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, 2008

OR

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

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 July 31, 2008: 81,475,950 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.
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.

GLOSSARY OF TERMS (Cont.)
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
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 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.
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, 2008 and 2007		6 - 7
b. Consolidated Balance Sheets — June 30, 2008 and September 30, 2007		8 - 9
c. Consolidated Statement of Cash Flows — Nine Months Ended June 30, 2008 and 2007		10
d. Consolidated Statement of Comprehensive Income — Three and Nine Months Ended June 30, 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 - 44
Item 3. Quantitative and Qualitative Disclosures About Market Risk		44
Item 4. Controls and Procedures		44 - 45
Part II. Other Information
Item 1. Legal Proceedings		45
Item 1 A. Risk Factors		45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		45 - 46
Item 3. Defaults Upon Senior Securities		§
Item 4. Submission of Matters to a Vote of Security Holders		§
Item 5. Other Information		§
Item 6. Exhibits		46 - 47
Signatures		48
EX-4.1
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

(Unaudited)

		Three Months Ended
		June 30,
(Thousands of Dollars, Except Per Common Share Amounts)		2008				2007
INCOME
Operating Revenues		$	548,382			$	448,779
Operating Expenses
Purchased Gas			272,893				219,075
Operation and Maintenance			102,602				90,390
Property, Franchise and Other Taxes			19,135				17,622
Depreciation, Depletion and Amortization			42,804				37,759
			437,434				364,846
Operating Income			110,948				83,933
Other Income (Expense):
Income from Unconsolidated Subsidiaries			1,561				926
Interest Income			3,086				1,377
Other Income			1,649				787
Interest Expense on Long-Term Debt			(19,468	)			(18,226	)
Other Interest Expense			(1,199	)			(1,512	)
Income from Continuing Operations Before Income Taxes			96,577				67,285
Income Tax Expense			36,722				26,073
Income from Continuing Operations			59,855				41,212
Income from Discontinued Operations, Net of Tax			—				5,586
Net Income Available for Common Stock			59,855				46,798
EARNINGS REINVESTED IN THE BUSINESS
Balance at April 1			1,008,084				834,902
			1,067,939				881,700
Share Repurchases			(17,083	)			—
Dividends on Common Stock (2008 - $0.325 per share; 2007 - $0.31 per share)			(26,479	)			(25,897	)
Balance at June 30		$	1,024,377			$	855,803
Earnings Per Common Share:
Basic:
Income from Continuing Operations		$	0.74			$	0.49
Income from Discontinued Operations			—				0.07
Net Income Available for Common Stock		$	0.74			$	0.56
Diluted:
Income from Continuing Operations		$	0.72			$	0.48
Income from Discontinued Operations			—				0.07
Net Income Available for Common Stock		$	0.72			$	0.55
Weighted Average Common Shares Outstanding:
Used in Basic Calculation			81,342,788				83,483,718
Used in Diluted Calculation			83,712,193				85,668,055

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)		2008				2007
INCOME
Operating Revenues		$	2,002,503			$	1,737,537
Operating Expenses
Purchased Gas			1,082,340				938,918
Operation and Maintenance			325,642				305,502
Property, Franchise and Other Taxes			58,206				54,562
Depreciation, Depletion and Amortization			129,337				115,561
			1,595,525				1,414,543
Operating Income			406,978				322,994
Other Income (Expense):
Income from Unconsolidated Subsidiaries			4,866				3,099
Interest Income			8,356				3,098
Other Income			4,982				4,028
Interest Expense on Long-Term Debt			(52,045	)			(52,158	)
Other Interest Expense			(4,209	)			(4,877	)
Income from Continuing Operations Before Income Taxes			368,928				276,184
Income Tax Expense			143,465				108,804
Income from Continuing Operations			225,463				167,380
Income from Discontinued Operations, Net of Tax			—				12,385
Net Income Available for Common Stock			225,463				179,765
EARNINGS REINVESTED IN THE BUSINESS
Balance at October 1			983,776				786,013
			1,209,239				965,778
Share Repurchases			(106,647	)			(34,351	)
Cumulative Effect of the Adoption of FIN 48			(406	)			—
Dividends on Common Stock (2008 - $0.945 per share; 2007 - $0.91 per share)			(77,809	)			(75,624	)
Balance at June 30		$	1,024,377			$	855,803
Earnings Per Common Share:
Basic:
Income from Continuing Operations		$	2.72			$	2.02
Income from Discontinued Operations			—				0.15
Net Income Available for Common Stock		$	2.72			$	2.17
Diluted:
Income from Continuing Operations		$	2.65			$	1.96
Income from Discontinued Operations			—				0.15
Net Income Available for Common Stock		$	2.65			$	2.11
Weighted Average Common Shares Outstanding:
Used in Basic Calculation			82,789,748				83,018,583
Used in Diluted Calculation			85,000,381				85,192,777

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)		2008				2007
ASSETS
Property, Plant and Equipment		$	4,730,708			$	4,461,586
Less — Accumulated Depreciation, Depletion and Amortization			1,686,616				1,583,181
			3,044,092				2,878,405
Current Assets
Cash and Temporary Cash Investments			259,198				124,806
Cash Held in Escrow			—				61,964
Hedging Collateral Deposits			30,778				4,066
Receivables — Net of Allowance for Uncollectible Accounts of $35,588 and $28,654, Respectively			302,522				172,380
Unbilled Utility Revenue			19,580				20,682
Gas Stored Underground			53,735				66,195
Materials and Supplies — at average cost			33,310				35,669
Unrecovered Purchased Gas Costs			5,680				14,769
Other Current Assets			31,767				45,057
Deferred Income Taxes			84,297				8,550
			820,867				554,138
Other Assets
Recoverable Future Taxes			83,453				83,954
Unamortized Debt Expense			14,501				12,070
Other Regulatory Assets			129,640				137,577
Deferred Charges			5,235				5,545
Other Investments			82,474				85,902
Investments in Unconsolidated Subsidiaries			16,916				18,256
Goodwill			5,476				5,476
Intangible Assets			26,839				28,836
Prepaid Pension and Post-Retirement Benefit Costs			56,926				61,006
Fair Value of Derivative Financial Instruments			—				9,188
Other			7,442				8,059
			428,902				455,869
Total Assets		$	4,293,861			$	3,888,412

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)		2008				2007
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders’ Equity
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding – 81,473,550 Shares and 83,461,308 Shares, Respectively		$	81,474			$	83,461
Paid in Capital			583,693				569,085
Earnings Reinvested in the Business			1,024,377				983,776
Total Common Shareholder Equity Before Items of Other Comprehensive Loss			1,689,544				1,636,322
Accumulated Other Comprehensive Loss			(105,872	)			(6,203	)
Total Comprehensive Shareholders’ Equity			1,583,672				1,630,119
Long-Term Debt, Net of Current Portion			999,000				799,000
Total Capitalization			2,582,672				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			162,838				109,757
Amounts Payable to Customers			12,864				10,409
Dividends Payable			26,479				25,873
Interest Payable on Long-Term Debt			15,774				18,158
Customer Advances			—				22,863
Other Accruals and Current Liabilities			136,458				36,062
Fair Value of Derivative Financial Instruments			180,255				16,200
			634,668				439,346
Deferred Credits
Deferred Income Taxes			605,818				575,356
Taxes Refundable to Customers			14,037				14,026
Unamortized Investment Tax Credit			4,866				5,392
Cost of Removal Regulatory Liability			101,251				91,226
Other Regulatory Liabilities			95,846				76,659
Post-Retirement Liabilities			60,152				70,555
Asset Retirement Obligations			74,653				75,939
Other Deferred Credits			119,898				110,794
			1,076,521				1,019,947
Commitments and Contingencies			—				—
Total Capitalization and Liabilities		$	4,293,861			$	3,888,412

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)		2008				2007
OPERATING ACTIVITIES
Net Income Available for Common Stock		$	225,463			$	179,765
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization			129,337				125,986
Deferred Income Taxes			27,603				27,107
Income from Unconsolidated Subsidiaries, Net of Cash Distributions			1,340				(1,486	)
Excess Tax Benefits Associated with Stock-Based Compensation Awards			(16,275	)			(13,689	)
Other			(1,120	)			4,722
Change in:
Hedging Collateral Deposits			(26,712	)			16,276
Receivables and Unbilled Utility Revenue			(129,102	)			(43,733	)
Gas Stored Underground and Materials and Supplies			14,819				34,725
Unrecovered Purchased Gas Costs			9,089				12,970
Prepayments and Other Current Assets			17,370				30,685
Accounts Payable			53,081				(12,560	)
Amounts Payable to Customers			2,455				(4,738	)
Customer Advances			(22,863	)			(29,417	)
Other Accruals and Current Liabilities			94,031				77,842
Other Assets			19,178				918
Other Liabilities			17,373				(821	)
Net Cash Provided by Operating Activities			415,067				404,552
INVESTING ACTIVITIES
Capital Expenditures			(264,728	)			(206,509	)
Investment in Partnership			—				(3,300	)
Cash Held in Escrow			58,397				—
Net Proceeds from Sale of Oil and Gas Producing Properties			5,675				5,137
Other			(3,414	)			(1,072	)
Net Cash Used in Investing Activities			(204,070	)			(205,744	)
FINANCING ACTIVITIES
Excess Tax Benefits Associated with Stock-Based Compensation Awards			16,275				13,689
Shares Repurchased under Repurchase Plan			(129,592	)			(43,344	)
Net Proceeds from Issuance of Long-Term Debt			296,655				—
Reduction of Long-Term Debt			(200,024	)			(119,550	)
Dividends Paid on Common Stock			(77,204	)			(74,748	)
Net Proceeds from Issuance of Common Stock			17,285				16,819
Net Cash Used in Financing Activities			(76,605	)			(207,134	)
Effect of Exchange Rates on Cash			—				1,245
Net Increase (Decrease) in Cash and Temporary Cash Investments			134,392				(7,081	)
Cash and Temporary Cash Investments at October 1			124,806				69,611
Cash and Temporary Cash Investments at June 30		$	259,198			$	62,530

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)		2008				2007
Net Income Available for Common Stock		$	59,855			$	46,798
Other Comprehensive Income (Loss), Before Tax:
Foreign Currency Translation Adjustment			2				10,029
Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period			(1,603	)			1,570
Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period			(139,684	)			13,343
Reclassification Adjustment for Realized Losses on Derivative Financial Instruments in Net Income			33,082				5,581
Other Comprehensive Income (Loss), Before Tax			(108,203	)			30,523
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) On Securities Available for Sale Arising During the Period			(608	)			562
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) On Derivative Financial Instruments Arising During the Period			(57,136	)			5,433
Reclassification Adjustment for Income Tax Benefit on Realized Losses on Derivative Financial Instruments In Net Income			13,546				2,277
Income Taxes – Net			(44,198	)			8,272
Other Comprehensive Income (Loss)			(64,005	)			22,251
Comprehensive Income (Loss)		$	(4,150	)		$	69,049

		Nine Months Ended
		June 30,
(Thousands of Dollars)		2008				2007
Net Income Available for Common Stock		$	225,463			$	179,765
Other Comprehensive Income (Loss), Before Tax:
Foreign Currency Translation Adjustment			(72	)			6,384
Minimum Pension Liability Adjustment			—				(320	)
Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period			(4,817	)			2,844
Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period			(208,256	)			2,388
Reclassification Adjustment for Realized Losses on Derivative Financial Instruments in Net Income			45,242				7,799
Other Comprehensive Income (Loss), Before Tax			(167,903	)			19,095
Income Tax Expense (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			(1,429	)			1,046
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) On Derivative Financial Instruments Arising During the Period			(85,300	)			669
Reclassification Adjustment for Income Tax Benefit on Realized Losses on Derivative Financial Instruments In Net Income			18,495				3,933
Income Taxes – Net			(68,234	)			5,527
Other Comprehensive Income (Loss)			(99,669	)			13,568
Comprehensive Income		$	125,794			$	193,333

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 nine months ended June 30, 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. At June 30, 2008, the Company accrued $19.9 million of capital expenditures related to the construction of the Empire Connector project. This amount has been excluded from the Consolidated Statement of Cash Flows at June 30, 2008 since it represents a non-cash investing activity at that date.

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 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.

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 $77.9 million at June 30, 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 June 30, 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			(155	)			(83	)
Net Unrealized Loss on Derivative Financial Instruments			(100,095	)			(3,886	)
Net Unrealized Gain on Securities Available for Sale			6,860				10,248
Accumulated Other Comprehensive Loss		$	(105,872	)		$	(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 nine months ended June 30, 2008, there were no stock options excluded as being antidilutive. There were 6,593 and 2,190 stock-settled SARs excluded as being antidilutive for the quarter and nine months ended June 30, 2008, respectively. For the quarter and nine months ended June 30, 2007, there were no stock options excluded as being antidilutive. There were 1,817 and 271 stock-settled SARs excluded as being antidilutive for the quarter and nine months ended June 30, 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 ended June 30, 2008, the Company granted 30,000 performance-based stock-settled SARs having a weighted average exercise price of $58.99 per share. For the nine months ended June 30, 2008, the Company granted 321,000 performance-based stock-settled SARs having a weighted average exercise price of $48.46 per share. The weighted average grant date fair value of these stock-settled SARs was $12.23 per share and $9.06 per share for the quarter and nine months ended June 30, 2008, respectively. 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 nine months ended June 30, 2008 vest and become exercisable annually in 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 stock-settled SARs

Item 1. Financial Statements (Cont.)

granted during the quarter and nine months ended June 30, 2008 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 nine months ended June 30, 2008. The Company granted 25,000 restricted share awards (non-vested stock as defined in SFAS 123R) during the nine months ended June 30, 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 June 30, 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.

     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

Item 1. Financial Statements (Cont.)

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 disclosures in its notes to 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):

		Nine Months Ended
		June 30,
		2008				2007
Operating Expenses:
Current Income Taxes
Federal		$	92,384			$	65,629
State			23,388				19,259
Foreign			90				22
Deferred Income Taxes
Federal			18,906				18,221
State			8,697				5,270
Foreign			—				3,616
			143,465				112,017
Deferred Investment Tax Credit			(523	)			(523	)
Total Income Taxes		$	142,942			$	111,494
Presented as Follows:
Other Income		$	(523	)		$	(523	)
Income Tax Expense – Continuing Operations			143,465				108,804
Income from Discontinued Operations			—				3,213
Total Income Taxes		$	142,942			$	111,494

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

		Nine Months Ended
		June 30,
		2008				2007
U.S.		$	368,191			$	275,196
Foreign			214				16,063
		$	368,405			$	291,259

Item 1. Financial Statements (Cont.)

     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,
		2008				2007
Income Tax Expense, Computed at Statutory Rate of 35%		$	128,942			$	101,941
Increase (Reduction) in Taxes Resulting From:
State Income Taxes			20,855				15,944
Miscellaneous			(6,855	)			(6,391	)
Total Income Taxes		$	142,942			$	111,494

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

		At June 30, 2008				At September 30, 2007
Deferred Tax Liabilities:
Property, Plant and Equipment		$	669,079			$	612,648
Other			38,451				61,616
Total Deferred Tax Liabilities			707,530				674,264
Deferred Tax Assets:
Fair Value of Derivative Instruments and Securities			(65,192	)			—
Other			(120,817	)			(107,458	)
Total Deferred Tax Assets			(186,009	)			(107,458	)
Total Net Deferred Income Taxes		$	521,521			$	566,806
Presented as Follows:
Net Deferred Tax Asset – Current		$	(84,297	)		$	(8,550	)
Net Deferred Tax Liability – Non-Current			605,818				575,356
Total Net Deferred Income Taxes		$	521,521			$	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 June 30, 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 $83.5 million and $84.0 million at June 30, 2008 and September 30, 2007, respectively.

     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 has been no change in the balance of unrecognized tax benefits through June 30, 2008 and the Company does not anticipate any significant change in this liability over the next twelve months.

     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 through June 30, 2008 and has not accrued any penalties.

Item 1. Financial Statements (Cont.)

     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 2008 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. The IRS has issued a Full Acceptance Letter for the fiscal 2007 CAP audit, and is in the process of completing the post-filing review of this return. While the federal statute of limitations remains open for fiscal 2005 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 nine months ended June 30, 2008, the Company issued 884,644 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 7,200 original issue shares of common stock to the eight 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, 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 nine months ended June 30, 2008, 72,205 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 nine months ended June 30, 2008, the Company repurchased 2,832,397 shares for $129.6 million under this program, funded with cash provided by operating activities. Since the repurchase program was implemented, the Company has repurchased 6,667,275 shares for $262.8 million.

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 per full share. 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, including, among other things, certain derivative or synthetic arrangements having characteristics of a long position in the Company’s common stock, (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, on July 11, 2008, entered into an amended and restated Rights Agreement, reflecting the changes described in this paragraph, with the Bank of New York, as Rights Agent, and on July 15, 2008, filed with the SEC copies of that agreement as exhibits to Forms 8-A and Form 8-K.

Item 1. Financial Statements (Cont.)

Long-Term Debt. 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 used $200.0 million of the proceeds to refund $200.0 million of 6.303% medium-term notes that subsequently matured on May 27, 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. In July 2008, the Company withdrew its appeal and agreed to the terms of an Order on Consent issued by the NYDEC. Pursuant to the order, the Company will remediate the site consistent with the remedy selected in the NYDEC’s Record of Decision. The Company will also reimburse the NYDEC in the amount of approximately $1.5 million for costs incurred in connection with the site from 1998 through May 30, 2007. The Company acknowledged that additional charges related to the site will be billed to the Company at a later date, including costs incurred by the NYDEC after May 30, 2007 and any costs incurred by the New York Department of Health. The Company has not received any estimates of such additional costs. The Company has recorded an estimated minimum liability of $10.4 million associated with this site.

     At June 30, 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 $13.5 million to $17.2 million. The minimum estimated liability of $13.5 million has been recorded on the Consolidated Balance Sheet at June 30, 2008, including the $10.4 million discussed above. 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 issues, among other things. While these normal-course matters could have a material effect on earnings

Item 1. Financial Statements (Cont.)

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				Nine Months
		Ended				Ended
		June 30,				June 30,
(Thousands)		2007				2007
Operating Revenues		$	14,366			$	42,004
Operating Expenses			9,915				27,205
Operating Income			4,451				14,799
Interest Income			272				799
Income before Income Taxes			4,723				15,598
Income Tax Expense (Benefit)			(863	)			3,213
Income from Discontinued Operations		$	5,586			$	12,385

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.)

						Pipeline				Exploration												Total								Corporate and
						and				and				Energy								Reportable								Intersegment				Total
Quarter Ended June 30, 2008 (Thousands)		Utility				Storage				Production				Marketing				Timber				Segments				All Other				Eliminations				Consolidated
Revenue from External Customers		$	217,339			$	32,054			$	126,154			$	162,129			$	10,114			$	547,790			$	395			$	197			$	548,382
Intersegment Revenues		$	3,154			$	20,131			$	—			$	—			$	—			$	23,285			$	4,439			$	(27,724	)		$	—
Segment Profit (Loss):
Net Income (Loss)		$	7,848			$	12,534			$	39,791			$	478			$	(2,066	)		$	58,585			$	1,106			$	164			$	59,855

						Pipeline				Exploration												Total								Corporate and
						and				and				Energy								Reportable								Intersegment				Total
Nine Months Ended June 30, 2008 (Thousands)		Utility				Storage				Production				Marketing				Timber				Segments				All Other				Eliminations				Consolidated
Revenue from External Customers		$	1,067,194			$	101,871			$	348,829			$	440,111			$	40,438			$	1,998,443			$	3,564			$	496			$	2,002,503
Intersegment Revenues		$	13,567			$	61,340			$	—			$	—			$	—			$	74,907			$	10,251			$	(85,158	)		$	—
Segment Profit (Loss):
Net Income (Loss)		$	62,228			$	40,931			$	108,385			$	7,079			$	2,214			$	220,837			$	5,137			$	(511	)		$	225,463

						Pipeline				Exploration												Total								Corporate and
						and				and				Energy								Reportable								Intersegment				Total
Quarter Ended June 30, 2007 (Thousands)		Utility				Storage				Production				Marketing				Timber				Segments				All Other				Eliminations				Consolidated
Revenue from External Customers		$	210,604			$	30,128			$	80,028			$	113,380			$	13,131			$	447,271			$	1,308			$	200			$	448,779
Intersegment Revenues		$	2,586			$	20,332			$	—			$	—			$	—			$	22,918			$	2,253			$	(25,171	)		$	—
Segment Profit (Loss):
Income (Loss) from Continuing Operations		$	3,705			$	15,451			$	18,849			$	1,233			$	(364	)		$	38,874			$	458			$	1,880			$	41,212

						Pipeline				Exploration												Total								Corporate and
						and				and				Energy								Reportable								Intersegment				Total
Nine Months Ended June 30, 2007 (Thousands)		Utility				Storage				Production				Marketing				Timber				Segments				All Other				Eliminations				Consolidated
Revenue from External Customers		$	1,000,860			$	94,889			$	233,708			$	360,036			$	43,079			$	1,732,572			$	4,387			$	578			$	1,737,537
Intersegment Revenues		$	12,556			$	61,585			$	—			$	—			$	—			$	74,141			$	6,540			$	(80,681	)		$	—
Segment Profit:
Income from Continuing Operations		$	54,322			$	43,075			$	52,573			$	8,431			$	3,053			$	161,454			$	1,911			$	4,015			$	167,380

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 June 30, 2008												2007
		Gross								Net				Net
		Carrying				Accumulated				Carrying				Carrying
		Amount				Amortization				Amount				Amount
Intangible Assets Subject to Amortization:
Long-Term Transportation Contracts		$	8,580			$	(5,791	)		$	2,789			$	3,591
Long-Term Gas Purchase Contracts			31,864				(7,814	)			24,050				25,245
		$	40,444			$	(13,605	)		$	26,839			$	28,836
Aggregate Amortization Expense:
(Thousands)
Three Months Ended June 30, 2008		$	666
Three Months Ended June 30, 2007		$	666
Nine Months Ended June 30, 2008		$	1,997
Nine Months Ended June 30, 2007		$	1,997

     The gross carrying amount of intangible assets subject to amortization at June 30, 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 $0.3 million for the remainder of 2008 and $0.5 million 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 $0.4 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):

		Retirement Plan								Other Post-Retirement Benefits
Three months ended June 30,		2008				2007				2008				2007
Service Cost		$	3,149			$	3,225			$	1,276			$	1,403
Interest Cost			11,237				11,087				6,770				6,800
Expected Return on Plan Assets			(13,750	)			(12,809	)			(8,428	)			(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)			783				(344	)			4,354				3,382
Net Periodic Benefit Cost		$	4,387			$	4,761			$	6,487			$	8,681

Item 1. Financial Statements (Cont.)

		Retirement Plan								Other Post-Retirement Benefits
Nine months ended June 30,		2008				2007				2008				2007
Service Cost		$	9,448			$	9,674			$	3,828			$	4,210
Interest Cost			33,712				33,263				20,311				20,399
Expected Return on Plan Assets			(41,250	)			(38,427	)			(25,286	)			(20,220	)
Amortization of Prior Service Cost			606				661				3				3
Amortization of Transition Amount			—				—				5,346				5,345
Amortization of Losses			8,298				10,146				2,195				6,160
Net Amortization and Deferral for Regulatory Purposes (Including Volumetric Adjustments) (1)			7,597				3,885				20,028				16,453
Net Periodic Benefit Cost		$	18,411			$	19,202			$	26,425			$	32,350

Employer Contributions. During the nine months ended June 30, 2008, the Company contributed $3.8 million to its retirement plan and $25.3 million to its VEBA trusts and 401(h) accounts in its other post-retirement benefit plan. In the remainder of 2008, the Company expects to contribute $12.2 million to its retirement plan and $3.8 million to its VEBA trusts and 401(h) accounts in its other post-retirement benefit plan.

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

OVERVIEW

     The Company is a diversified energy company and reports its operating results in five reportable business segments. For the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007, the Company has experienced an increase in earnings of $13.1 million, primarily due to higher earnings in the Exploration and Production segment. The Utility segment and the All Other category also contributed to the increase in earnings. These earnings increases discussed above were slightly offset by lower earnings in the Pipeline and Storage and Energy Marketing segments as well as in the Corporate category, combined with a higher loss in the Timber segment. For the nine months ended June 30, 2008 compared to the nine months ended June 30, 2007, the Company experienced an increase in earnings of $45.7 million, due primarily to higher earnings in the Exploration and Production segment. The Utility segment and the All Other category also contributed to the increase in earnings. These earnings increases discussed above were slightly offset by lower earnings in the Pipeline and Storage, Energy Marketing, and Timber segments as well as in the Corporate category. 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 $284.6 million on capital expenditures during the nine months ended June 30, 2008, with approximately 49% being spent in the Exploration and Production segment, 37% in the Pipeline and Storage segment and 14% in the Utility segment. The amounts spent in the various segments reflect the Company’s belief that the Exploration and Production segment and the Pipeline and Storage segment currently provide the best earnings growth opportunities for shareholders. In the Exploration and Production segment, the Company’s principal focus continues to be the development of its nearly one million acres in the Appalachian region along with continued exploration and development in the Gulf and West Coast regions. In the Pipeline and Storage segment, the majority of the expenditures were for construction costs of the Empire Connector project. The project is on schedule to be completed by the planned in-service date of November 2008, although the actual in-service date will depend upon the completion of the Millennium Pipeline. This project and other capital expenditures are discussed further in the Capital Resources and Liquidity section that follows.

     The Company regularly considers the repurchase of 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 June 30, 2008, the Company had repurchased 6,667,275 shares for $262.8 million under this program, including 2,832,397 shares for $129.6 million during the nine months ended June 30, 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. The Company is also exploring the sale of Horizon Power’s unconsolidated subsidiaries. This includes ESNE, which generates electricity from an 80-megawatt, combined cycle, natural gas-fired power plant in North East, Pennsylvania, as well as Seneca Energy and Model City, which generate and sell electricity using methane gas obtained from landfills owned by outside parties.

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.

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

RESULTS OF OPERATIONS

Earnings

     The Company’s earnings were $59.9 million for the quarter ended June 30, 2008 compared to earnings of $46.8 million for the quarter ended June 30, 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 $59.9 million for the quarter ended June 30, 2008 compared to earnings from continuing operations of $41.2 million for the quarter ended June 30, 2007. The increase in earnings from continuing operations of $18.7 million is primarily the result of higher earnings in the Exploration and Production segment. The Utility segment and the All Other category also contributed to the increase in earnings. These earnings increases discussed above were slightly offset by lower earnings in the Pipeline and Storage and Energy Marketing segments, as well as in the Corporate category, combined with a higher loss in the Timber segment.

     The Company’s earnings were $225.5 million for the nine months ended June 30, 2008 compared to earnings of $179.8 million for the nine months ended June 30, 2007. The Company’s earnings from continuing operations were $225.5 million for the nine months ended June 30, 2008 compared to earnings from continuing operations of $167.4 million for the nine months ended June 30, 2007. The increase in earnings from continuing operations of $58.1 million is primarily the result of higher earnings in the Exploration and Production segment. The Utility segment and the All Other category also contributed to the increase in earnings. These earnings increases discussed above were slightly offset by lower earnings in the Pipeline and Storage, Energy Marketing, and Timber segments as well as in the Corporate category.

     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												Nine Months Ended
		June 30,												June 30,
										Increase/												Increase/
(Thousands)		2008				2007				(Decrease)				2008				2007				(Decrease)
Utility		$	7,848			$	3,705			$	4,143			$	62,228			$	54,322			$	7,906
Pipeline and Storage			12,534				15,451				(2,917	)			40,931				43,075				(2,144	)
Exploration and Production			39,791				18,849				20,942				108,385				52,573				55,812
Energy Marketing			478				1,233				(755	)			7,079				8,431				(1,352	)
Timber			(2,066	)			(364	)			(1,702	)			2,214				3,053				(839	)
Total Reportable Segments			58,585				38,874				19,711				220,837				161,454				59,383
All Other			1,106				458				648				5,137				1,911				3,226
Corporate			164				1,880				(1,716	)			(511	)			4,015				(4,526	)
Total Earnings from Continuing Operations			59,855				41,212				18,643				225,463				167,380				58,083
Earnings from Discontinued Operations			—				5,586				(5,586	)			—				12,385				(12,385	)
Total Consolidated		$	59,855			$	46,798			$	13,057			$	225,463			$	179,765			$	45,698

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

Utility

Utility Operating Revenues

		Three Months Ended												Nine Months Ended
		June 30,												June 30,
										Increase/												Increase/
(Thousands)		2008				2007				(Decrease)				2008				2007				(Decrease)
Retail Sales Revenues:
Residential		$	153,058			$	158,922			$	(5,864	)		$	793,124			$	778,572			$	14,552
Commercial			20,459				24,380				(3,921	)			124,582				127,485				(2,903	)
Industrial			1,178				1,432				(254	)			6,754				7,081				(327	)
			174,695				184,734				(10,039	)			924,460				913,138				11,322
Transportation			21,584				21,017				567				97,345				86,358				10,987
Off-System Sales			20,540				3,727				16,813				48,606				3,727				44,879
Other			3,674				3,712				(38	)			10,350				10,193				157
		$	220,493			$	213,190			$	7,303			$	1,080,761			$	1,013,416			$	67,345