NW Natural Reports Results for the Three and Six Months Ended June 30, 2014

PORTLAND, OR--(Marketwired - Aug 5, 2014) - Northwest Natural Gas Company, dba NW Natural (NYSE: NWN)

• Consolidated net income was $1.1 million for the second quarter of 2014, or $0.04 per share, compared to $2.1 million, or $0.08 per share, for the second quarter of 2013.
• Utility margin and net income increased $5.0 million and $1.5 million, respectively, during the second quarter of 2014 compared to last year, while gas storage operating revenues and net income decreased $2.7 million and $2.6 million, respectively, compared to last year.
• Customer growth increased to 1.4% at June 30, 2014, compared to 1.0% at June 30, 2013.
• Utility announces plans to invest between $8 and $16 million in new gas reserves during the second half of 2014.

Northwest Natural Gas Company, dba NW Natural (NYSE: NWN), reported consolidated net income of $1.1 million for the second quarter of 2014, or $0.04 per share, compared to net income of $2.1 million, or $0.08 per share, for the second quarter of 2013. Consolidated net income was $39.0 million, or $1.43 per share, for the first six months of 2014, compared to net income of $39.8 million, or $1.47 per share, for the first six months of 2013. The Company's earnings are typically lower during the second and third quarters due to the impact of decreased heating requirements affecting utility results.

"Our second quarter results continued to reflect positive customer growth trends and progress on several key growth initiatives, but were offset by headwinds in the gas storage market," said Gregg Kantor, President and Chief Executive Officer. "Also in the quarter, we began investing in gas reserves under the amended agreement, and we signed a new union labor contract, which we expect to benefit customers, employees, and the Company for years to come."

Consolidated Results
Results for the quarter and year-to-date periods included higher earnings from the utility segment, but losses from the gas storage segment. Gas storage results reflected lower revenues and higher operating expenses, while the utility benefited from customer growth and added rate-base returns on certain investments.

Utility Results
For the three months ended June 30, 2014 and 2013, the utility contributed net income of $2.2 million and $0.7 million, respectively. The $1.5 million increase was driven by higher margins from customer growth and added rate-base return on certain investments, including gas reserves, partially offset by a decrease in other income due to lower interest on regulatory deferred accounts.

For the six months ended June 30, 2014, utility net income was $38.2 million, compared to $36.7 million last year. Results reflected an increase in utility margin from customer growth and rate-base returns on certain investments.

Customer growth. NW Natural's customer growth rate for the trailing 12-month period ended June 30, 2014 was 1.4%, with the Company serving approximately 697,000 customers, compared to a growth rate of 1.0% for the same period in 2013. The Company added about 9,400 new customers during the last 12 months, compared to 7,100 customers added a year ago.

Utility Volumes and Margin.

		Three Months Ended						Six Months Ended
		June 30,						June 30,						Change							% Change
Dollars and therms in thousands		2014			2013			2014			2013			QTD				YTD			QTD			YTD
Gas sales & transportation deliveries			208,253			212,097			614,470			612,287			(3,844	)			2,183		(1.8	)%		0.4	%
Utility margin		$	69,795		$	64,801		$	200,089		$	192,101		$	4,994			$	7,988		7.7	%		4.2	%

For the quarter, total gas sales and transportation deliveries decreased 3.8 million therms, or 2%, compared to the same period last year due to warmer weather. Heating degree days were 10% lower than 2013 and 23% lower than average. However, utility margin for the quarter increased $5.0 million over last year, reflecting a combination of customer growth and added rate-base returns on gas reserve and other investments.

For the six month period, total gas sales and transportation deliveries increased 2.2 million therms, or 0.4%, mainly due to customer growth and higher volumes during the February cold weather event, partially offset by weather that was 3% warmer than last year and 5% warmer than average. Utility margin for the first six months increased 4%, or $8.0 million, compared to last year primarily due to a $9.5 million increase from customer growth and the added rate-base returns on our gas reserve and other investments, partially offset by $2.4 million of losses from the impact of higher gas costs on our incentive sharing mechanism.

Environmental Insurance Settlements. In February 2014, NW Natural settled with defendant insurance companies in the Company's environmental insurance litigation, which sought recovery for past and future environmental remediation expenses. The Company received settlement proceeds totaling $102 million in the first six months of 2014, and approximately $150 million cumulatively.

Gas Reserves. During the second quarter of 2014, the Company was notified by its new partner, Jonah Energy LLC, of investment opportunities under the Company's amended gas reserve agreement. At this time, the Company has agreed to participate in selected wells to be drilled in 2014 and may have the opportunity to participate in additional wells in future years. The Company currently expects to invest an additional $8 million to $16 million in the second half of 2014 under the amended agreement, bringing the total investment, including amounts invested under the original agreement, to between $27 million and $35 million for 2014. The Company is seeking regulatory approval from the OPUC. Our investment balance under the original agreement earns a rate of return for our shareholders and provides long-term gas price protection for our utility customers.

New Labor Agreement. The Company ratified a new labor agreement with its union employees during the second quarter, which was effective June 1, 2014. Average compensation increases for the first year are roughly 4%, with an additional annual 3% increase effective December 1, 2015 and each year thereafter.

Gas Storage Results
The gas storage segment incurred a $1.2 million net loss for the second quarter of 2014, compared to a contribution of $1.5 million net income for the same period in 2013. The loss included a $2.7 million decrease in operating revenues from re-contracting some expiring storage capacity for the 2014-15 gas storage year, which began April 1, 2014, at substantially lower market prices than in previous years, and a $1.3 million increase in power and repair costs at our Gill Ranch facility. The power cost increase reflected higher injections into storage during the second quarter to replenish low storage levels following higher withdrawals this past winter. The repair cost increase reflected work at our Gill Ranch facility, which has now been in operation for three annual cycles. The Company intends to continue developing repair and maintenance plans for the future as well as evaluating potential capital improvements that may be needed to enhance the facility.

For the first six months of 2014, gas storage operating revenues and net income decreased $3.0 million and $2.6 million, respectively, compared to the same period in 2013 primarily due to the same factors described for the quarter.

Consolidated Operations and Maintenance Expense
Operations and maintenance expense for the second quarter of 2014 increased $1.5 million over 2013 primarily due to a $1.3 million increase in power and repair costs at our Gill Ranch facility. Utility expenses were consistent period over period, but reflected offsetting variances from higher utility safety program costs and lower incentive compensation accruals.

Operations and maintenance expense for the first six months of 2014 increased $3.1 million, or 5%, compared to the same period for 2013 due to a $1.8 million increase in power and repair costs at our Gill Ranch facility, and a $1.2 million increase in bad debt expense at the utility reflecting an adjustment to the uncollectible provision account balance taken in the first quarter of 2013. The utility bad debt expense as a percent of revenues was 0.18% for the trailing 12 months ended June 30, 2014. The six month period also reflected similar offsetting variances as described for the quarter with higher utility safety program costs and lower incentive compensation accruals.

Cash Flows
Cash provided by operations for the first six months of 2014 was $233 million, compared to $160 million for the same period in 2013. The variance reflects the receipt of environmental insurance proceeds, which was $102 million before tax, as well as other positive working capital changes.

Earnings Guidance for 2014
The Company reaffirmed earnings guidance for 2014 in the range of $2.15 to $2.35 per share. The Company's 2014 earnings guidance assumes a continued economic recovery, customer growth from the utility segment, average weather conditions, no significant changes in prevailing legislative and regulatory policies or outcomes, and resolution of the environmental cost recovery mechanism during 2014.

Dividend Declaration
The board of directors of NW Natural declared a quarterly dividend of 46.0 cents a share on the Company's common stock. The dividends will be payable on Aug. 15, 2014 to shareholders of record on July 31, 2014. Currently, the Company's indicated annual dividend rate is $1.84 per share.

Presentation of Results
In addition to presenting results of operations and earnings amounts in accordance with generally accepted accounting principles (GAAP), NW Natural has expressed certain measures in this press release on an equivalent cents-per-share basis, which are non-GAAP financial measures. These amounts reflect factors that directly impact the Company's earnings. In calculating these financial disclosures, we allocate income tax expense based on the effective tax rate, where applicable. These non-GAAP financial measures should not be used to the exclusion of GAAP financial measures. NW Natural believes that these non-GAAP financial measures provide useful information to the reader by removing the effects of variances in GAAP reported results of operations that we believe are not indicative of fundamental changes in our financial condition or results of operations.

Conference Call Arrangements
As previously reported, NW Natural will conduct a conference call and webcast starting at 8 a.m. Pacific Time (11 a.m. Eastern Time) on Aug. 5, 2014 to review the Company's financial and operating results for the three and six months ended June 30, 2014.

To hear the conference call live, please dial 1-888-317-6016 within the United States and 1-855-669-9657 from Canada. International callers can dial 1-412-317-6016. To access the conference replay, please call 1-877-344-7529 and enter the conference identification pass code (10049150). To hear the replay from international locations, please dial 1-412-317-0088.

To hear the conference by webcast, log on to NW Natural's corporate website at www.nwnatural.com.

Forward-Looking Statements
This report, and other presentations made by NW Natural from time to time, may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the following: plans, objectives, goals, strategies, future events, economic recovery, investments, hedge efficacy, gas reserve investments and their financial value and benefit, customer growth, weather, commodity and other costs, customer rates or rate recovery, effects of the new labor contract, financial positions, revenues and earnings, dividends, performance, operations and maintenance and capital expenses, facility enhancements, timing or effects of future regulatory proceedings or future regulatory approvals, effects of regulatory mechanisms, including, but not limited to, the environmental cost recovery mechanism and gas reserve investments, contracting levels or pricing, and other statements that are other than statements of historical facts.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed by reference to the factors described in Part I, Item 1A "Risk Factors", and Part II, Item 7 and Item 7A "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosure about Market Risk" in the Company's most recent Annual Report on Form 10-K and in Part I, Items 2 and 3 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk", and Part II, Item 1A, "Risk Factors", in the Company's quarterly reports filed thereafter.

All forward-looking statements made in this report and all subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. New factors emerge from time to time and it is not possible for the Company to predict all such factors, nor can it assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements.

About NW Natural
NW Natural (NYSE: NWN) is headquartered in Portland, Ore., and provides natural gas service to about 697,000 residential, commercial, and industrial customers through 14,000 miles of mains and service lines in western Oregon and southwestern Washington. It is the largest independent natural gas utility in the Pacific Northwest with $2.8 billion in total assets. NW Natural and its subsidiaries currently own and operate underground gas storage facilities with storage capacity of approximately 31 Bcf in Oregon and California. Additional information is available at www.nwnatural.com.

NORTHWEST NATURAL GAS COMPANY
Comparative Income Statements
(Consolidated - Unaudited)
		Three Months Ended
In thousands, except per share amounts		06/30/14			06/30/13			Change				% Change
Income from operations		$	13,266		$	13,083		$	183			1	%
Net Income			1,071			2,126			(1,055	)		(50	)
Diluted average shares of common stock outstanding			27,182			26,999			183			1
Diluted earnings per share of common stock			0.04			0.08			(0.04	)		(50	)
		Six Months Ended
In thousands, except per share amounts		06/30/14			06/30/13			Change				% Change
Income from operations		$	88,294		$	87,289		$	1,005			1	%
Net income			38,955			39,765			(810	)		(2	)
Diluted average shares of common stock outstanding			27,158			26,991			167			1
Diluted earnings per share of common stock			1.43			1.47			(0.04	)		(3	)
		Twelve Months Ended
In thousands, except per share amounts		06/30/14			06/30/13			Change				% Change
Income from operations		$	143,751		$	138,964		$	4,787			3	%
Net income			59,728			57,033			2,695			5
Diluted average shares of common stock outstanding			27,096			26,948			148			1
Diluted earnings per share of common stock			2.20			2.12			0.08			4

NORTHWEST NATURAL GAS COMPANY
Consolidated Balance Sheets (Unaudited)				June 30,				June 30,
In thousands				2014				2013
Assets:
Current assets:
	Cash and cash equivalents			$	17,240			$	12,214
	Accounts receivable				38,621				39,061
	Accrued unbilled revenue				14,592				14,692
	Allowance for uncollectible accounts				(1,404	)			(1,189	)
	Regulatory assets				38,265				25,952
	Derivative instruments				11,191				623
	Inventories				60,808				62,412
	Gas reserves				20,373				15,324
	Income taxes receivable				--				1,297
	Deferred tax assets				4,915				--
	Other current taxes				14,518				8,781
		Total current assets			219,119				179,167
Non-current assets:
	Property, plant, and equipment				2,965,226				2,833,083
	Less: Accumulated depreciation				879,296				833,851
		Total property, plant, and equipment, net			2,085,930				1,999,232
	Gas reserves				130,280				113,762
	Regulatory assets				267,248				393,652
	Derivative instruments				1,202				1,054
	Other investments				67,689				67,410
	Restricted cash				3,000				4,000
	Other non-current assets				12,646				14,312
		Total non-current assets			2,567,995				2,593,422
		Total assets		$	2,787,114			$	2,772,589
Liabilities and equity:
Current liabilities:
	Short-term debt			$	74,200			$	136,000
	Current maturities of long-term debt				100,000				--
	Accounts payable				68,973				63,466
	Taxes accrued				15,769				6,798
	Interest accrued				7,053				6,404
	Regulatory liabilities				26,742				16,644
	Derivative instruments				1,490				9,392
	Other current liabilities				34,507				34,446
		Total current liabilities			328,734				273,150
Long-term debt					621,700				691,700
	Deferred credits and other non-current liabilities:
	Deferred tax liabilities				489,892				469,964
	Regulatory liabilities				309,327				294,202
	Pension and other postretirement benefit liabilities				145,861				214,125
	Derivative instruments				191				1,754
	Other non-current liabilities				120,423				79,145
		Total deferred credits and other non-current liabilities			1,065,694				1,059,190
Equity:
	Common stock				369,315				359,772
	Retained earnings				407,698				397,603
	Accumulated other comprehensive loss				(6,027	)			(8,826	)
		Total equity			770,986				748,549
		Total liabilities and equity		$	2,787,114			$	2,772,589

NORTHWEST NATURAL GAS COMPANY					Six Months Ended
Consolidated Statements of Cash Flows (Unaudited)					June 30,
In thousands					2014				2013
Operating activities:
	Net income				$	38,955			$	39,765
	Adjustments to reconcile net income to cash provided by operations:
		Depreciation and amortization				39,298				37,737
		Regulatory amortization of gas reserves				8,680				4,970
		Deferred tax liabilities, net				989				28,401
		Non-cash expenses related to qualified defined benefit pension plans				2,540				2,773
		Contributions to qualified defined benefit pension plans				(6,000	)			(4,200	)
		Deferred environmental recoveries, net of (expenditures)				92,104				(2,989	)
		Other				1,010				(1,567	)
		Changes in assets and liabilities:
			Receivables			89,951				63,102
			Inventories			(139	)			5,190
			Taxes accrued			8,447				(1,535	)
			Accounts payable			(24,472	)			(22,155	)
			Interest accrued			(50	)			451
			Deferred gas costs			(18,812	)			(648	)
			Other, net			744				10,847
	Cash provided by operating activities					233,245				160,142
Investing activities:
	Capital expenditures					(52,489	)			(55,055	)
	Utility gas reserves					(18,632	)			(34,397	)
	Proceeds from sale of assets					--				6,580
	Restricted cash					1,000				--
	Other					(1,043	)			1,743
		Cash used in investing activities				(71,164	)			(81,129	)
Financing activities:
	Common stock issued, net					3,733				2,355
	Long-term debt retired					(20,000	)			--
	Change in short-term debt					(114,000	)			(54,250	)
	Cash dividend payments on common stock					(24,938	)			(24,509	)
	Other					893				682
		Cash used in financing activities				(154,312	)			(75,722	)
Increase (decrease) in cash and cash equivalents						7,769				3,291
Cash and cash equivalents, beginning of period						9,471				8,923
Cash and cash equivalents, end of period					$	17,240			$	12,214
Supplemental disclosure of cash flow information:
	Interest paid				$	23,270			$	21,746
	Income taxes paid					14,945				--

NORTHWEST NATURAL GAS COMPANY

Financial Highlights (Unaudited)

Second Quarter - 2014

In thousands, except per share amounts, customer, and degree day data			Three Months Ended June 30,										Six Months Ended June 30,										Twelve Months Ended June 30,
			2014				2013				Change		2014				2013				Change		2014				2013				Change
Operating revenues			$	133,169			$	131,714			1%		$	426,555			$	409,575			4%		$	775,498			$	726,552			7%
Operating expenses:
	Cost of gas			58,280				59,142			(1)			213,481				201,501			6			385,278				352,583			9
	Operations and maintenance			34,731				33,217			5			70,117				66,974			5			139,756				129,881			8
	General taxes			7,183				7,342			(2)			15,365				16,074			(4)			29,247				30,419			(4)
	Depreciation and amortization			19,709				18,930			4			39,298				37,737			4			77,466				74,705			4
	Total operating expenses			119,903				118,631			1			338,261				322,286			5			631,747				587,588			8
Income from operations				13,266				13,083			1			88,294				87,289			1			143,751				138,964			3
Other income and expense, net				262				1,450			(82)			1,645				1,970			(16)			4,344				4,037			8
Interest expense, net				11,677				11,069			5			23,219				22,196			5			46,195				43,698			6
Income before income taxes				1,851				3,464			(47)			66,720				67,063			(1)			101,900				99,303			3
Income tax expense				780				1,338			(42)			27,765				27,298			2			42,172				42,270			--
Net income			$	1,071			$	2,126			(50)		$	38,955			$	39,765			(2)		$	59,728			$	57,033			5
Common shares outstanding:
	Average diluted for period			27,182				26,999						27,158				26,991						27,096				26,948
	End of period			27,147				26,972						27,147				26,972						27,147				26,972
Per share information:
	Diluted earnings per share		$	0.04			$	0.08						1.43				1.47					$	2.20			$	2.12
	Dividends declared per share of common stock			0.460				0.455						0.920				0.910						1.84				1.79
	Book value per share, end of period			28.40				27.75						28.40				27.75						28.40				27.75
	Market closing price, end of period			47.15				42.48						47.15				42.48						47.15				42.48
Capital Structure, end of period:
	Common stock equity			49.2	%			47.5	%					49.2	%			47.5	%					49.2	%			47.5	%
	Long-term debt			39.7				43.9						39.7				43.9						39.7				43.9
	Short-term debt (including amounts due in one year)			11.1				8.6						11.1				8.6						11.1				8.6
	Total			100.0	%			100.0	%					100.0	%			100.0	%					100.0	%			100.0	%
Utility operating statistics:
Customers, end of period				697,422				688,067			1.4%			697,422				688,067			1.4%			697,422				688,067			1.4%
Utility volumes (therms):
	Residential and commercial sales			96,533				103,313						370,689				371,977						670,618				625,932
	Industrial sales and transportation			111,720				108,784						243,781				240,310						477,996				470,948
Total utility volumes sold and delivered				208,253				212,097						614,470				612,287						1,148,614				1,096,880
Utility operating revenues:
	Residential and commercial sales		$	113,186			$	110,155					$	383,188			$	366,521					$	689,917			$	638,138
	Industrial sales and transportation			16,855				15,723						38,367				34,748						72,499				69,225
	Other revenues			1,166				1,242						2,643				2,771						3,926				5,693
	Less: Revenue taxes			3,132				3,177						10,628				10,438						19,192				18,435
Total utility operating revenues				128,075				123,943						413,570				393,602						747,150				694,621
	Less: Cost of gas			58,280				59,142						213,481				201,501						385,278				352,583
Utility margin			$	69,795			$	64,801					$	200,089			$	192,101					$	361,872			$	342,038
Degree days:
	Average (25-year average)			691				691						2,546				2,546						4,240				4,256
	Actual			530				591			(10)%			2,420				2,495			(3)%			4,304				3,988			8%
Percent colder (warmer) than average weather				(23	)%			(14	)%					(5	)%			(2	)%					2	%			(6	)%