

See Notes to Condensed Consolidated Financial Statements

Item 1. Financial Statements (Cont.)

National Fuel Gas Company
Consolidated Statements of Comprehensive Income
(Unaudited)

		Three Months Ended
		June 30,
(Thousands of Dollars)		2009				2008
Net Income Available for Common Stock		$	42,904			$	59,855
Other Comprehensive Loss, Before Tax:
Foreign Currency Translation Adjustment			(42	)			2
Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period			3,775				(1,603	)
Unrealized Loss on Derivative Financial Instruments Arising During the Period			(24,446	)			(139,684	)
Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income			(24,853	)			33,082
Other Comprehensive Loss, Before Tax			(45,566	)			(108,203	)
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period			1,429				(608	)
Income Tax Benefit Related to Unrealized Loss on Derivative Financial Instruments Arising During the Period			(9,950	)			(57,136	)
Reclassification Adjustment for Income Tax (Expense) Benefit on Realized (Gains) Losses from Derivative Financial Instruments in Net Income			(10,108	)			13,546
Income Taxes — Net			(18,629	)			(44,198	)
Other Comprehensive Loss			(26,937	)			(64,005	)
Comprehensive Income (Loss)		$	15,967			$	(4,150	)

		Nine Months Ended
		June 30,
(Thousands of Dollars)		2009				2008
Net Income Available for Common Stock		$	73,710			$	225,463
Other Comprehensive Income (Loss), Before Tax:
Foreign Currency Translation Adjustment			(1	)			(72	)
Unrealized Loss on Securities Available for Sale Arising During the Period			(9,202	)			(4,817	)
Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period			127,357				(208,256	)
Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income			(93,260	)			45,242
Other Comprehensive Income (Loss), Before Tax			24,894				(167,903	)
Income Tax Benefit Related to Unrealized Loss on Securities Available for Sale Arising During the Period			(3,475	)			(1,429	)
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period			51,576				(85,300	)
Reclassification Adjustment for Income Tax (Expense) Benefit on Realized (Gains) Losses on Derivative Financial Instruments in Net Income			(37,478	)			18,495
Income Taxes — Net			10,623				(68,234	)
Other Comprehensive Income (Loss)			14,271				(99,669	)
Comprehensive Income		$	87,981			$	125,794

See Notes to Condensed Consolidated Financial Statements

Item 1. Financial Statements (Cont.)

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

Note 1 — Summary of Significant Accounting Policies

Principles of Consolidation. The Company consolidates its majority owned entities. The equity method is used to account for minority owned entities. All significant intercompany balances and transactions are eliminated.

     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 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, 2008, 2007 and 2006 that are included in the Company’s 2008 Form 10-K. The consolidated financial statements for the year ended September 30, 2009 will be audited by the Company’s independent registered public accounting firm after the end of the fiscal year.

     The earnings for the nine months ended June 30, 2009 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2009. Most of the business of the Utility and Energy Marketing segments is seasonal in nature and is influenced by weather conditions. Due to the seasonal nature of the heating business in the Utility and Energy Marketing segments, earnings during the winter months normally represent a substantial part of the earnings that those segments are expected to achieve for the entire fiscal year. The Company’s business segments are discussed more fully in Note 7 — Business Segment Information.

Consolidated Statement of Cash Flows. For purposes of the Consolidated Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of generally three months or less to be cash equivalents.

     At June 30, 2009, the Company accrued $9.4 million of capital expenditures in the Exploration and Production segment, the majority of which was in the Appalachian region. This amount was excluded from the Consolidated Statement of Cash Flows at June 30, 2009 since it represents a non-cash investing activity at that date.

     At September 30, 2008, the Company accrued $16.8 million of capital expenditures related to the construction of the Empire Connector project. This amount was excluded from the Consolidated Statement of Cash Flows at September 30, 2008 since it represented a non-cash investing activity at that date. These capital expenditures were paid during the quarter ended December 31, 2008 and have been included in the Consolidated Statement of Cash Flows for the nine months ended June 30, 2009.

Hedging Collateral Deposits. This is an account title for cash held in margin accounts funded by the Company to serve as collateral for open hedging positions. At June 30, 2009, the Company had hedging collateral deposits of $6.4 million related to its exchange-traded futures contracts. It is the Company’s policy to not offset hedging collateral deposits paid or received against the derivative financial instruments liability or asset balances.

Cash Held in Escrow. On July 20, 2009, the Company announced that in its Exploration and Production segment, Seneca had purchased Ivanhoe Energy’s United States oil and gas operations for approximately $39.2 million, of which $2 million was placed in escrow as a deposit for the acquisition as of June 30, 2009.

Item 1. Financial Statements (Cont.)

     On August 31, 2007, the Company received approximately $232.1 million of proceeds from the sale of SECI, of which $58.0 million was placed in escrow pending receipt of a tax clearance certificate from the Canadian government. The escrow account was a Canadian dollar denominated account. On a U.S. dollar basis, the value of this account was $62.0 million at September 30, 2007. In December 2007, the Canadian government issued the tax clearance certificate, thereby releasing the proceeds from restriction as of December 31, 2007. To hedge against foreign currency exchange risk related to the cash being held in escrow, the Company held a forward contract to sell Canadian dollars. For presentation purposes on the Consolidated Statement of Cash Flows, for the nine months ended June 30, 2008, the Cash Held in Escrow line item within Investing Activities reflects the net proceeds to the Company (received on January 8, 2008) after adjusting for the impact of the foreign currency hedge.

Gas Stored Underground — Current. In the Utility segment, gas stored underground — current is carried at lower of cost or market, on a LIFO method. Gas stored underground — current 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 $116.5 million at June 30, 2009, 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.

     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. 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 current market 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. 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 impairment is required to be charged to earnings in that quarter. The Company’s capitalized costs exceeded the full cost ceiling for the Company’s oil and gas properties at December 31, 2008. As such, the Company recognized a pre-tax impairment of $182.8 million at December 31, 2008. Deferred income taxes of $74.6 million were recorded associated with this impairment.

Item 1. Financial Statements (Cont.)

Accumulated Other Comprehensive Income. The components of Accumulated Other Comprehensive Income, net of related tax effect, are as follows (in thousands):

		At June 30, 2009				At September 30, 2008
Funded Status of the Pension and Other Post-Retirement Benefit Plans		$	(19,741	)		$	(19,741	)
Cumulative Foreign Currency Translation Adjustment			(72	)			(71	)
Net Unrealized Gain on Derivative Financial Instruments			35,948				15,949
Net Unrealized Gain on Securities Available for Sale			1,099				6,826
Accumulated Other Comprehensive Income		$	17,234			$	2,963

Earnings Per Common Share. Basic earnings per common share is computed by dividing income available for common stock 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 only potentially dilutive securities the Company has outstanding are stock options and stock-settled SARs. The diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these stock options and stock-settled SARs as determined using the Treasury Stock Method. Stock options and stock-settled SARs that are antidilutive are excluded from the calculation of diluted earnings per common share. For both the quarter and nine months ended June 30, 2009, there were 765,000 stock options excluded as being antidilutive. In addition, there were 365,000 stock-settled SARs excluded as being antidilutive for both the quarter and nine months ended June 30, 2009. For the quarter and nine months ended June 30, 2008, there were 6,593 and 2,190 stock-settled SARs excluded as being antidilutive, respectively. There were no stock options excluded as being antidilutive for the quarter and nine months ended June 30, 2008.

Share Repurchases. The Company considers all shares repurchased as cancelled shares restored to the status of authorized but unissued shares, in accordance with New Jersey law. The repurchases are accounted for on the date the share repurchase is settled as an adjustment to common stock (at par value) with the excess repurchase price allocated between paid in capital and retained earnings.

Stock-Based Compensation. During the nine months ended June 30, 2009, the Company granted 610,000 performance-based stock-settled SARs having a weighted average exercise price of $29.88 per share. The weighted average grant date fair value of these stock-settled SARs was $4.09 per share. There were no stock-settled SARs granted during the quarter ended June 30, 2009. The accounting treatment for such stock-settled SARs is the same under SFAS 123R as the accounting for stock options under SFAS 123R. The stock-settled SARs granted during the nine months ended June 30, 2009 vest and become exercisable annually in one-third increments, provided that a performance condition is met. The performance condition for each fiscal year, generally stated, is an increase over the prior fiscal year of at least five percent in certain oil and natural gas production of the Exploration and Production segment. The weighted average grant date fair value of these stock-settled SARs granted during the nine months ended June 30, 2009 was estimated on the date of grant using the same accounting treatment that is applied for stock options under SFAS 123R, and assumes that the performance conditions specified will be achieved. If such conditions are not met or it is not considered probable that such conditions will be met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

     There were no stock options or restricted share awards (non-vested stock as defined in SFAS 123R) granted during the quarter and nine months ended June 30, 2009.

Item 1. Financial Statements (Cont.)

New Accounting Pronouncements. In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”. SFAS 157 provides guidance for using fair value to measure assets and liabilities. The pronouncement serves to clarify the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect that fair-value measurements have on earnings. SFAS 157 is to be applied whenever another standard requires or allows assets or liabilities to be measured at fair value. In accordance with FASB Staff Position FAS No. 157-2, on October 1, 2008, the Company adopted SFAS 157 for financial assets and financial liabilities that are recognized or disclosed at fair value on a recurring basis. The same FASB Staff Position delays the effective date for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis, until the Company’s first quarter of fiscal 2010. For further discussion of the impact of the adoption of SFAS 157 for financial assets and financial liabilities, refer to Note 2 — Fair Value Measurements. The Company is currently evaluating the impact that the adoption of SFAS 157 for nonfinancial assets and nonfinancial liabilities will have on its consolidated financial statements. The Company has identified Goodwill as being the major nonfinancial asset that may be impacted by the adoption of SFAS 157. The Company does not believe there are any nonfinancial liabilities that will be impacted by the adoption of SFAS 157.

     In September 2006, the FASB issued SFAS 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans” (an amendment of SFAS 87, SFAS 88, SFAS 106, and SFAS 132R). SFAS 158 requires that companies recognize a net liability or asset to report the underfunded or overfunded status of their defined benefit pension and other post-retirement benefit plans on their balance sheets, as well as recognize changes in the funded status of a defined benefit post-retirement plan in the year in which the changes occur through comprehensive income. The pronouncement also specifies that a plan’s assets and obligations that determine its funded status be measured as of the end of the Company’s fiscal year, with limited exceptions. In accordance with SFAS 158, the Company has recognized the funded status of its benefit plans and implemented the disclosure requirements of SFAS 158 at September 30, 2007. The requirement to measure the plan assets and benefit obligations as of the Company’s fiscal year-end date will be fully adopted by the Company by the end of fiscal 2009. The Company has historically measured its plan assets and benefit obligations using a June 30th measurement date. In anticipation of changing to a September 30th measurement date, the Company will be recording fifteen months of pension and other post-retirement benefit costs during fiscal 2009. In accordance with the provisions of SFAS 158, these costs have been calculated using June 30, 2008 measurement date data. Three of those months pertain to the period of July 1, 2008 to September 30, 2008. The pension and other post-retirement benefit costs for that period amounted to $5.1 million and have been recorded by the Company during the quarter ended December 31, 2008 as a $3.8 million increase to Other Regulatory Assets in the Company’s Utility and Pipeline and Storage segments and a $1.3 million ($0.8 million after tax) adjustment to earnings reinvested in the business. For further discussion of the impact of adopting the measurement date provisions of SFAS 158, refer to Note 9 — Retirement Plan and Other Post-Retirement Benefits.

     In December 2007, the FASB issued SFAS 141R, “Business Combinations.” SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, in process research and development and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense. SFAS 141R is effective as of the Company’s first quarter of fiscal 2010.

     In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51.” SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests (NCI) and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. SFAS 160 is effective as of the Company’s first quarter of fiscal 2010. The Company currently does not have any NCI.

Item 1. Financial Statements (Cont.)

     In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities, an Amendment of SFAS 133.” SFAS 161 requires entities to provide enhanced disclosures related to an entity’s derivative instruments and hedging activities in order to enable investors to better understand how derivative instruments and hedging activities impact an entity’s financial reporting. The additional disclosures include how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The Company adopted the disclosure provisions of SFAS 161 during the quarter ended March 31, 2009. These disclosures may be found at Note 3 — Financial Instruments.

     On December 31, 2008, the SEC issued a final rule on Modernization of Oil and Gas Reporting. The final rule modifies the SEC’s reporting and disclosure rules for oil and gas reserves and aligns the full cost accounting rules with the revised disclosures. The most notable changes of the final rule include the replacement of the single day period-end pricing to value oil and gas reserves to a 12-month average of the first day of the month price for each month within the reporting period. The final rule also permits voluntary disclosure of probable and possible reserves, a disclosure previously prohibited by SEC rules. The revised reporting and disclosure requirements are effective for the Company’s Form 10-K for the period ended September 30, 2010. Early adoption is not permitted. The Company is currently evaluating the impact that adoption of these rules will have on its consolidated financial statements and MD&A disclosures.

     Effective April 1, 2009, the Company adopted FASB Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FASB Staff Position amends SFAS 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. Refer to Note 3 — Financial Instruments under “Long-Term Debt” for additional disclosures included in accordance with this FASB Staff Position.

     Effective with this June 30, 2009 Form 10-Q, the Company adopted SFAS 165, “Subsequent Events.” SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Refer to Note 10 — Subsequent Events for disclosures made as a result of the adoption of SFAS 165.

     In June 2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162.” SFAS 168 establishes the FASB Accounting Standards Codification^TM (the Codification) as the source of authoritative GAAP recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities law are also sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. The Company will update its disclosures to conform to the Codification in its annual report on Form 10-K for the year ending September 30, 2009. There will be no impact on the Company’s consolidated financial statements as the Codification does not change or alter existing GAAP.

Note 2 — Fair Value Measurements

     Beginning in fiscal 2009, the Company adopted the provisions of SFAS 157, “Fair Value Measurements.” SFAS 157 establishes a fair-value hierarchy, which 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 has the ability to 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

Item 1. Financial Statements (Cont.)

may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The adoption of SFAS 157 has not had a significant impact on the consolidated financial statements.

     The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2009. As required by SFAS 157, 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 June 30, 2009
(Dollars in thousands)		Level 1				Level 2				Level 3				Total
Assets:
Cash Equivalents		$	412,255			$	—			$	—			$	412,255
Derivative Financial Instruments			—				31,647				34,546				66,193
Other Investments			19,691				—				—				19,691
Hedging Collateral Deposits			6,359				—				—				6,359
Total		$	438,305			$	31,647			$	34,546			$	504,498
Liabilities:
Derivative Financial Instruments		$	1,815			$	—			$	—			$	1,815
Total		$	1,815			$	—			$	—			$	1,815

Cash Equivalents

     The cash equivalents reported in Level 1 consist of SEC registered money market mutual funds.

Derivative Financial Instruments

     The derivative financial instruments reported in Level 1 consist of NYMEX futures contracts. The hedging collateral deposits associated with these futures contracts have been reported in Level 1 as well. The derivative financial instruments reported in Level 2 consist of natural gas swap agreements used in the Company’s Exploration and Production segment and natural gas swap agreements used in the Energy Marketing segment. The fair value of these natural gas swap agreements is based on an internal model that uses observable inputs. The fair market value of the price swap agreements reported in Level 2 as assets has been reduced by $0.6 million based on an assessment of counterparty credit risk. The derivative financial instruments reported in Level 3 consist of all of the Exploration and Production segment’s crude oil swap agreements and some of its natural gas swap agreements. The fair value of the crude oil and natural gas swap agreements is based on an internal model that uses both observable and unobservable inputs. The fair market value of the price swap agreements reported in Level 3 as assets has been reduced by $0.7 million based on an assessment of counterparty credit risk. This credit reserve, as well as the credit reserve established for the Level 2 swap agreement assets, was determined by applying default probabilities to the anticipated cash flows that the Company is either expecting from its counterparties or expecting to pay to its counterparties.

Other Investments

     The other investments reported in Level 1 consist of publicly traded equity securities and a publicly traded balanced equity mutual fund.

     The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value and classified as Level 3.

Item 1. Financial Statements (Cont.)

Fair Value Measurements Using Unobservable Inputs (Level 3)

						Total Gains/Losses
						Realized and Unrealized
										Included in Other
		October 1,				Included in				Comprehensive				Transfer In/(Out)
(Dollars in thousands)		2008				Earnings				Income				of Level 3				June 30, 2009
Assets:
Derivative Financial Instruments		$	7,110			$	(37,339	)(1)		$	73,267			$	(8,492	)		$	34,546
Total		$	7,110			$	(37,339	)		$	73,267			$	(8,492	)		$	34,546
Liabilities:
Derivative Financial Instruments		$	(777	)		$	(12,104	)(1)		$	12,881			$	—			$	—
Total		$	(777	)		$	(12,104	)		$	12,881			$	—			$	—

Note 3 — Financial Instruments

Long-Term Debt. In accordance with the Company’s adoption of FASB Staff Position FAS 107-1 and APB 28-1 “Disclosures about Fair Value of Financial Instruments”, the fair value of the Company’s long-term debt, including current portion, and the carrying amount is presented below:

		June 30, 2009								September 30, 2008
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
Long-Term Debt		$	1,249,000			$	1,285,890			$	1,099,000			$	1,027,098

     At September 30, 2008, the fair market value of the Company’s long-term debt was determined based on quoted market prices of similar issues having the same remaining maturities, redemption terms and credit rating. At June 30, 2009, the fair market value of the Company’s debt, as presented in the table above, was determined using a discounted cash flow model, which incorporates the Company’s credit risk in determining the yield, and subsequently, the fair market value of the debt.

Other Investments. Other investments include cash surrender values of insurance contracts (net present value in the case of split-dollar collateral assignment arrangements) and marketable equity securities. The values of the insurance contracts amounted to $53.5 million at June 30, 2009 and $53.6 million at September 30, 2008. The fair value of the equity mutual fund was $12.6 million at June 30, 2009 and $12.4 million at September 30, 2008. The gross unrealized loss on this equity mutual fund was $2.7 million at June 30, 2009 and $1.1 million at September 30, 2008. Although this investment has been in an unrealized loss position for twelve months, management has the intent and ability to hold the investment for a sufficient period of time for the asset to recover in value. As such, management does not consider this investment to be other than temporarily impaired. The fair value of the stock of an insurance company was $6.9 million at June 30, 2009 and $14.5 million at September 30, 2008. The gross unrealized gain on this stock was $4.5 million at June 30, 2009 and $12.1 million at September 30, 2008. The insurance contracts and marketable equity securities are primarily informal funding mechanisms for various benefit obligations the Company has to certain employees.

Item 1. Financial Statements (Cont.)

Derivative Financial Instruments. The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is commodity price risk in the Exploration and Production and Energy Marketing segments. The Company enters into futures contracts and over-the-counter swap agreements for natural gas and crude oil to manage the price risk associated with forecasted sales of gas and oil. The Company also enters into futures contracts and swaps to manage the risk associated with forecasted gas purchases, storage of gas, and withdrawal of gas from storage to meet customer demand. The duration of the Company’s hedges do not typically exceed 3 years and the majority of the positions settle within one year.

     In accordance with the adoption of SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities, an Amendment of SFAS 133”, the Company has presented its gross derivative assets and liabilities in the table below.

Fair Values of Derivative Instruments

(Dollar Amounts in Thousands)

Derivatives

Asset Derivatives

Liability Derivatives

Designated as

June 30, 2009

June 30, 2009

Hedging

Consolidated

Consolidated

Instruments

Balance

Balance

under

Sheet

Sheet

SFAS 133

Location

Fair Value

Location

Fair Value

Commodity Contracts

Fair Value of

$

66,193

(1)

Fair Value of

$

1,815

(2)

Derivative

Derivative

Financial

Financial

Instruments

Instruments

Cash flow hedges

     For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

     As of June 30, 2009, the Company’s Exploration and Production segment had the following commodity derivative contracts (swaps) outstanding to hedge forecasted sales (where the Company uses short positions (i.e. positions that pay-off in the event of commodity price decline) to mitigate the risk of decreasing revenues and earnings):

Commodity		Units
Natural Gas		20.7 Bcf (all short positions)
Crude Oil		2,199,000 Bbls (all short positions)

Item 1. Financial Statements (Cont.)

     As of June 30, 2009, the Company’s Energy Marketing segment had the following commodity derivative contracts (futures contracts and swaps) outstanding to hedge forecasted sales (where the Company uses short positions to mitigate the risk associated with natural gas price decreases and its impact on decreasing revenues and earnings) and purchases (where the Company uses long positions (i.e. positions that pay-off in the event of commodity price increases) to mitigate the risk of increasing natural gas prices, which would lead to increased purchased gas expense and decreased earnings):

Commodity		Units
Natural Gas		7.0 Bcf (5.5 Bcf short positions (forecasted storage withdrawals) and 1.5 Bcf long positions (forecasted storage injections))

     As of June 30, 2009, the Company’s Exploration and Production segment had $63.6 million ($37.6 million after tax) of gains included in the accumulated other comprehensive income balance. It is expected that $51.4 million ($30.4 million after tax) of these gains will be reclassified into income within the next 12 months as the sales of the underlying commodities are expected to occur. See Note 1, under Accumulated Other Comprehensive Income, for the after-tax gain pertaining to derivative financial instruments (Net Unrealized Gain on Derivative Financial Instruments in Note 1 includes both the Exploration and Production and Energy Marketing segments).

     As of June 30, 2009, the Company’s Energy Marketing segment had $2.8 million ($1.7 million after tax) of losses included in the accumulated other comprehensive income balance. It is expected that $2.8 million ($1.7 million after tax) of these losses will be reclassified into income within the next 12 months as the sales and purchases of the underlying commodities occur. See Note 1, under Accumulated Other Comprehensive Income, for the after-tax gain pertaining to derivative financial instruments (Net Unrealized Gain on Derivative Financial Instruments in Note 1 includes both the Exploration and Production and Energy Marketing segments).

Item 1. Financial Statements (Cont.)

The Effect of Derivative Financial Instruments on the Statement of Financial Performance for the
Nine Months Ended June 30, 2009 (Dollar Amounts in Thousands)

Amount of

Amount of

Derivative Gain or

Derivative Gain or

(Loss) Recognized

Location of

(Loss) Reclassfied

Derivative Gain or

in Other

Derivative Gain or

from Accumulated

Location of

(Loss) Recognized

Comprehensive

(Loss) Reclassified

Other Comprehensive

Derivative Gain or

in the Consolidated

Income on the

from Accumulated

Income on the

(Loss) Recognized

Statement of Income

Consolidated

Other Comprehensive

Consolidated

in the Consolidated

(Ineffective

Statement of

Income on the

Balance Sheet into

Statement of Income

Portion and Amount

Comprehensive

Consolidated

the Consolidated

(Ineffective

Excluded from

Derivatives in SFAS

Income (Effective

Balance Sheet into

Statement of Income

Portion and Amount

Effectiveness

133 Cash Flow

Portion) for the

the Consolidated

(Effective Portion)

Excluded from

Testing) for the

Hedging

Nine Months Ended

Statement of Income

for the Nine Months

Effectiveness

Nine Months Ended

Relationships

June 30, 2009

(Effective Portion)

Ended June 30, 2009

Testing)

June 30, 2009

Commodity Contracts — Exploration & Production segment

$

117,764

Operating Revenue

$

71,324

Operating Revenue

$

424

Commodity Contracts — Energy Marketing segment

$

9,410

Purchased Gas

$

21,328

Operating Revenue

$

—

Commodity Contracts — Pipeline & Storage segment (1)

$

—

Operating Revenue

$

1,290

Operating Revenue

$

—

Commodity Contracts — All Other (1)

$

183

Purchased Gas

$

(682

)

Purchased Gas

$

—

Total

$

127,357

$

93,260

$

424

Fair value hedges

     The Company’s Energy Marketing segment is the only segment which utilizes fair value hedges to mitigate risk associated with fixed price sales commitments, fixed price purchase commitments, and commitments related to the injection and withdrawal of storage gas. In order to hedge fixed price sales commitments, the Company enters into long positions to mitigate the risk that after the Company locks into fixed price sales agreements with its customers, the price of natural gas increases (thereby passing up the opportunity for higher operating revenue). With fixed price purchase commitments, the risk is that

Item 1. Financial Statements (Cont.)

after the Company locks into fixed price purchase deals with its suppliers, the price of natural gas decreases (thereby passing up the opportunity for lower purchased gas expense). Fair value hedges related to the injection and withdrawal of storage gas impact purchased gas expense. As of June 30, 2009, the Company’s Energy Marketing segment had fair value hedges covering approximately 13.4 Bcf (11.6 Bcf of fixed price sales commitments (all long positions), 1.3 Bcf of fixed price purchase commitments (all short positions), and 0.5 Bcf of commitments related to the withdrawal of storage gas (all short positions)). For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk completely offset each other in current earnings, as shown below.

Consolidated
Statement of Income		Gain/(Loss) on Derivative				Gain/(Loss) on Commitment
Operating Revenues		$	(1,395,680	)		$	1,395,680
Purchased Gas		$	(5,985,069	)		$	5,985,069

						Amount of Derivative Gain or
						(Loss) Recognized in the
		Location of Derivative Gain				Consolidated Statement of
Derivatives in SFAS 133		or (Loss) Recognized in the				Income for the Nine Months
Fair Value Hedging		Consolidated Statement of				Ended June 30, 2009
Relationships		Income				(In Thousands)
Commodity Contracts — Energy Marketing segment (1)		Operating Revenues				$	(1,396	)
Commodity Contracts — Energy Marketing segment (2)		Purchased Gas				$	2,221
Commodity Contracts — Energy Marketing segment (3)		Purchased Gas				$	(8,206	)
						$	(7,381	)

     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 with ten counterparties. The Company has $32.0 million of credit exposure with one counterparty. On average, the Company has $3.8 million of credit exposure per counterparty with the other nine counterparties (the Company has not received any collateral from these nine counterparties).

     As of June 30, 2009, eight of the ten counterparties to the Company’s outstanding derivative instrument contracts (specifically the over-the-counter swaps) had a common credit-risk-related contingency feature. In the event the Company’s credit rating increases or falls below a certain threshold (the lower of the S&P or Moody’s Debt Rating), the available credit extended to the Company would either increase or decrease. A decline in the Company’s credit rating, in and of itself, would not cause the Company to be required to 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 instrument contracts were in a liability position and the Company’s credit rating declined, then additional hedging collateral deposits would be required. At June 30, 2009, these credit-risk related contingency features would not have been triggered since the Company had assets of $57.6 million related to derivative financial instruments with the eight counterparties.

Item 1. Financial Statements (Cont.)

     For its exchange traded futures contracts, which are in a liability position, the Company had paid $6.4 million in hedging collateral as of June 30, 2009. As these are exchange traded futures contracts, there are no specific credit-risk related contingency features. The Company posts hedging collateral based on open positions (i.e. those positions that have been settled for cash) and margin requirements. (This is discussed in Note 1 under Hedging Collateral Deposits.)

Note 4 — Income Taxes

     The components of federal, state and foreign income taxes included in the Consolidated Statements of Income are as follows (in thousands):

		Nine Months Ended
		June 30,
		2009				2008
Current Income Taxes
Federal		$	95,526			$	92,384
State			25,528				23,388
Foreign			—				90
Deferred Income Taxes
Federal			(67,051	)			18,906
State			(18,443	)			8,697
			35,560				143,465
Deferred Investment Tax Credit			(523	)			(523	)
Total Income Taxes		$	35,037			$	142,942
Presented as Follows:
Other Income		$	(523	)		$	(523	)
Income Tax Expense			35,560				143,465
Total Income Taxes		$	35,037			$	142,942

     Total income taxes as reported differ from the amounts that were computed by applying the federal income tax rate to income before income taxes. The following is a reconciliation of this difference (in thousands):

		Nine Months Ended
		June 30,
		2009				2008
U.S. Income Before Income Taxes		$	108,747			$	368,405
Income Tax Expense, Computed at Federal Statutory Rate of 35%		$	38,061			$	128,942
Increase (Reduction) in Taxes Resulting From:
State Income Taxes			4,605				20,855
Domestic Production Activities Deduction			(1,790	)			(1,878	)
Miscellaneous			(5,839	)			(4,977	)
Total Income Taxes		$	35,037			$	142,942

Item 1. Financial Statements (Cont.)

     Significant components of the Company’s deferred tax liabilities and assets are as follows (in thousands):

		At June 30, 2009				At September 30, 2008
Deferred Tax Liabilities:
Property, Plant and Equipment		$	628,785			$	673,313
Pension and Other Post-Retirement Benefit Costs — SFAS 158			44,345				43,340
Unrealized Hedging Gains			25,564				14,936
Other			25,238				40,455
Total Deferred Tax Liabilities			723,932				772,044
Deferred Tax Assets:
Pension and Other Post-Retirement Benefit Costs — SFAS 158			(44,345	)			(43,340	)
Medicare Subsidy			(29,084	)			(23,709	)
Other			(94,132	)			(68,752	)
Total Deferred Tax Assets			(167,561	)			(135,801	)
Total Net Deferred Income Taxes		$	556,371			$	636,243
Presented as Follows:
Net Deferred Tax Liability/(Asset) — Current		$	(33,009	)		$	1,871
Net Deferred Tax Liability — Non-Current			589,380				634,372
Total Net Deferred Income Taxes		$	556,371			$	636,243

     Regulatory liabilities representing the reduction of previously recorded deferred income taxes with rate-regulated activities that are expected to be refundable to customers amounted to $18.5 million and $18.4 million at June 30, 2009 and September 30, 2008, respectively. Also, regulatory assets representing future amounts collectible from customers, corresponding to additional deferred income taxes not previously recorded because of prior ratemaking practices, amounted to $83.5 million and $82.5 million at June 30, 2009 and September 30, 2008, respectively.

     The Company files U.S. federal and various state income tax returns. The Internal Revenue Service (IRS) is currently conducting an examination of the Company for fiscal 2009 in accordance with the Compliance Assurance Process (“CAP”). The CAP audit employs a real time review of the Company’s books and tax records by the IRS that is intended to permit issue resolution prior to the filing of the tax return. While the federal statute of limitations remains open for fiscal 2006 and later years, IRS examinations for fiscal 2008 and prior years have been completed and the Company believes such years are effectively settled.

     The Company is also subject to various routine state income tax examinations. The Company’s operating subsidiaries mainly operate in four states which have statutes of limitations that generally expire between three to four years from the date of filing of the income tax return.

     As of June 30, 2009, the Company does not have any unrecognized tax benefits.

Note 5 — Capitalization

Common Stock. During the nine months ended June 30, 2009, the Company issued 1,054,814 original issue shares of common stock as a result of stock option exercises. The Company also issued 7,000 original issue shares of common stock to the seven non-employee directors of the Company who receive compensation under the Company’s Retainer Policy for Non-Employee Directors, as partial consideration for the directors’ services during the nine months ended June 30, 2009. Holders of stock options or

Item 1. Financial Statements (Cont.)

restricted stock will often tender shares of common stock to the Company for payment of option exercise prices and/or applicable withholding taxes. During the nine months ended June 30, 2009, 300,876 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.

Shareholder Rights Plan. In 1996, the Company’s Board of Directors adopted a shareholder rights plan (Plan). The Plan has been amended several times since it was adopted and is now embodied in an Amended and Restated Rights Agreement effective December 4, 2008, a copy of which was included as an exhibit to the Form 8-K filed by the Company on December 4, 2008.

     Pursuant to the Plan, the holders of the Company’s common stock have one right (Right) for each of their shares. Each Right is initially evidenced by the Company’s common stock certificates representing the outstanding shares of common stock.

     The Rights have anti-takeover effects because they will cause substantial dilution of the Company’s common stock if a person attempts to acquire the Company on terms not approved by the Board of Directors (an Acquiring Person).

     The Rights become exercisable upon the occurrence of a Distribution Date as described below, but after a Distribution Date Rights that are owned by an Acquiring Person will be null and void. At any time following a Distribution Date, each holder of a Right may exercise its right to receive, upon payment of an amount calculated under the Rights Agreement, common stock of the Company (or, under certain circumstances, other securities or assets of the Company) having a value equal to two times the amount paid to exercise the Right. However, the Rights are subject to redemption or exchange by the Company prior to their exercise as described below.

     A Distribution Date would occur upon the earlier of (i) ten days after the public announcement that a person or group has acquired, or obtained the right to acquire, beneficial ownership of the Company’s common stock or other voting stock (including Synthetic Long Positions as defined in the Plan) having 10% or more of the total voting power of the Company’s common stock and other voting stock and (ii) ten days after the commencement or announcement by a person or group of an intention to make a tender or exchange offer that would result in that person acquiring, or obtaining the right to acquire, beneficial ownership of the Company’s common stock or other voting stock having 10% or more of the total voting power of the Company’s common stock and other voting stock.

     In certain situations after a person or group has acquired beneficial ownership of 10% or more of the total voting power of the Company’s stock as described above, each holder of a Right will have the right to exercise its Rights to receive, upon exercise of the right, common stock of the acquiring company having a value equal to two times the amount paid to exercise the right. These situations would arise if the Company is acquired in a merger or other business combination or if 50% or more of the Company’s assets or earning power are sold or transferred.

     At any time prior to the end of the business day on the tenth day following the Distribution Date, the Company may redeem the Rights in whole, but not in part, at a price of $0.005 per Right, payable in cash or stock. A decision to redeem the Rights requires the vote of 75% of the Company’s full Board of Directors. Also, at any time following the Distribution Date, 75% of the Company’s full Board of Directors may vote to exchange the Rights, in whole or in part, at an exchange rate of one share of common stock, or other property deemed to have the same value, per Right, subject to certain adjustments.

     Upon exercise of the Rights, the Company may need additional regulatory approvals to satisfy the requirements of the Rights Agreement. The Rights will expire on July 31, 2018, unless earlier than that date, they are exchanged or redeemed or the Plan is amended to extend the expiration date.

Item 1. Financial Statements (Cont.)

Long-Term Debt. In April 2009, the Company issued $250.0 million of 8.75% notes due in May 2019. After deducting underwriting discounts and commissions, the net proceeds to the Company amounted to $247.8 million. The holders of the notes may require the Company to repurchase their notes at a price equal to 101% of the principal amount in the event of a change in control and a ratings downgrade to a rating below investment grade. The proceeds of this debt issuance were used for general corporate purposes, including to replenish cash that was used to pay the $100 million due at the maturity of the Company’s 6.0% medium-term notes on March 1, 2009.

Note 6 — 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 policies and procedures. 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.

     As disclosed in Note H of the Company’s 2008 Form 10-K, the Company has agreed with the NYDEC to remediate a former manufactured gas plant site located in New York. The Company has received approval from the NYDEC of a Remedial Design work plan for this site and has recorded an estimated minimum liability for remediation of this site of $16.0 million.

     At June 30, 2009, the Company has estimated its remaining clean-up costs related to former manufactured gas plant sites and third party waste disposal sites (including the former manufactured gas plant site discussed above) will be in the range of $19.0 million to $23.2 million. The minimum estimated liability of $19.0 million, which includes the $16.0 million discussed above, has been recorded on the Consolidated Balance Sheet at June 30, 2009. The Company expects to recover its environmental clean-up costs from a combination of rate recovery and deferred insurance proceeds that are currently recorded as a regulatory liability on the Consolidated Balance Sheet.

     The Company is currently not aware of any material additional exposure to environmental liabilities. However, changes in environmental regulations, new information or other factors could adversely impact the Company.

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 normal-course matters could have a material effect on earnings and cash flows in the quarterly and annual period in which they are resolved, they are not expected to change materially the Company’s present liquidity position, or have a material adverse effect on the financial condition of the Company.

Item 1. Financial Statements (Cont.)

Note 7 — Business Segment Information

     In the Company’s 2008 Form 10-K, the Company reported financial results for five business segments: Utility, Pipeline and Storage, Exploration and Production, Energy Marketing and Timber. The division of the Company’s operations into the reported segments is based upon a combination of factors including differences in products and services, regulatory environment and geographic factors. During the quarter ended December 31, 2008, management made the decision to eliminate the Timber segment as a reportable segment based on the fact that the Timber operations do not meet any of the quantitative thresholds specified by SFAS 131. Furthermore, from a qualitative standpoint, management’s focus has changed regarding the Timber operations. While the Timber segment will continue to harvest hardwood timber and process lumber products that are used in high-end furniture, cabinetry and flooring, management no longer considers the Timber operations to be integral to the overall operations of the Company. As a result of this change in focus and the fact that the Timber operations cannot be aggregated into one of the other four reportable business segments, the Timber operations have been included in the All Other category in the disclosures that follow. Prior year segment information shown below has been restated to reflect this change in presentation. In addition, refer to the Company’s Form 8-K filed on March 17, 2009 that updated its historical business segment information contained in the Company’s 2008 Form 10-K to reflect the change in reportable segments.

     The data presented in the tables below reflect the reportable segments and reconciliations to consolidated amounts. As stated in the 2008 Form 10-K, the Company evaluates segment performance based on income before discontinued operations, extraordinary items and cumulative effects of changes in accounting (where applicable). When these items are not applicable, the Company evaluates performance based on net income. There have been no changes in the basis of segmentation, other than as noted above, nor in the basis of measuring segment profit or loss from those used in the Company’s 2008 Form 10-K.

Item 1. Financial Statements (Cont.)

Quarter Ended June 30, 2009 (Thousands)

						Pipeline				Exploration																Corporate and
						and				and				Energy				Total Reportable								Intersegment				Total
		Utility				Storage				Production				Marketing				Segments				All Other				Eliminations				Consolidated
Revenue from External Customers		$	158,310			$	30,791			$	97,619			$	71,894			$	358,614			$	8,269			$	228			$	367,111
Intersegment Revenues		$	2,940			$	20,033			$	—			$	—			$	22,973			$	374			$	(23,347	)		$	—
Segment Profit:
Net Income (Loss)		$	5,396			$	9,221			$	27,083			$	1,331			$	43,031			$	(1,086	)		$	959			$	42,904

Nine Months Ended June 30, 2009 (Thousands)

						Pipeline				Exploration																Corporate and
						and				and				Energy				Total Reportable								Intersegment				Total
		Utility				Storage				Production				Marketing				Segments				All Other				Eliminations				Consolidated
Revenue from External Customers		$	1,009,962			$	105,904			$	281,410			$	350,445			$	1,747,721			$	30,523			$	675			$	1,778,919
Intersegment Revenues		$	13,339			$	62,026			$	—			$	—			$	75,365			$	3,890			$	(79,255	)		$	—
Segment Profit:
Net Income (Loss)		$	60,303			$	41,582			$	(38,366	)		$	7,509			$	71,028			$	(46	)		$	2,728			$	73,710

Quarter Ended June 30, 2008 (Thousands)

						Pipeline				Exploration																Corporate and
						and				and				Energy				Total Reportable								Intersegment				Total
		Utility				Storage				Production				Marketing				Segments				All Other				Eliminations				Consolidated
Revenue from External Customers		$	217,339			$	32,054			$	126,154			$	162,129			$	537,676			$	10,509			$	197			$	548,382
Intersegment Revenues		$	3,154			$	20,131			$	—			$	—			$	23,285			$	4,439			$	(27,724	)		$	—
Segment Profit:
Net Income (Loss)		$	7,848			$	12,534			$	39,791			$	478			$	60,651			$	(960	)		$	164			$	59,855

Nine Months Ended June 30, 2008 (Thousands)

						Pipeline				Exploration																Corporate and
						and				and				Energy				Total Reportable								Intersegment				Total
		Utility				Storage				Production				Marketing				Segments				All Other				Eliminations				Consolidated
Revenue from External Customers		$	1,067,194			$	101,871			$	348,829			$	440,111			$	1,958,005			$	44,002			$	496			$	2,002,503
Intersegment Revenues		$	13,567			$	61,340			$	—			$	—			$	74,907			$	10,251			$	(85,158	)		$	—
Segment Profit:
Net Income (Loss)		$	62,228			$	40,931			$	108,385			$	7,079			$	218,623			$	7,351			$	(511	)		$	225,463