National Fuel Gas: A Shale-Driven Earnings Surge Positions It as a Compelling Buy

National Fuel Gas (NFG) is emerging as a standout opportunity in the energy sector, with its recent operational and financial milestones positioning it to deliver earnings per share (EPS) for fiscal 2026 that could surpass even the most optimistic estimates. The company's enhanced well productivity in the Utica shale play, paired with strategic hedging and cost discipline, creates a robust foundation for outperformance. Let's dissect the catalysts and risks to assess its investment potential.

The Utica Well Productivity Revolution

The cornerstone of NFG's turnaround lies in its Utica program, where recent wells have exceeded all prior expectations. Sequential production growth of 8% in Q2 2025 pushed output to nearly 106 BCF, driven by wells in Tioga County that now boast an EUR (Estimated Ultimate Recovery) of 2.5 BCF per 1,000 feet—a 15% improvement over earlier estimates. These wells are maintaining 25–30 MMcf/d production rates for 9–12 months, a testament to their longevity. Crucially, pressure decline trends have slowed, extending reserve life and reducing the need for costly rework.

The company is now testing Gen 4 well designs, including increased proppant loading (up to $3,800 per foot) and optimized inner wall spacing. While these changes carry capital risks, the potential to lift EUR further could unlock substantial value. Even without Gen 4, current metrics suggest a 5% annual production growth rate, with output already exceeding guidance by 16% in recent quarters. This operational prowess is underpinned by NFG's 20-year inventory of economic drilling locations at NYMEX prices below $2.25/MMBtu—a critical buffer against price volatility.

Hedging as a Shield and Sword

NFG's financial strategy is equally compelling. The company has hedged 76 Bcf of 2026/2027 production through swaps and collars at an average price of $4/MMBtu, with floors of $4 and caps of $5.5. With current NYMEX prices hovering around $3.30/MMBtu, these hedges are already in the money, locking in revenue at levels above today's spot prices. CFO Tim Silverstein emphasized that this “structural improvement” in pricing, combined with $15 million/year in incremental pipeline revenue from the Tioga Pathway project, creates a stable earnings base even in a downcycle.

Meanwhile, drilling and completion costs are projected to decline by 10% by 2027, further boosting margins. The company's $1 billion bond issuance at record-low credit spreads has strengthened its balance sheet, enabling share buybacks and capital discipline.

Risks and Regulatory Tailwinds

Risks remain, particularly regulatory hurdles for infrastructure projects like Tioga Pathway and potential basis differential widening in Appalachian markets. However, NFG's integrated business model—combining production, midstream assets, and regulated utilities—buffers against these threats. Rate settlements in New York and Pennsylvania, plus $15 million/year from Tioga Pathway, ensure stable cash flows.

The supply-demand dynamic for natural gas also favors NFG. LNG export growth and domestic power demand are tightening global markets, while U.S. production growth has slowed amid capital discipline. NFG's focus on high-margin wells and hedges at $4/MMBtu positions it to capitalize on any price recovery.

Investment Thesis: A Buy with Upside

The data paints a clear picture: NFG's $9.12 2026 EPS estimate (vs. consensus $8.62) is achievable, and upward revisions are likely if gas prices stabilize above $3.5/MMBtu or Gen 4 wells deliver. The stock trades at 12.5x 2026E EPS, a discount to peers like EQT (16x) and Range Resources (14x), despite its stronger balance sheet and hedging.

Recommendation: Buy NFG with a 12–18 month horizon. A price target of $110–$115 (13–14x $8.62 EPS) reflects upside from both earnings growth and valuation re-rating. Investors seeking exposure to a shale operator with defensive hedges, cash flow resilience, and a path to free cash flow generation should prioritize this name.

While regulatory risks linger, NFG's operational and financial execution leaves little doubt that 2026 will be a breakout year. This is a stock poised to outperform as energy markets stabilize and gas demand continues its inexorable rise.