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 March 31, 2008

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		(I.R.S. Employer
incorporation or organization)		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 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):

Large accelerated filer: þ		Accelerated filer: o		Non-accelerated filer: o		Smaller reporting company: o
				(Do not check if a smaller reporting company)

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 April 30, 2008: 81,243,700 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 State Pipeline
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.
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
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
NTSB		National Transportation Safety Board
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
2007 Form 10-K		The Company’s Annual Report on Form 10-K for the year ended September 30, 2007
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.
Cashout revenues		A cash resolution of a gas imbalance whereby a customer pays Supply Corporation for gas the customer receives in excess of amounts delivered into Supply Corporation’s system by the customer’s shipper.
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.

GLOSSARY OF TERMS (Cont.)

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
Expenditures for long-lived assets		Includes capital expenditures, stock acquisitions and/or investments in partnerships.
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.
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)
MMcf		Million cubic feet (of natural gas)
Open Season		A bidding procedure used by pipelines to allocate firm transportation or storage capacity among prospective shippers, in which all bids submitted during a defined time period are evaluated as if they had been submitted simultaneously.
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.
PRP		Potentially responsible party
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 utility industry 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.
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

GLOSSARY OF TERMS (Concl.)

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
SFAS 115		Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities
SFAS 123R		Statement of Financial Accounting Standards No. 123R, Share-Based Payment
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 159		Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of SFAS 115
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
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.
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 Six Months Ended March 31, 2008 and 2007			6 - 7
b. Consolidated Balance Sheets – March 31, 2008 and September 30, 2007			8 - 9
c. Consolidated Statements of Cash Flows – Six Months Ended March 31, 2008 and 2007			10
d. Consolidated Statements of Comprehensive Income — Three and Six Months Ended March 31, 2008 and 2007			11
e. Notes to Consolidated Financial Statements			12 - 22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23 - 43
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			43
Part II. Other Information
Item 1. Legal Proceedings			43 - 44
Item 1 A. Risk Factors			44 - 45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 3. Defaults Upon Senior Securities			•
Item 4. Submission of Matters to a Vote of Security Holders			45 - 46
Item 5. Other Information			46
Item 6. Exhibits			46 - 47
Signatures			48
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-12
EX-31.1
EX-31.2
EX-32
EX-99

•  The Company has nothing to report under this item.

          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, performance and capital structure, anticipated capital expenditures, completion of construction 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
		March 31,
(Thousands of Dollars, Except Per Common Share Amounts)		2008				2007
INCOME
Operating Revenues		$	885,853			$	798,100
Operating Expenses
Purchased Gas			531,438				476,904
Operation and Maintenance			120,584				120,408
Property, Franchise and Other Taxes			21,398				19,989
Depreciation, Depletion and Amortization			42,412				38,395
			715,832				655,696
Operating Income			170,021				142,404
Other Income (Expense):
Income from Unconsolidated Subsidiaries			1,030				942
Interest Income			2,177				636
Other Income			2,080				2,526
Interest Expense on Long-Term Debt			(16,289	)			(17,888	)
Other Interest Expense			(2,285	)			(1,516	)
Income from Continuing Operations Before Income Taxes			156,734				127,104
Income Tax Expense			61,730				51,624
Income from Continuing Operations			95,004				75,480
Income from Discontinued Operations, Net of Tax			—				2,967
Net Income Available for Common Stock			95,004				78,447
EARNINGS REINVESTED IN THE BUSINESS
Balance at December 31			1,027,951				781,728
			1,122,955				860,175
Share Repurchases			(89,564	)			(333	)
Dividends on Common Stock (2008 - $0.31 per share; 2007 - $0.30 per share)			(25,307	)			(24,940	)
Balance at March 31		$	1,008,084			$	834,902
Earnings Per Common Share:
Basic:
Income from Continuing Operations		$	1.14			$	0.91
Income from Discontinued Operations			—				0.04
Net Income Available for Common Stock		$	1.14			$	0.95
Diluted:
Income from Continuing Operations		$	1.11			$	0.89
Income from Discontinued Operations			—				0.03
Net Income Available for Common Stock		$	1.11			$	0.92
Weighted Average Common Shares Outstanding:
Used in Basic Calculation			83,406,242				82,895,087
Used in Diluted Calculation			85,385,944				85,033,127

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)

		Six Months Ended
		March 31,
(Thousands of Dollars, Except Per Common Share Amounts)		2008				2007
INCOME
Operating Revenues		$	1,454,121			$	1,288,758
Operating Expenses
Purchased Gas			809,448				719,843
Operation and Maintenance			223,040				215,112
Property, Franchise and Other Taxes			39,070				36,940
Depreciation, Depletion and Amortization			86,533				77,802
			1,158,091				1,049,697
Operating Income			296,030				239,061
Other Income (Expense):
Income from Unconsolidated Subsidiaries			3,305				2,173
Interest Income			5,270				1,721
Other Income			3,334				3,241
Interest Expense on Long-Term Debt			(32,577	)			(33,931	)
Other Interest Expense			(3,010	)			(3,366	)
Income from Continuing Operations Before Income Taxes			272,352				208,899
Income Tax Expense			106,744				82,731
Income from Continuing Operations			165,608				126,168
Income from Discontinued Operations, Net of Tax			—				6,799
Net Income Available for Common Stock			165,608				132,967
EARNINGS REINVESTED IN THE BUSINESS
Balance at October 1			983,776				786,013
			1,149,384				918,980
Share Repurchases			(89,564	)			(34,351	)
Cumulative Effect of the Adoption of FIN 48			(406	)			—
Dividends on Common Stock (2008 - $0.62 per share; 2007 - $0.60 per share)			(51,330	)			(49,727	)
Balance at March 31		$	1,008,084			$	834,902
Earnings Per Common Share:
Basic:
Income from Continuing Operations		$	1.98			$	1.53
Income from Discontinued Operations			—				0.08
Net Income Available for Common Stock		$	1.98			$	1.61
Diluted:
Income from Continuing Operations		$	1.93			$	1.49
Income from Discontinued Operations			—				0.08
Net Income Available for Common Stock		$	1.93			$	1.57
Weighted Average Common Shares Outstanding:
Used in Basic Calculation			83,509,268				82,786,027
Used in Diluted Calculation			85,603,033				84,891,742

See Notes to Condensed Consolidated Financial Statements

Item 1. Financial Statements (Cont.)

National Fuel Gas Company

Consolidated Balance Sheets
(Unaudited)

		March 31,				September 30,
(Thousands of Dollars)		2008				2007
ASSETS
Property, Plant and Equipment		$	4,593,980			$	4,461,586
Less — Accumulated Depreciation, Depletion and Amortization			1,650,715				1,583,181
			2,943,265				2,878,405
Current Assets
Cash and Temporary Cash Investments			216,412				124,806
Cash Held in Escrow			—				61,964
Hedging Collateral Deposits			2,354				4,066
Receivables – Net of Allowance for Uncollectible Accounts of $42,687 and $28,654, Respectively			363,872				172,380
Unbilled Utility Revenue			75,084				20,682
Gas Stored Underground			19,512				66,195
Materials and Supplies — at average cost			37,618				35,669
Unrecovered Purchased Gas Costs			1,421				14,769
Other Current Assets			30,854				45,057
Deferred Income Taxes			41,253				8,550
			788,380				554,138
Other Assets
Recoverable Future Taxes			83,620				83,954
Unamortized Debt Expense			11,101				12,070
Other Regulatory Assets			133,881				137,577
Deferred Charges			5,314				5,545
Other Investments			83,754				85,902
Investments in Unconsolidated Subsidiaries			16,605				18,256
Goodwill			5,476				5,476
Intangible Assets			27,505				28,836
Prepaid Pension and Post-Retirement Benefit Costs			59,331				61,006
Fair Value of Derivative Financial Instruments			—				9,188
Other			4,843				8,059
			431,430				455,869
Total Assets		$	4,163,075			$	3,888,412

See Notes to Condensed Consolidated Financial Statements

Item 1. Financial Statements (Cont.)

National Fuel Gas Company
Consolidated Balance Sheets
(Unaudited)

		March 31,				September 30,
(Thousands of Dollars)		2008				2007
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders’ Equity
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued And Outstanding – 81,636,429 Shares and 83,461,308 Shares, Respectively		$	81,636			$	83,461
Paid in Capital			580,811				569,085
Earnings Reinvested in the Business			1,008,084				983,776
Total Common Shareholder Equity Before Items of Other Comprehensive Loss			1,670,531				1,636,322
Accumulated Other Comprehensive Loss			(41,867	)			(6,203	)
Total Comprehensive Shareholders’ Equity			1,628,664				1,630,119
Long-Term Debt, Net of Current Portion			899,000				799,000
Total Capitalization			2,527,664				2,429,119
Current and Accrued Liabilities
Notes Payable to Banks and Commercial Paper			—				—
Current Portion of Long-Term Debt			100,000				200,024
Accounts Payable			149,595				109,757
Amounts Payable to Customers			4,985				10,409
Dividends Payable			25,307				25,873
Interest Payable on Long-Term Debt			18,158				18,158
Customer Advances			—				22,863
Other Accruals and Current Liabilities			213,087				36,062
Fair Value of Derivative Financial Instruments			64,595				16,200
			575,727				439,346
Deferred Credits
Deferred Income Taxes			593,375				575,356
Taxes Refundable to Customers			14,033				14,026
Unamortized Investment Tax Credit			5,042				5,392
Cost of Removal Regulatory Liability			99,924				91,226
Other Regulatory Liabilities			92,343				76,659
Post-Retirement Liabilities			62,372				70,555
Asset Retirement Obligations			76,357				75,939
Other Deferred Credits			116,238				110,794
			1,059,684				1,019,947
Commitments and Contingencies			—				—
Total Capitalization and Liabilities		$	4,163,075			$	3,888,412

See Notes to Condensed Consolidated Financial Statements

Item 1. Financial Statements (Cont.)

National Fuel Gas Company

Consolidated Statements of Cash Flows
(Unaudited)

		Six Months Ended
		March 31,
(Thousands of Dollars)		2008				2007
OPERATING ACTIVITIES
Net Income Available for Common Stock		$	165,608			$	132,967
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization			86,533				84,886
Deferred Income Taxes			12,817				21,803
Income from Unconsolidated Subsidiaries, Net of Cash Distributions			1,651				(960	)
Excess Tax Benefits Associated with Stock-Based Compensation Awards			(16,275	)			(13,689	)
Other			(194	)			3,818
Change in:
Hedging Collateral Deposits			1,712				17,642
Receivables and Unbilled Utility Revenue			(245,912	)			(196,094	)
Gas Stored Underground and Materials and Supplies			44,734				47,243
Unrecovered Purchased Gas Costs			13,347				(992	)
Prepayments and Other Current Assets			15,878				28,659
Accounts Payable			39,838				34,417
Amounts Payable to Customers			(5,424	)			(13,339	)
Customer Advances			(22,863	)			(29,417	)
Other Accruals and Current Liabilities			192,787				163,928
Other Assets			18,127				(3,765	)
Other Liabilities			4,504				(2,434	)
Net Cash Provided by Operating Activities			306,868				274,673
INVESTING ACTIVITIES
Capital Expenditures			(144,707	)			(132,313	)
Investment in Partnership			—				(3,300	)
Cash Held in Escrow			58,397				—
Net Proceeds from Sale of Oil and Gas Producing Properties			2,313				2,330
Other			1,557				(339	)
Net Cash Used in Investing Activities			(82,440	)			(133,622	)
FINANCING ACTIVITIES
Excess Tax Benefits Associated with Stock-Based Compensation Awards			16,275				13,689
Shares Repurchased under Repurchase Plan			(108,941	)			(43,344	)
Reduction of Long-Term Debt			(24	)			(23,207	)
Dividends Paid on Common Stock			(51,896	)			(49,808	)
Net Proceeds from Issuance of Common Stock			11,764				14,604
Net Cash Used in Financing Activities			(132,822	)			(88,066	)
Effect of Exchange Rates on Cash			—				(787	)
Net Increase in Cash and Temporary Cash Investments			91,606				52,198
Cash and Temporary Cash Investments at October 1			124,806				69,611
Cash and Temporary Cash Investments at March 31		$	216,412			$	121,809

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
		March 31,
(Thousands of Dollars)		2008				2007
Net Income Available for Common Stock		$	95,004			$	78,447
Other Comprehensive Income (Loss), Before Tax:
Foreign Currency Translation Adjustment			(56	)			1,223
Minimum Pension Liability Adjustment			—				(320	)
Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period			(2,014	)			483
Unrealized Loss on Derivative Financial Instruments Arising During the Period			(47,713	)			(20,456	)
Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income			6,741				(958	)
Other Comprehensive Loss, Before Tax			(43,042	)			(20,028	)
Income Tax Benefit Related to Minimum Pension Liability Adjustment			—				(121	)
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period			(761	)			209
Income Tax Benefit Related to Unrealized Loss on Derivative Financial Instruments Arising During the Period			(19,516	)			(8,494	)
Reclassification Adjustment for Income Tax (Expense) Benefit on Realized Losses from Derivative Financial Instruments In Net Income			2,816				(364	)
Income Taxes – Net			(17,461	)			(8,770	)
Other Comprehensive Loss			(25,581	)			(11,258	)
Comprehensive Income		$	69,423			$	67,189

		Six Months Ended
		March 31,
(Thousands of Dollars)		2008				2007
Net Income Available for Common Stock		$	165,608			$	132,967
Other Comprehensive Income (Loss), Before Tax:
Foreign Currency Translation Adjustment			(74	)			(3,645	)
Minimum Pension Liability Adjustment			—				(320	)
Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period			(3,215	)			1,274
Unrealized Loss on Derivative Financial Instruments Arising During the Period			(68,572	)			(10,955	)
Reclassification Adjustment for Realized Losses on Derivative Financial Instruments in Net Income			12,161				2,218
Other Comprehensive Loss, Before Tax			(59,700	)			(11,428	)
Income Tax Benefit Related to Minimum Pension Liability Adjustment			—				(121	)
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period			(821	)			484
Income Tax Benefit Related to Unrealized Loss on Derivative Financial Instruments Arising During the Period			(28,164	)			(4,764	)
Reclassification Adjustment for Income Tax Benefit on Realized Losses from Derivative Financial Instruments In Net Income			4,949				1,656
Income Taxes – Net			(24,036	)			(2,745	)
Other Comprehensive Loss			(35,664	)			(8,683	)
Comprehensive Income		$	129,944			$	124,284

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.

Reclassification. Certain prior year amounts have been reclassified to conform with current year presentation.

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, 2007, 2006 and 2005 that are included in the Company’s 2007 Form 10-K. The consolidated financial statements for the year ended September 30, 2008 will be audited by the Company’s independent registered public accounting firm after the end of the fiscal year.

     The earnings for the six months ended March 31, 2008 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2008. 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 6 – 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.

Hedging Collateral Deposits. Cash held in margin accounts serves as collateral for open positions on exchange-traded futures contracts, exchange-traded options and over-the-counter swaps and collars.

Cash Held in Escrow. 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 six months ended March 31, 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.

Item 1. Financial Statements (Cont.)

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 $164.9 million at March 31, 2008, is reduced to zero by September 30 of each year as the inventory is replenished.

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

		At March 31, 2008				At September 30, 2007
Funded Position of the Pension and Other Post-Retirement Benefit Plans Adjustment		$	(12,482	)		$	(12,482	)
Cumulative Foreign Currency Translation Adjustment			(157	)			(83	)
Net Unrealized Loss on Derivative Financial Instruments			(37,082	)			(3,886	)
Net Unrealized Gain on Securities Available for Sale			7,854				10,248
Accumulated Other Comprehensive Loss		$	(41,867	)		$	(6,203	)

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 the quarter and six months ended March 31, 2008, there were 131,110 and 65,197 stock-settled SARs, respectively, excluded as being antidilutive. There were no stock options excluded as being antidilutive for the quarter and six months ended March 31, 2008. For the quarter and six months ended March 31, 2007, 11,879 and 283,288 stock options, respectively, were excluded as being antidilutive. In addition, there were 11,111 and 5,494 stock-settled SARs excluded as being antidilutive for the quarter and six months ended March 31, 2007, respectively.

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. Refer to Note 3 – Capitalization for further discussion of the share repurchase program.

Stock-Based Compensation. For the quarter and six months ended March 31, 2008, the Company granted 291,000 stock-settled SARs having a weighted average exercise price of $47.37 per share. The weighted average grant date fair value of these stock-settled SARs was $8.74 per share for the quarter and six months ended March 31, 2008. 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 for the quarter and six months ended March 31, 2008 vest and become exercisable annually in

Item 1. Financial Statements (Cont.)

one-third increments, provided that a performance condition for diluted earnings per share is met for the prior fiscal year. The weighted average grant date fair value of these performance-based stock-settled SARs granted during the quarter 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, no compensation expense is recognized and any recognized compensation expense is reversed.

     There were no stock options granted during the quarter and six months ended March 31, 2008. The Company granted 25,000 restricted share awards (non-vested stock as defined in SFAS 123R) during the six months ended March 31, 2008. The weighted average fair value of such restricted shares was $48.41 per share. There were no restricted share awards granted during the quarter ended March 31, 2008.

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, SFAS 157 is effective for financial assets and financial liabilities that are recognized or disclosed at fair value on a recurring basis as of the Company’s first quarter of fiscal 2009. 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. The Company is currently evaluating the impact that the adoption of SFAS 157 will have on its consolidated financial statements.

     In September 2006, the FASB also 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 adopted by the Company by the end of fiscal 2009. Currently, the Company measures its plan assets and benefit obligations using a June 30th measurement date.

     In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of SFAS 115.” SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not otherwise required to be measured at fair value under GAAP. A company that elects the fair value option for an eligible item will be required to recognize in current earnings any changes in that item’s fair value in reporting periods subsequent to the date of adoption. SFAS 159 is effective as of the Company’s first quarter of fiscal 2009. The Company is currently evaluating the impact, if any, that the adoption of SFAS 159 will have on its consolidated financial statements.

     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.

Item 1. Financial Statements (Cont.)

     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.

     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. SFAS 161 is effective as of the Company’s second quarter of fiscal 2009. The Company is currently evaluating the impact that the adoption of SFAS 161 will have on its consolidated financial statements.

Note 2 — Income Taxes

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

		Six Months Ended
		March 31,
		2008				2007
Current Income Taxes
Federal		$	76,567			$	49,937
State			17,270				14,823
Foreign			90				244
Deferred Income Taxes
Federal			6,223				14,181
State			6,594				3,546
Foreign			—				4,076
			106,744				86,807
Deferred Investment Tax Credit			(348	)			(348	)
Total Income Taxes		$	106,396			$	86,459
Presented as Follows:
Other Income		$	(348	)		$	(348	)
Income Tax Expense – Continuing Operations			106,744				82,731
Income from Discontinued Operations			—				4,076
Total Income Taxes		$	106,396			$	86,459

     The U.S. and foreign components of income before income taxes are as follows (in thousands):

Item 1. Financial Statements (Cont.)

		Six Months Ended
		March 31,
		2008				2007
U.S.		$	271,801			$	208,512
Foreign			203				10,914
		$	272,004			$	219,426

     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):

		Six Months Ended
		March 31,
		2008				2007
Income Tax Expense, Computed at Statutory Rate of 35%		$	95,201			$	76,799
Increase (Reduction) in Taxes Resulting From:
State Income Taxes			15,512				11,940
Miscellaneous			(4,317	)			(2,280	)
Total Income Taxes		$	106,396			$	86,459

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

		At March 31, 2008				At September 30, 2007
Deferred Tax Liabilities:
Property, Plant and Equipment		$	645,811			$	612,648
Other			43,214				61,616
Total Deferred Tax Liabilities			689,025				674,264
Deferred Tax Assets:
Other			(136,903	)			(107,458	)
Total Deferred Tax Assets			(136,903	)			(107,458	)
Total Net Deferred Income Taxes		$	552,122			$	566,806
Presented as Follows:
Net Deferred Tax Asset – Current		$	(41,253	)		$	(8,550	)
Net Deferred Tax Liability – Non-Current			593,375				575,356
Total Net Deferred Income Taxes		$	552,122			$	566,806

     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 $14.0 million at both March 31, 2008 and September 30, 2007. 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 $83.6 million and $84.0 million at March 31, 2008 and September 30, 2007, respectively.

Item 1. Financial Statements (Cont.)

     The Company adopted FIN 48 on October 1, 2007. As of the date of adoption, a cumulative effect adjustment was recorded that resulted in a decrease to retained earnings of $0.4 million. Upon adoption, the unrecognized tax benefits were $1.7 million, all of which would impact the effective tax rate (net of federal benefit) if recognized. There was no change in the balance of unrecognized tax benefits during the six months ended March 31, 2008 and the Company does not expect a material change within the next twelve months.

     Consistent with existing policies, the Company recognizes estimated interest payable relating to income taxes in Other Interest Expense and estimated penalties relating to income taxes in Other Income. The Company has accrued interest of $0.5 million and has not accrued any penalties.

     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’s calculation of taxes payable for fiscal 2007 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 2004 and later years, IRS examinations for years prior to fiscal 2007 have been completed and the Company believes such years are effectively settled.

     For the major states in which the various subsidiary companies operate, the earliest tax year open for examination is as follows:

New York		Fiscal 2002
Pennsylvania		Fiscal 2003
California		Fiscal 2003
Texas		Fiscal 2003

Note 3 — Capitalization

Common Stock. During the six months ended March 31, 2008, the Company issued 580,597 original issue shares of common stock as a result of stock option exercises and 25,000 original issue shares for restricted stock awards (non-vested stock as defined in SFAS 123R). The Company also issued 4,800 original issue shares of common stock to the eight non-employee directors of the Company then serving on the Board of Directors as partial consideration for the directors’ services during the six months ended March 31, 2008. Holders of stock options or 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 six months ended March 31, 2008, 42,601 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.

     On December 8, 2005, the Company’s Board of Directors authorized the Company to implement a share repurchase program, whereby the Company may repurchase outstanding shares of common stock, up to an aggregate amount of 8 million shares in the open market or through privately negotiated transactions. During the six months ended March 31, 2008, the Company repurchased 2,392,675 shares for $108.9 million under this program, funded with cash provided by operating activities. Since the share repurchase program was implemented, the Company has repurchased 6,227,553 shares for $242.2 million. At March 31, 2008, the Company had made commitments to repurchase an additional 436,522 shares of common stock for $20.5 million. These commitments were settled and recorded as a reduction of the Company’s outstanding shares of common stock in April 2008.

Item 1. Financial Statements (Cont.)

Shareholder Rights Plan. On February 21, 2008, the Board of Directors of the Company approved amendments to the Company’s Amended and Restated Rights Agreement (the “Rights Agreement”). The amendments modify the rights of holders of the Company’s Common Stock Purchase Rights (the “Rights”). The principal amendments are an extension of the expiration date of the Rights Agreement from July 31, 2008 to July 31, 2018 and an increase in the exercise price of the Rights from $65 to $150. The Board also approved amendments to the Rights Agreement (i) to provide that the phrase “then outstanding,” when used with reference to a person’s beneficial ownership of securities of the Company, means the number of securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such person would be deemed to own beneficially under the Rights Agreement, (ii) to eliminate certain restrictive covenants that would have applied to the Company after the distribution date of the Rights, and (iii) to clarify and update the Rights Agreement in various respects. The Company expects to execute an amended Rights Agreement, reflecting the changes described in this paragraph, with the Bank of New York, as Rights Agent, prior to June 30, 2008.

Note 4 — 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 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 2007 Form 10-K, the Company received, in 1998 and again in October 1999, notice that the NYDEC believes the Company is responsible for contamination discovered at a former manufactured gas plant site located in New York for which the Company had not been named as a PRP. In February 2007, the NYDEC identified the Company as a PRP for the site and issued a proposed remedial action plan. The NYDEC estimated clean-up costs under its proposed remedy to be $8.9 million if implemented. Although the Company commented to the NYDEC that the proposed remedial action plan contained a number of material errors, omissions and procedural defects, the NYDEC, in a March 2007 Record of Decision, selected the remedy it had previously proposed. In July 2007, the Company appealed the NYDEC’s Record of Decision to the New York State Supreme Court, Albany County. The Court dismissed the appeal in January 2008. The Company filed a notice of appeal in February 2008. The Company believes that a negotiated resolution with the NYDEC regarding the site remains possible.

     At March 31, 2008, 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 $13.6 million to $17.3 million. The minimum estimated liability of $13.6 million has been recorded on the Consolidated Balance Sheet at March 31, 2008. 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 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

Item 1. Financial Statements (Cont.)

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, nor to have a material adverse effect on the financial condition of the Company.

Note 5 — Discontinued Operations

     On August 31, 2007, the Company, in its Exploration and Production segment, completed the sale of SECI, Seneca’s wholly owned subsidiary that operated in Canada. The Company received approximately $232.1 million of proceeds from the sale, of which $58.0 million was placed in escrow pending receipt of a tax clearance certificate from the Canadian government. In December 2007, the Canadian government issued the tax clearance certificate, thereby releasing the proceeds from restriction as of December 31, 2007. The sale resulted in the recognition of a gain of approximately $120.3 million, net of tax, during the fourth quarter of 2007. SECI is engaged in the exploration for, and the development and purchase of, natural gas and oil reserves in the provinces of Alberta, Saskatchewan and British Columbia in Canada. The decision to sell was based on lower than expected returns from the Canadian oil and gas properties combined with difficulty in finding significant new reserves. Seneca will continue its exploration and development activities in Appalachia, the Gulf of Mexico, and California. As a result of the decision to sell SECI, the Company began presenting all SECI operations as discontinued operations during the fourth quarter of 2007.

     The following is selected financial information of the discontinued operations for SECI:

		Three Months				Six Months
		Ended				Ended
		March 31,				March 31,
(Thousands)		2007				2007
Operating Revenues		$	14,056			$	27,638
Operating Expenses			9,041				17,290
Operating Income			5,015				10,348
Interest Income			249				527
Income before Income Taxes			5,264				10,875
Income Tax Expense			2,297				4,076
Income from Discontinued Operations		$	2,967			$	6,799

Note 6 – Business Segment Information

     The Company has five reportable segments: Utility, Pipeline and Storage, Exploration and Production, Energy Marketing, and Timber. The division of the Company’s operations into the 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 the reportable segments and reconciliations to consolidated amounts. As stated in the 2007 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 nor in the basis of measuring segment profit or loss from those used in the Company’s 2007 Form 10-K. There have been no material changes in the amount of assets for any operating segment from the amounts disclosed in the 2007 Form 10-K.

     

Item 1. Financial Statements (Cont.)

Quarter Ended March 31, 2008 (Thousands)

										Exploration												Total								Corporate and
						Pipeline				and				Energy								Reportable								Intersegment
		Utility				and Storage				Production				Marketing				Timber				Segments				All Other				Eliminations				Total Consolidated
Revenue from External Customers		$	522,730			$	37,934			$	114,720			$	191,263			$	17,424			$	884,071			$	1,619			$	163			$	885,863
Intersegment Revenues		$	6,114			$	20,861			$	—			$	—			$	—			$	26,975			$	3,099			$	(30,074	)		$	—
Segment Profit:
Net Income (Loss)		$	34,164			$	15,618			$	34,572			$	5,647			$	3,883			$	93,884			$	1,692			$	(572	)		$	95,004

Six Months Ended March 31, 2008 (Thousands)

										Exploration												Total								Corporate and
						Pipeline				and				Energy								Reportable								Intersegment
		Utility				and Storage				Production				Marketing				Timber				Segments				All Other				Eliminations				Total Consolidated
Revenue from External Customers		$	849,855			$	69,817			$	222,675			$	277,982			$	30,324			$	1,450,653			$	3,169			$	299			$	1,454,121
Intersegment Revenues		$	10,413			$	41,209			$	—			$	—			$	—			$	51,622			$	5,812			$	(57,434	)		$	—
Segment Profit:
Net Income (Loss)		$	54,380			$	28,397			$	68,594			$	6,602			$	4,280			$	162,253			$	4,030			$	(675	)		$	165,608

Quarter Ended March 31, 2007 (Thousands)

										Exploration												Total								Corporate and
						Pipeline				and												Reportable								Intersegment
		Utility				and Storage				Production				Energy Marketing				Timber				Segments				All Other				Eliminations				Total Consolidated
Revenue from External Customers		$	501,473			$	34,952			$	78,554			$	163,338			$	18,184			$	796,501			$	1,403			$	196			$	798,100
Intersegment Revenues		$	5,941			$	20,884			$	—			$	—			$	—			$	26,825			$	2,090			$	(28,915	)		$	—
Segment Profit:
Income from Continuing Operations		$	33,444			$	13,936			$	16,834			$	6,706			$	3,200			$	74,120			$	467			$	893			$	75,480

Six Months Ended March 31, 2007 (Thousands)

										Exploration												Total								Corporate and
						Pipeline				and				Energy								Reportable								Intersegment
		Utility				and Storage				Production				Marketing				Timber				Segments				All Other				Eliminations				Total Consolidated
Revenue from External Customers		$	790,256			$	64,761			$	153,680			$	246,656			$	29,947			$	1,285,300			$	3,079			$	379			$	1,288,758
Intersegment Revenues		$	9,970			$	41,252			$	—			$	—			$	—			$	51,222			$	4,287			$	(55,509	)		$	—
Segment Profit:
Income from Continuing Operations		$	50,618			$	27,624			$	33,724			$	7,198			$	3,417			$	122,581			$	1,453			$	2,134			$	126,168

Item 1. Financial Statements (Cont.)

Note 7 — Intangible Assets

     The components of the Company’s intangible assets were as follows (in thousands):

														At September 30,
		At March 31, 2008												2007
		Gross								Net				Net
		Carrying				Accumulated				Carrying				Carrying
		Amount				Amortization				Amount				Amount
Intangible Assets Subject to Amortization:
Long-Term Transportation Contracts		$	8,580			$	(5,523	)		$	3,057			$	3,591
Long-Term Gas Purchase Contracts			31,864				(7,416	)			24,448				25,245
		$	40,444			$	(12,939	)		$	27,505			$	28,836
Aggregate Amortization Expense:
(Thousands)
Three Months Ended March 31, 2008		$	666
Three Months Ended March 31, 2007		$	666
Six Months Ended March 31, 2008		$	1,331
Six Months Ended March 31, 2007		$	1,331

     The gross carrying amount of intangible assets subject to amortization at March 31, 2008 remained unchanged from September 30, 2007. The only activity with regard to intangible assets subject to amortization was amortization expense as shown in the table above. Amortization expense for the long-term transportation contracts is estimated to be $0.5 million for both the remainder of 2008 and for fiscal 2009. Amortization expense for transportation contracts is estimated to be $0.4 million annually for 2010, 2011 and 2012. Amortization expense for the long-term gas purchase contracts is estimated to be $0.8 million for the remainder of 2008 and $1.6 million annually for 2009, 2010, 2011 and 2012.

Note 8 – Retirement Plan and Other Post-Retirement Benefits

     Components of Net Periodic Benefit Cost (in thousands):

Three months ended March 31,

		Retirement Plan								Other Post-Retirement Benefits
		2008				2007				2008				2007
Service Cost		$	3,149			$	3,225			$	1,276			$	1,403
Interest Cost			11,238				11,088				6,770				6,800
Expected Return on Plan Assets			(13,750	)			(12,809	)			(8,429	)			(6,740	)
Amortization of Prior Service Cost			202				220				1				1
Amortization of Transition Amount			—				—				1,782				1,782
Amortization of Losses			2,766				3,382				732				2,053
Net Amortization and Deferral for Regulatory Purposes (Including Volumetric Adjustments) (1)			5,714				4,074				8,462				10,732
Net Periodic Benefit Cost		$	9,319			$	9,180			$	10,594			$	16,031

Item 1. Financial Statements (Concl.)

Six months ended March 31,

		Retirement Plan								Other Post-Retirement Benefits
		2008				2007				2008				2007
Service Cost		$	6,299			$	6,450			$	2,552			$	2,807
Interest Cost			22,475				22,175				13,541				13,599
Expected Return on Plan Assets			(27,500	)			(25,618	)			(16,857	)			(13,480	)
Amortization of Prior Service Cost			404				441				2				2
Amortization of Transition Amount			—				—				3,563				3,563
Amortization of Losses			5,532				6,764				1,463				4,107
Net Amortization and Deferral for Regulatory Purposes (Including Volumetric Adjustments) (1)			6,814				4,229				15,674				13,071
Net Periodic Benefit Cost		$	14,024			$	14,441			$	19,938			$	23,669

Employer Contributions. During the six months ended March 31, 2008, the Company contributed $3.8 million to its retirement plan and $20.1 million to its other post-retirement benefit plan. In the remainder of 2008, the Company expects to contribute in the range of $11.0 million to $16.0 million to its retirement plan and to contribute in the range of $8.0 million to $12.0 million to its other post-retirement benefit plan.

Note 9 – Subsequent Event

     In April 2008, the Company issued $300.0 million of 6.50% senior, unsecured notes in a private placement exempt from registration under the Securities Act of 1933. The notes have a term of 10 years, with a maturity date in April 2018. The holders of the notes may require the Company to repurchase their notes in the event of a change in control at a price equal to 101% of the principal amount. In addition, the Company is required to either offer to exchange the notes for substantially similar notes as are registered under the Securities Act of 1933 or, in certain circumstances, register the resale of the notes. The Company intends to use $200.0 million of the proceeds to refund $200.0 million of 6.303% medium-term notes that mature on May 27, 2008. The $200.0 million of 6.303% medium-term notes were classified as Current Portion of Long-Term Debt at September 30, 2007 and December 31, 2007. Since the Company has shown the intent and ability to refinance the medium-term notes maturing in May 2008, the $200.0 million previously reported as Current Portion of Long-Term Debt is now reported as Long-Term Debt, Net of Current Portion on the Consolidated Balance Sheet at March 31, 2008.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

     The Company is a diversified energy company consisting of five reportable business segments. For the quarter ended March 31, 2008 compared to the quarter ended March 31, 2007, the Company has experienced an increase in earnings of $16.6 million primarily due to higher earnings in the Exploration and Production segment. The Utility, Pipeline and Storage, and Timber segments, as well as the All Other category also contributed to the increase in earnings. Lower earnings in the Energy Marketing segment and the Corporate category slightly offset these increases. For the six months ended March 31, 2008 compared to the six months ended March 31, 2007, the Company experienced an increase in earnings of $32.6 million due primarily to higher earnings in the Exploration and Production segment. The Utility, Pipeline and Storage, and Timber segments, as well as the All Other category also contributed to the increase in earnings. Lower earnings in the Energy Marketing segment and the Corporate category slightly offset these increases. The Company’s earnings are discussed further in the Results of Operations section that follows.

     From a capital resources and liquidity perspective, the Company spent $144.7 million on capital expenditures during the six months ended March 31, 2008, with approximately 45% being spent in the Exploration and Production segment, 39% in the Pipeline and Storage segment and 17% in the Utility segment. In the Pipeline and Storage segment, the majority of the expenditures were for construction costs of the Empire Connector project. The Company expects to complete the project by November 1, 2008. This project and other capital expenditures are discussed further in the Capital Resources and Liquidity section that follows.

     The Company also continues to repurchase outstanding shares of common stock under a share repurchase program authorized by the Company’s Board of Directors. The program authorizes the Company to repurchase up to an aggregate amount of 8 million shares. Through March 31, 2008, the Company had repurchased 6,227,553 shares for $242.2 million under this program, including 2,392,675 shares for $108.9 million during the six months ended March 31, 2008. These matters are discussed further in the Capital Resources and Liquidity section that follows.

     The Company has begun to explore the sale of Horizon LFG, a New York corporation that owns and operates short-distance landfill gas pipeline companies that are engaged in the purchase, sale and transportation of landfill gas in Ohio, Michigan, Kentucky, Missouri, Maryland and Indiana. Horizon LFG is included in the Company’s All Other category.

CRITICAL ACCOUNTING ESTIMATES

     For a complete discussion of critical accounting estimates, refer to “Critical Accounting Estimates” in Item 7 of the Company’s 2007 Form 10-K. There have been no subsequent changes to that disclosure.

RESULTS OF OPERATIONS

Earnings

     The Company’s earnings were $95.0 million for the quarter ended March 31, 2008 compared to earnings of $78.4 million for the quarter ended March 31, 2007. As previously discussed, the Company has presented its Canadian operations in the Exploration and Production segment (in conjunction with the sale of SECI) as discontinued operations. The Company’s earnings from continuing operations were $95.0 million for the quarter ended March 31, 2008 compared to earnings from continuing operations of $75.5 million for the quarter ended March 31, 2007. The increase in earnings from continuing operations of $19.5 million is primarily the result of higher earnings in the Exploration and Production segment. The Pipeline and Storage, Utility, and Timber segments, as well as the All Other category also contributed to the increase in earnings. Lower earnings in the Energy Marketing segment and the Corporate category slightly offset these increases.

             The Company’s earnings were $165.6 million for the six months ended March 31, 2008 compared to earnings of $133.0 million for the six months ended March 31, 2007. The Company’s earnings from continuing operations were $165.6 million for the six months ended March 31, 2008 compared to earnings from continuing operations of $126.2 million for the six months ended March 31, 2007. The increase in

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

earnings from continuing operations of $39.4 million is primarily the result of higher earnings in the Exploration and Production segment. The Utility, Pipeline and Storage, and Timber segments, as well as the All Other category also contributed to the increase in earnings. Lower earnings in the Energy Marketing segment and the Corporate category slightly offset these increases.

              Additional discussion of earnings in each of the business segments can be found in the business segment information that follows. Note that all amounts used in the earnings discussions are after-tax amounts, unless otherwise noted.

Earnings (Loss) by Segment

		Three Months Ended												Six Months Ended
		March 31,												March 31,
										Increase												Increase
(Thousands)		2008				2007				(Decrease)				2008				2007				(Decrease)
Utility		$	34,164			$	33,444			$	720			$	54,380			$	50,618			$	3,762
Pipeline and Storage			15,618				13,936				1,682				28,397				27,624				773
Exploration and Production			34,572				16,834				17,738				68,594				33,724				34,870
Energy Marketing			5,647				6,706				(1,059	)			6,602				7,198				(596	)
Timber			3,883				3,200				683				4,280				3,417				863
Total Reportable Segments			93,884				74,120				19,764				162,253				122,581				39,672
All Other			1,692				467				1,225				4,030				1,453				2,577
Corporate			(572	)			893				(1,465	)			(675	)			2,134				(2,809	)
Total Earnings from Continuing Operations			95,004				75,480				19,524				165,608				126,168				39,440
Earnings from Discontinued Operations			—				2,967				(2,967	)			—				6,799				(6,799	)
Total Consolidated		$	95,004			$	78,447			$	16,557			$	165,608			$	132,967			$	32,641

Utility

Utility Operating Revenues

		Three Months Ended												Six Months Ended
		March 31,												March 31,
										Increase												Increase
(Thousands)		2008				2007				(Decrease)				2008				2007				(Decrease)
Retail Sales Revenues:
Residential		$	393,269			$	394,218			$	(949	)		$	640,066			$	619,650			$	20,416
Commercial			66,090				67,469				(1,379	)			104,123				103,105				1,018
Industrial			3,924				3,748				176				5,575				5,649				(74	)
			463,283				465,435				(2,152	)			749,764				728,404				21,360
Transportation			42,337				38,464				3,873				75,761				65,340				10,421
Off-System Sales			19,855				—				19,855				28,067				—				28,067
Other			3,369				3,515				(146	)			6,676				6,482				194
		$	528,844			$	507,414			$	21,430			$	860,268			$	800,226			$	60,042