NATIONAL FUEL GAS CO (Form: 10-K, Received: 12/12/2005 17:09:24)

Attention:

Mr. James A. Beck

Oil, Condensate and Natural Gas Reserves,

Seneca Resources Corporation

As of September 30, 2005

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


	þ	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)


	OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2005


	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)


	OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number 1-3880

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 (Address of principal executive offices)		14221 (Zip Code)

(716) 857-7000

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $1 Par Value, and Common Stock Purchase Rights		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o

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

The aggregate market value of the voting stock held by nonaffiliates of the registrant amounted to $2,343,563,000 as of March 31, 2005.

Common Stock, $1 Par Value, outstanding as of November 30, 2005: 84,461,261 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 16, 2006 are incorporated by reference into Part III of this report.

Glossary of Terms

Frequently used abbreviations, acronyms, or terms used in this report:


	*National Fuel Gas Companies*

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 B.V. Horizon Energy Development B.V.

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

The Company The Registrant, the Registrant and its subsidiaries or the Registrant’s subsidiaries as appropriate in the context of the disclosure

Toro Toro Partners, LP

U.E. United Energy, a.s.


	*Regulatory Agencies*

EPA United States Environmental Protection Agency

FASB Financial Accounting Standards Board

FERC Federal Energy Regulatory Commission

NYPSC State of New York Public Service Commission

PaPUC Pennsylvania Public Utility Commission

SEC Securities and Exchange Commission


	*Other*

APB 18 Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock

APB 20 Accounting Principles Board Opinion No. 20, Accounting Changes

APB 25 Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees

Bbl Barrel

Bcf Billion cubic feet

Bcf (or Mcf) Equivalent The total heat value (Btu) of natural gas and oil expressed as a volume of natural gas. National Fuel uses a conversion formula of 1 barrel of oil = 6 Mcf 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.

CTA Cumulative Foreign Currency Translation Adjustment

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 (a price, interest rate, index rate, exchange rate, or other variable) and notional amount (number of units, pounds, bushels, etc.). The terms also permit for the instrument or contract to be settled net and no initial net investment is required to enter into the financial instrument or contract. Examples include futures contracts, options, no cost collars and swaps.

Development costs Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas.

Development well A well drilled to a known producing formation in a previously discovered field.

Dth Dekatherm; 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.

Energy Policy Act Energy Policy Act of 2005

Exchange Act Securities Exchange Act of 1934, as amended

Expenditures for long-lived assets Includes capital expenditures, stock acquisitions and/or investments in partnerships.

Exploration costs Costs incurred in identifying areas that may warrant examination, as well as costs incurred in examining specific areas, including drilling exploratory wells.

Exploratory well A well drilled in unproven or semi-proven territory for the purpose of ascertaining the presence underground of a commercial hydrocarbon deposit.

FIN 47 FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations — an interpretation of SFAS 143.

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.

Grid The layout of the electrical transmission system or a synchronized transmission network.

Heavy oil A type of crude petroleum that usually is not economically recoverable in its natural state without being heated or diluted.

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.

Holding Company Act Public Utility Holding Company Act of 1935, as amended

Hub Location where pipelines intersect enabling the trading, transportation, storage, exchange, lending and borrowing of natural gas.

Interruptible transportation and/or storage The transportation and/or storage service that, in accordance with contractual arrangements, can be interrupted by the supplier of such service, and for which the customer does not pay unless utilized.

LIBOR London InterBank Offered Rate

LIFO Last-in, first-out

Mbbl Thousand barrels

Mcf Thousand cubic feet

MD&A Management’s Discussion and Analysis of Financial Condition and Results of Operations

MDth Thousand dekatherms

MMcf Million cubic feet

MMcfe Million cubic feet equivalent

NYMEX New York Mercantile Exchange. An exchange which maintains a futures market for crude oil and natural gas.

Precedent Agreement An agreement between a pipeline company and a potential customer to sign a service agreement after specified events (called “conditions precedent”) happen, usually within a specified time.

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

Repatriate To return to the country of origin.

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 statutory or regulatory process. Restructuring of federally regulated pipelines separate (or “unbundled”) 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.

SFAS Statement of Financial Accounting Standards

SFAS 69 Statement of Financial Accounting Standards No. 69, Disclosures about Oil and Gas Producing Activities

SFAS 71 Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation

SFAS 87 Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions

SFAS 106 Statement of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions.

SFAS 123 Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation

SFAS 123R Statement of Financial Accounting Standards No. 123R, Share-Based Payment

SFAS 133 Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities

SFAS 142 Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets

SFAS 143 Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations

SFAS 154 Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections

Spot gas purchases The purchase of natural gas on a short-term basis.

Stock acquisitions Investments in corporations.

Unbundled service A service that has been separated from other services, with rates charged that reflect the cost of only 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, customers are assessed a surcharge. If temperatures during the measured period are colder than normal, customers receive a credit.

For the Fiscal Year Ended September 30, 2005

CONTENTS


		Page

Part I
ITEM 1	BUSINESS		3
	The Company and its Subsidiaries		3
	Rates and Regulation		4
	The Utility Segment		5
	The Pipeline and Storage Segment		5
	The Exploration and Production Segment		6
	The Energy Marketing Segment		6
	The Timber Segment		7
	All Other Category and Corporate Operations		7
	Discontinued Operations		7
	Sources and Availability of Raw Materials		7
	Competition		8
	Seasonality		9
	Capital Expenditures		10
	Environmental Matters		10
	Miscellaneous		10
	Executive Officers of the Company		11
ITEM 1A	RISK FACTORS		12
ITEM 1B	UNRESOLVED STAFF COMMENTS		17
ITEM 2	PROPERTIES		17
	General Information on Facilities		17
	Exploration and Production Activities		18
ITEM 3	LEGAL PROCEEDINGS		21
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		23

Part II
ITEM 5	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		23
ITEM 6	SELECTED FINANCIAL DATA		24
ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		56
ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		57
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		108
ITEM 9A	CONTROLS AND PROCEDURES		108
ITEM 9B	OTHER INFORMATION		109


		Page

Part III
ITEM 10	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT		109
ITEM 11	EXECUTIVE COMPENSATION		109
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		110
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		110
ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES		110

Part IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		110
SIGNATURES			116
EX-10.1: JP MORGAN CREDIT AGREEMENT
EX-10.2: 1993 AWARD AND OPTION PLAN
EX-10.3: 1997 AWARD AND OPTION PLAN
EX-10.4: RULES UNDER 1997 AWARD AND OPTION PLAN
EX-10.5: AMENDMENT TO DEFERRED COMPENSATION PLAN
EX-10.6: DEFERRED COMPENSATION PLAN AND IRC SECTION 409A
EX-10.7: TOPHAT PLAN AND IRC SECTION 409A
EX-10.8: AMENDMENT 1 TO RETIREMENT FOR DAVID SMITH
EX-10.9: RETIREMENT AGREEMENT
EX-10.10: COMISSION AGREEMENT
EX-12: COMPUTATION OF RATIO OF EARNINGS
EX-23.1: CONSENT OF ENGINEER SENECA RESOURCES CORPORATION
EX-23.2: CONSENT OF ENGINEER SENECA ENERGY CANADA
EX-23.3: CONSENT OF PRICEWATERHOUSECOOPERS
EX-31.1: 302 CEO CERTIFICATION
EX-31.2: 302 CFO CERTIFICATION
EX-32: 906 CEO & CFO CERTIFICATION
EX-99.1: SENECA RESOURCES CORP REPORT
EX-99.2: SENECA ENERGY CANADA REPORT
EX-99.3: COMPANY MAPS

This Form 10-K contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements should be read with the cautionary statements included in this Form 10-K at Item 7, 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, those statements that are designated with an asterisk (“*”) following the statement, as well as those statements that are identified by the use of the words “anticipates,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” and similar expressions.

PART I


Item 1	*Business*

The Company and its Subsidiaries

National Fuel Gas Company (the Registrant) is a holding company organized under the laws of the State of New Jersey. Incorporated in 1902, the Registrant registered in 1935 as a holding company under the Public Utility Holding Company Act of 1935, as amended (the Holding Company Act). Except as otherwise indicated below, the Registrant owns all of the outstanding securities of its subsidiaries. Reference to “the Company” in this report means the Registrant, the Registrant and its subsidiaries or the Registrant’s subsidiaries as appropriate in the context of the disclosure. Also, all references to a certain year in this report relate to the Company’s fiscal year ended September 30 of that year unless otherwise noted.

The Company is a diversified energy company consisting of five reportable business segments.

1. The Utility segment operations are carried out by National Fuel Gas Distribution Corporation (Distribution Corporation), a New York corporation. Distribution Corporation sells natural gas or provides natural gas transportation services to approximately 731,000 customers through a local distribution system located in western New York and northwestern Pennsylvania. The principal metropolitan areas served by Distribution Corporation include Buffalo, Niagara Falls and Jamestown, New York and Erie and Sharon, Pennsylvania.

2. The Pipeline and Storage segment operations are carried out by National Fuel Gas Supply Corporation (Supply Corporation), a Pennsylvania corporation, and Empire State Pipeline (Empire), a New York joint venture between two wholly-owned subsidiaries of the Company. Supply Corporation provides interstate natural gas transportation and storage services for affiliated and nonaffiliated companies through (i) an integrated gas pipeline system extending from southwestern Pennsylvania to the New York-Canadian border at the Niagara River and eastward to Ellisburg and Leidy, Pennsylvania, and (ii) 28 underground natural gas storage fields owned and operated by Supply Corporation as well as four other underground natural gas storage fields owned and operated jointly with various other interstate gas pipeline companies. Empire, an intrastate pipeline company, transports natural gas for Distribution Corporation and for other utilities, large industrial customers and power producers in New York State. Empire owns a 157-mile pipeline that extends from the United States/ Canadian border at the Niagara River near Buffalo, New York to near Syracuse, New York. The Company acquired Empire in February 2003.

3. The Exploration and Production segment operations are carried out by Seneca Resources Corporation (Seneca), a Pennsylvania corporation. Seneca is engaged in the exploration for, and the development and purchase of, natural gas and oil reserves in California, in the Appalachian region of the United States, and in the Gulf Coast region of Texas, Louisiana, and Alabama. Also, Exploration and Production operations are conducted in the provinces of Alberta, Saskatchewan and British Columbia in Canada by Seneca Energy Canada Inc. (SECI), an Alberta, Canada corporation and a subsidiary of Seneca. At September 30, 2005, the Company had U.S. and Canadian reserves of 60,257 Mbbl of oil and 238,140 MMcf of natural gas.

4. The Energy Marketing segment operations are carried out by National Fuel Resources, Inc. (NFR), a New York corporation, which markets natural gas to industrial, commercial, public authority and residential end-users in western and central New York and northwestern Pennsylvania, offering competitively priced energy and energy management services for its customers.

5. The Timber segment operations are carried out by Highland Forest Resources, Inc. (Highland), a New York corporation, and by a division of Seneca known as its Northeast Division. This segment markets timber from its New York and Pennsylvania land holdings, owns two sawmill operations in northwestern Pennsylvania and processes timber consisting primarily of high quality hardwoods. At September 30, 2005, the Company owned and managed approximately 100,000 acres of timber property.

Financial information about each of the Company’s business segments can be found in Item 7, MD&A and also in Item 8 at Note I — Business Segment Information.

The Company’s other direct wholly-owned subsidiaries are not included in any of the five reportable business segments and consist of the following:


	•	Horizon Energy Development, Inc. (Horizon), a New York corporation engaged in foreign and domestic energy projects through investments as a sole or substantial owner in various business entities. These entities include Horizon’s wholly-owned subsidiary, Horizon Energy Holdings, Inc., a New York corporation, which owns 100% of Horizon Energy Development B.V. (Horizon B.V.). Horizon B.V. is a Dutch company pursuing power development projects in Europe;

	•	Horizon LFG, Inc. (Horizon LFG), a New York corporation engaged through subsidiaries in the purchase, sale and transportation of landfill gas in Ohio, Michigan, Kentucky, Missouri, Maryland and Indiana. Horizon LFG and one of its wholly owned subsidiaries own all of the partnership interests in Toro Partners, LP (Toro), a limited partnership which owns and operates short-distance landfill gas pipeline companies. The Company acquired Toro in June 2003. Further information can be found in Item 8 at Note K — Acquisitions;

	•	Leidy Hub, Inc. (Leidy Hub), a New York corporation formed to provide various natural gas hub services to customers in the eastern United States;

	•	Data-Track Account Services, Inc. (Data-Track), a New York corporation which provides collection services principally for the Company’s subsidiaries;

	•	Horizon Power, Inc. (Horizon Power), a New York corporation which is designated as an “exempt wholesale generator” under the Holding Company Act and is developing or operating mid-range independent power production facilities and landfill gas electric generation facilities; and

	•	Empire Pipeline, Inc., a New York corporation formed in 2005 to be the surviving corporation of a planned future merger with Empire, which is expected to occur after construction of the Empire Connector project (described below under the heading “Rates and Regulation” and under Item 7, MD&A under the heading “Investing Cash Flow”).*

No single customer, or group of customers under common control, accounted for more than 10% of the Company’s consolidated revenues in 2005.

Rates and Regulation

Until February 8, 2006, the Company is subject to regulation by the SEC under the broad regulatory provisions of the Holding Company Act, including provisions relating to the issuance of securities, sales and acquisitions of securities and utility assets, intra-company transactions and limitations on diversification. Pursuant to the Energy Policy Act , which President Bush signed into law on August 8, 2005, the Holding Company Act will be repealed effective February 8, 2006. As of that date, the Company will no longer be subject to regulation by the SEC under the Holding Company Act. The Energy Policy Act, among other things, grants the FERC and state public utility commissions access to certain books and records of companies in holding company systems, provides (upon request of a state commission or holding company system) for FERC review of allocations of costs of non-power goods and administrative services in electric utility holding company systems, and modifies the jurisdiction of FERC over certain mergers and acquisitions involving public utilities or holding companies. The Company is unable to predict at this time what the ultimate outcome of these or future legislative or regulatory changes will be. The Company is still in the

process of analyzing the effect of the Energy Policy Act on the Company, including the effects of any related proceeding at the state level and new regulations at the federal level.

The Utility segment’s rates, services and other matters are regulated by the NYPSC with respect to services provided within New York and by the PaPUC with respect to services provided within Pennsylvania. For additional discussion of the Utility segment’s rates and regulation, see Item 7, MD&A under the heading “Rate Matters” and Item 8 at Note B-Regulatory Matters.

The Pipeline and Storage segment’s rates, services and other matters are currently regulated by the FERC with respect to Supply Corporation and by the NYPSC with respect to Empire. On October 11, 2005, Empire filed an application with the FERC for the authority to build and operate an extension of its natural gas pipeline (the Empire Connector). If the FERC grants that application and the Company builds and commences operations of the Empire Connector, Empire will at that time become a FERC-regulated pipeline company.* For additional discussion of the Pipeline and Storage segment’s rates and regulation, see Item 7, MD&A under the heading “Rate Matters” and Item 8 at Note B-Regulatory Matters. For further discussion of the Empire Connector project, refer to Item 7, MD&A under the heading “Investing Cash Flow.”

The discussion under Item 8 at Note B-Regulatory Matters includes a description of the regulatory assets and liabilities reflected on the Company’s Consolidated Balance Sheets in accordance with applicable accounting standards. To the extent that the criteria set forth in such accounting standards are not met by the operations of the Utility segment or the Pipeline and Storage segment, as the case may be, the related regulatory assets and liabilities would be eliminated from the Company’s Consolidated Balance Sheets and such accounting treatment would be discontinued.

In addition, the Company and its subsidiaries are subject to the same federal, state and local (including foreign) regulations on various subjects, including environmental matters, to which other companies doing similar business in the same locations are subject.

The Utility Segment

The Utility segment contributed approximately 25.5% of the Company’s 2005 income from continuing operations and 20.7% of the Company’s 2005 net income available for common stock.

Additional discussion of the Utility segment appears below in this Item 1 under the headings “Sources and Availability of Raw Materials,” “Competition” and “Seasonality,” in Item 7, MD&A and in Item 8, Financial Statements and Supplementary Data.

The Pipeline and Storage Segment

The Pipeline and Storage segment contributed approximately 39.4% of the Company’s 2005 income from continuing operations and 31.9% of the Company’s 2005 net income available for common stock.

Supply Corporation has service agreements for all of its firm storage capacity, which totals approximately 68,407 MDth. The Utility segment has contracted for 27,865 MDth or 40.7% of the total firm storage capacity, and the Energy Marketing segment accounts for another 3,888 MDth or 5.7% of the total firm storage capacity. Nonaffiliated customers have contracted for the remaining 36,654 MDth or 53.6% of the total firm storage capacity. Following an industry trend, most of Supply Corporation’s storage and transportation services are performed under contracts that allow Supply Corporation or the shipper to terminate the contract upon six or twelve months’ notice effective at the end of the contract term, and from time to time thereafter. At the beginning of 2006, approximately 86.3% of Supply Corporation’s total firm storage capacity (including 44% of Supply’s total firm storage capacity contracted for by affiliated shippers) was committed under contracts that could have expired or been terminated before the end of 2006. Based on contract expirations and termination notifications received before the deadline for termination effective within 2006, contracts representing less than 0.5% of Supply Corporation’s total firm storage capacity will be terminated during 2006.* Supply Corporation has been successful in marketing and obtaining executed contracts for storage service (at discounted rates when necessary) as it becomes available and expects to continue to do so.*

Supply Corporation’s firm transportation capacity is not a fixed quantity, due to the diverse weblike nature of its pipeline system, and is subject to change as different transportation paths and receipt/delivery point combinations are identified by the market. Supply Corporation currently has firm transportation service agreements for approximately 2,212 MDth per day (contracted transportation capacity). The Utility segment accounts for approximately 1,123 MDth per day or 50.7% of contracted transportation capacity, and the Energy Marketing segment represents another 73 MDth per day or 3.3% of contracted transportation capacity. The remaining 1,016 MDth or 46.0% of contracted transportation capacity is subject to firm contracts with nonaffiliated customers.

At the beginning of 2006, 52.9% of Supply Corporation’s contracted transportation capacity was committed under affiliate contracts that could have expired or been terminated effective before the end of 2006. Based on contract expirations and termination notices received before the deadline for termination effective within 2006, affiliate contracts representing 5.9% of contracted transportation capacity will actually expire or be terminated effective during 2006. Similarly, 30.7% of contracted transportation capacity was committed under unaffiliated shipper contracts that could have expired or been terminated effective before the end of 2006. Based on contract expirations and termination notices received before the deadline for termination effective within 2006, unaffiliated contracts representing 11.3% of contracted transportation capacity will actually expire or be terminated effective during 2006. Supply Corporation has been successful in marketing and obtaining executed contracts for such transportation service previously (at discounted rates when necessary), and expects to continue to do so.*

Empire has service agreements for the 2005-2006 winter period for all of its firm transportation capacity, which totals approximately 579 MDth per day. Empire provides service under both annual (12 months/year) and seasonal (winter or summer only) contracts. Approximately 87.1% of Empire’s firm contracted transportation capacity is on an annual long-term basis. None of Empire’s annual long-term agreements are scheduled to expire during 2006. Approximately 3.7% of Empire’s firm contracted transportation capacity is under multi-year seasonal contracts, and contracts for about a third of that 3.7% will expire before the end of 2006. The remaining capacity, which represents 9.2% of Empire’s firm contracted transportation capacity, is under single season or annual contracts which will expire before the end of 2006. Empire expects that all of this expiring capacity will be re-contracted under seasonal and/or annual arrangements for future contracting periods.* The Utility segment accounts for approximately 9.3% of Empire’s firm contracted transportation capacity, and the Energy Marketing segment accounts for approximately 1.2% of Empire’s firm contracted transportation capacity, with the remaining 89.5% of Empire’s firm contracted transportation capacity subject to contracts with nonaffiliated customers.

Additional discussion of the Pipeline and Storage segment appears below under the headings “Sources and Availability of Raw Materials,” “Competition” and “Seasonality,” in Item 7, MD&A and in Item 8, Financial Statements and Supplementary Data.

The Exploration and Production Segment

The Exploration and Production segment contributed approximately 33.0% of the Company’s 2005 income from continuing operations and 26.7% of the Company’s 2005 net income available for common stock.

Additional discussion of the Exploration and Production segment appears below under the headings “Sources and Availability of Raw Materials” and “Competition,” in Item 7, MD&A and in Item 8, Financial Statements and Supplementary Data.

The Energy Marketing Segment

The Energy Marketing segment contributed approximately 3.3% of the Company’s 2005 income from continuing operations and 2.7% of the Company’s 2005 net income available for common stock.

Additional discussion of the Energy Marketing segment appears below under the headings “Sources and Availability of Raw Materials,” “Competition” and “Seasonality,” in Item 7, MD&A and in Item 8, Financial Statements and Supplementary Data.

The Timber Segment

The Timber segment contributed approximately 3.3% of the Company’s 2005 income from continuing operations and 2.7% of the Company’s 2005 net income available for common stock.

Additional discussion of the Timber segment appears below under the headings “Sources and Availability of Raw Materials,” “Competition” and “Seasonality,” in Item 7, MD&A and in Item 8, Financial Statements and Supplementary Data.

All Other Category and Corporate Operations

The All Other category and Corporate operations incurred a net loss in 2005. The impact of this net loss in relation to the Company’s 2005 income from continuing operations was negative 4.5% and in relation to the Company’s 2005 net income available for common stock was negative 3.6%.

Additional discussion of the All Other category and Corporate operations appears below in Item 7, MD&A and in Item 8, Financial Statements and Supplementary Data.

Discontinued Operations

In July 2005, Horizon B.V. sold its entire 85.16% interest in United Energy, a.s. (U.E.), a district heating and electric generation business in the Czech Republic. United Energy’s operations are presented in the Company’s financial statements as discontinued operations. Including the gain from the sale of U.E., these operations contributed approximately 18.9% of the Company’s 2005 net income available for common stock.

Additional discussion of the Company’s discontinued operations appears in Item 7, MD&A and in Item 8, Financial Statements and Supplementary Data.

Sources and Availability of Raw Materials

Natural gas is the principal raw material for the Utility segment. In 2005, the Utility segment purchased 88 Bcf of gas for core market demand. Gas purchased from producers and suppliers in the southwestern United States and Canada under firm contracts (seasonal and longer) accounted for 76% of the core market purchases. Purchases of gas on the spot market (contracts for one month or less) accounted for the remaining 24% of the Utility segment’s 2005 core market purchases. Purchases from Conoco Phillips Company (17%) and Occidental Energy Marketing, Inc. (16%) accounted for 33% of the Utility’s 2005 core market gas purchases. No other producer or supplier provided the Utility segment with more than 10% of its gas requirements in 2005.

Supply Corporation transports and stores gas owned by its customers, whose gas originates in the southwestern, mid-continent and Appalachian regions of the United States as well as in Canada. Empire transports gas owned by its customers, whose gas originates in the southwestern and mid-continent regions of the United States as well as in Canada. Additional discussion of proposed pipeline projects appears below under “Competition” and in Item 7, MD&A.

The Exploration and Production segment seeks to discover and produce raw materials (natural gas, oil and hydrocarbon liquids) as further described in this report in Item 7, MD&A and Item 8 at Note I-Business Segment Information and Note O-Supplementary Information for Oil and Gas Producing Activities.

With respect to the Timber segment, Highland requires an adequate supply of timber to process in its sawmill and kiln operations. Approximately 57% of the timber processed during 2005 came from land owned by the Company.

The Energy Marketing segment depends on an adequate supply of natural gas to deliver to its customers. In 2005, this segment purchased 43 Bcf of natural gas, of which 41 Bcf served core market demands. The remaining 2 Bcf largely represents gas used in operations. The gas purchased by the Energy Marketing segment originates in either the Appalachian, southwest or mid-continent regions of the United States or in Canada.

Competition

Competition in the natural gas industry exists among providers of natural gas, as well as between natural gas and other sources of energy. The natural gas industry has gone through various stages of regulation. Apart from environmental and state utility commission regulation, the natural gas industry has experienced considerable deregulation. This has enhanced the competitive position of natural gas relative to other energy sources, such as fuel oil or electricity, since some of the historical regulatory impediments to adding customers and responding to market forces have been removed. In addition, management believes that the environmental advantages of natural gas have enhanced its competitive position relative to other fuels.

The electric industry has been moving toward a more competitive environment as a result of changes in federal law in 1992 and initiatives undertaken by the FERC and various states. It remains unclear what impact the Energy Policy Act will have on the Company or what the impact of any further restructuring in response to legislation or other events may be.*

The Company competes on the basis of price, service and reliability, product performance and other factors. Sources and providers of energy, other than those described under this “Competition” heading, do not compete with the Company to any significant extent.*

Competition: The Utility Segment

The changes precipitated by the FERC’s restructuring of the natural gas industry in Order No. 636, which was issued in 1992, continue to reshape the roles of the gas utility industry and the state regulatory commissions. In both New York and Pennsylvania, Distribution Corporation has retained substantial numbers of residential and small commercial customers as sales customers. However, for many years almost all the industrial and a substantial number of commercial customers have purchased their gas supplies from marketers and utilized Distribution Corporation’s gas transportation services. Regulators in both New York and Pennsylvania have adopted retail competition programs for natural gas supply purchases by the remaining utility sales customers. To date, the Utility segment’s traditional distribution function remains largely unchanged; however, the NYPSC has stepped up its efforts to encourage customer choice at the retail residential level. In New York, the Utility segment has instituted a number of programs to accommodate more widespread customer choice. In Pennsylvania, the PaPUC issued a report in October 2005 that concluded “effective competition” does not exist in the retail natural gas supply market statewide. The PaPUC plans to reconvene a stakeholder group to explore ways to increase the participation of retail customers in choice programs.

Competition for large-volume customers continues with local producers or pipeline companies attempting to sell or transport gas directly to end-users located within the Utility segment’s service territories (i.e., bypass). In addition, competition continues with fuel oil suppliers and may increase with electric utilities making retail energy sales.*

The Utility segment competes, through its unbundled flexible services, in its most vulnerable markets (the large commercial and industrial markets).* The Utility segment continues to (i) develop or promote new sources and uses of natural gas or new services, rates and contracts and (ii) emphasize and provide high quality service to its customers.

Competition: The Pipeline and Storage Segment

Supply Corporation competes for market growth in the natural gas market with other pipeline companies transporting gas in the northeast United States and with other companies providing gas storage

services. Supply Corporation has some unique characteristics which enhance its competitive position. Its facilities are located adjacent to Canada and the northeastern United States and provide part of the link between gas-consuming regions of the eastern United States and gas-producing regions of Canada and the southwestern, southern and other continental regions of the United States. This location offers the opportunity for increased transportation and storage services in the future.*

Empire competes for market growth in the natural gas market with other pipeline companies transporting gas in the northeast United States and upstate New York in particular. Empire is particularly well situated to provide transportation from Canadian sourced gas, and its facilities are readily expandable. These characteristics provide Empire the opportunity to compete for an increased share of the gas transportation markets. As noted above, Empire is pursuing the Empire Connector project, which would expand its natural gas pipeline to serve new markets in New York and elsewhere in the Northeast.* For further discussion of this project, refer to Item 7, MD&A under the heading “Investing Cash Flow.”

Competition: The Exploration and Production Segment

The Exploration and Production segment competes with other oil and natural gas producers and marketers with respect to sales of oil and natural gas. The Exploration and Production segment also competes, by competitive bidding and otherwise, with other oil and natural gas producers with respect to exploration and development prospects.

To compete in this environment, each of Seneca and SECI originates and acts as operator on certain of its prospects, seeks to minimize the risk of exploratory efforts through partnership-type arrangements, utilizes technology for both exploratory studies and drilling operations, and seeks market niches based on size, operating expertise and financial criteria.

Competition: The Energy Marketing Segment

The Energy Marketing segment competes with other marketers of natural gas and with other providers of energy management services. Competition in this area is well developed with regard to price and services from both local and regional marketers.

Competition: The Timber Segment

With respect to the Timber segment, Highland competes with other sawmill operations and with other suppliers of timber, logs and lumber. These competitors may be local, regional, national or international in scope. This competition, however, is primarily limited to those entities which either process or supply high quality hardwoods species such as cherry, oak and maple as veneer logs, saw logs, export logs or lumber ultimately used in the production of high-end furniture, cabinetry and flooring. The Timber segment sells its products both nationally and internationally.

Seasonality

Variations in weather conditions can materially affect the volume of gas delivered by the Utility segment, as virtually all of its residential and commercial customers use gas for space heating. The effect that this has on Utility segment margins in New York is mitigated by a WNC. Weather that is more than 2.2% warmer than normal results in a surcharge being added to customers’ current bills, while weather that is more than 2.2% colder than normal results in a refund being credited to customers’ current bills.

Volumes transported and stored by Supply Corporation may vary materially depending on weather, without materially affecting its revenues. Supply Corporation’s allowed rates are based on a straight fixed-variable rate design which allows recovery of fixed costs in fixed monthly reservation charges. Variable charges based on volumes are designed to recover only the variable costs associated with actual transportation or storage of gas.

Volumes transported by Empire may vary materially depending on weather, and can have a moderate effect on its revenues. Empire’s allowed rates are based on a modified fixed-variable rate design, which allows

recovery of most fixed costs in fixed monthly reservation charges. Variable charges based on volumes are designed to recover variable costs associated with actual transportation of gas, to recover return on equity, and to recover income taxes.

Variations in weather conditions can materially affect the volume of gas consumed by customers of the Energy Marketing segment. Volume variations can have a corresponding impact on revenues within this segment.

The activities of the Timber segment vary on a seasonal basis and are subject to weather constraints. Traditionally, the timber harvesting season occurs when timber growth is dormant and runs from approximately September to March. The operations conducted in the summer months typically focus on pulpwood and on thinning out lower-grade species from the timber stands to encourage the growth of higher-grade species. During 2005, the Timber segment’s cutting schedule generally reflected the seasonality of the industry, with 33% of the segment’s harvest occurring in the second fiscal quarter.

Capital Expenditures

A discussion of capital expenditures by business segment is included in Item 7, MD&A under the heading “Investing Cash Flow.”

Environmental Matters

A discussion of material environmental matters involving the Company is included in Item 7, MD&A under the heading “Other Matters” and in Item 8, Note G — Commitments and Contingencies.

Miscellaneous

The Company and its wholly-owned or majority-owned subsidiaries had a total of 2,044 full-time employees at September 30, 2005, with 2,018 employees in all of its U.S. operations and 26 employees in its Canadian operations at SECI. This is a decrease of 30% from the 2,918 total employed at September 30, 2004. Almost all of the decrease resulted from the Company’s sale in July 2005 of U.E.

Agreements covering employees in collective bargaining units in New York are scheduled to expire in February 2008. Certain agreements covering employees in collective bargaining units in Pennsylvania are scheduled to expire in April 2009, and other agreements covering employees in collective bargaining units in Pennsylvania are scheduled to expire in May 2009.

The Utility segment has numerous municipal franchises under which it uses public roads and certain other rights-of-way and public property for the location of facilities. When necessary, the Utility segment renews such franchises.

The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on the Company’s internet website, www.nationalfuelgas.com, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The information available at the Company’s internet website is not part of this Form 10-K or any other report filed with or furnished to the SEC.

Executive Officers of the Company as of November 15, 2005(1)


Name and Age (as of		Current Company Positions and Other Material
September 30, 2005)		Business Experience During Past Five Years

Philip C. Ackerman (61)		Chairman of the Board of Directors since January 2002; Chief Executive Officer since October 2001; President since July 1999; and President of Horizon since September 1995. Mr. Ackerman has served as a Director since March 1994, and previously served as Senior Vice President from June 1989 to July 1999 and President of Distribution Corporation from October 1995 to July 1999.
David F. Smith (52)		President of Supply Corporation since April 2005; President of Empire since April 2005; Vice President of the Company since April 2005. Mr. Smith previously served as President of Distribution Corporation from July 1999 to April 2005; Senior Vice President of Supply Corporation from July 2000 to April 2005; and Senior Vice President of Distribution Corporation from January 1993 to July 1999.
Dennis J. Seeley (62)		President of Distribution Corporation since April 2005; Vice President of the Company since April 2005. Mr. Seeley previously served as President of Supply Corporation from March 2000 to April 2005; President of Empire from February 2003 to April 2005; and Senior Vice President of Distribution Corporation from February 1997 to April 2005. Mr. Seeley also served as Vice President of the Company from January 2000 to April 2000.
James A. Beck (58)		President of Seneca since October 1996 and President of Highland since March 1998.
Ronald J. Tanski (53)		Treasurer of the Company since April 2004; Controller of the Company from February 2003 through March 2004; Senior Vice President of Distribution Corporation since July 2001; Controller of Distribution Corporation from February 1997 through March 2004; Treasurer of Distribution Corporation since April 2004; Treasurer and Secretary of Supply Corporation since April 2004; Secretary and Treasurer of Horizon since February 1997; and Vice President of Distribution Corporation from April 1993 to July 2001.
Karen M. Camiolo (46)		Controller of the Company since April 2004; Controller of Distribution Corporation and Supply Corporation since April 2004; and Chief Auditor of the Company from July 1994 through March 2004.
Anna Marie Cellino (52)		Secretary of the Company since October 1995; Senior Vice President of Distribution Corporation since July 2001; and Vice President of Distribution Corporation from June 1994 to July 2001.
Paula M. Ciprich (45)		General Counsel of the Company since January 2005; Assistant Secretary and General Counsel of Distribution Corporation since February 1997.
Donna L. DeCarolis (46)		President of NFR since January 2005; Secretary of NFR since March 2002; Vice President of NFR from May 2001 to January 2005; and Assistant Vice President of Distribution Corporation from June 1999 to May 2001.
John R. Pustulka (53)		Senior Vice President of Supply Corporation since July 2001; and Vice President of Supply Corporation from April 1993 to July 2001.
James D. Ramsdell (50)		Senior Vice President of Distribution Corporation since July 2001; and Vice President of Distribution Corporation from June 1994 to July 2001.


(1)	The executive officers serve at the pleasure of the Board of Directors. The information provided relates to the Company and its principal subsidiaries. Many of the executive officers have served or currently serve as officers or directors of other subsidiaries of the Company.

Item 1A Risk Factors


	*As a holding company, National Fuel depends on its operating subsidiaries to meet its financial obligations.*

National Fuel is a holding company with no significant assets other than the stock of its operating subsidiaries. In order to meet its financial needs, National Fuel relies exclusively on repayments of principal and interest on intercompany loans made by National Fuel to its operating subsidiaries and income from dividends and other cash flow from the subsidiaries. Such operating subsidiaries may not generate sufficient net income to pay upstream dividends or generate sufficient cash flow to make payments of principal or interest on such intercompany loans.


	*National Fuel is dependent on bank credit facilities and continued access to capital markets to successfully execute its operating strategies.*

In addition to its longer term debt that is issued to the public under its indentures, National Fuel has relied, and continues to rely, upon shorter term bank borrowings to finance the execution of a portion of its operating strategies. National Fuel is dependent on these capital sources to provide capital to its subsidiaries to allow them to acquire and develop their properties. The availability and cost of these credit sources is cyclical and these capital sources may not remain available to National Fuel or National Fuel may not be able to obtain money at a reasonable cost in the future. National Fuel’s ability to borrow under its credit facilities depends on National Fuel’s compliance with its obligations under the facilities. In addition, all of National Fuel’s bank loans are in the form of floating rate debt or debt that may have rates fixed for very short periods of time. At present, National Fuel has no active interest rate hedges in place to protect against interest rate fluctuations on bank debt other than at the project level of Empire, where there is an interest rate collar on the approximate $32.1 million of project debt (at September 30, 2005). In addition, the interest rates on National Fuel’s bank loans are affected by its debt credit ratings published by Standard & Poor’s Ratings Service, Moody’s Investors Service and Fitch Ratings Service. A ratings downgrade could increase the interest cost of this debt and decrease future availability of money from banks and other sources. National Fuel believes it is important to maintain investment grade credit ratings to conduct its business.


	*National Fuel’s credit ratings may not reflect all the risks of an investment in its securities.*

National Fuel’s credit ratings are an independent assessment of its ability to pay its obligations. Consequently, real or anticipated changes in the Company’s credit ratings will generally affect the market value of the specific debt instruments that are rated, as well as the market value of the Company’s common stock. National Fuel’s credit ratings, however, may not reflect the potential impact on the value of its common stock of risks related to structural, market or other factors discussed in this Form 10-K.


	National Fuel’s need to comply with comprehensive, complex, and sometimes unpredictable government regulations may increase its costs and limit its revenue growth, which may result in reduced earnings.

While National Fuel generally refers to its Utility segment and its Pipeline and Storage segment as its “regulated segments,” there are many governmental regulations that have an impact on almost every aspect of National Fuel’s businesses. Existing statutes and regulations may be revised or reinterpreted and new laws and regulations may be adopted or become applicable to the Company, which may affect its business in ways that the Company cannot predict.

In its Utility segment, the operations of Distribution Corporation are subject to the jurisdiction of the NYPSC and the PaPUC. The NYPSC and the PaPUC, among other things, approve the rates that Distribution Corporation may charge to its utility customers. Those approved rates also impact the returns that Distribution Corporation may earn on the assets that are dedicated to those operations. If Distribution Corporation is required in a rate proceeding to reduce the rates it charges its utility customers, or if Distribution Corporation is unable to obtain approval for rate increases from these regulators, particularly when necessary to cover increased costs, Distribution Corporation’s revenue growth will be limited and its earnings may decrease.

In addition to their historical methods of utility regulation, both the PaPUC and NYPSC have sought to establish competitive markets in which customers may purchase supplies of gas from marketers, rather than from utility companies. In June 1999, the Governor of Pennsylvania signed into law the Natural Gas Choice and Competition Act. The act revised the Public Utility Code relating to the restructuring of the natural gas industry. The purpose of the law was to permit consumer choice of natural gas suppliers. To a certain degree, the early programs instituted to comply with the Act have not been overly successful, and many residential customers currently continue to purchase natural gas from the utility companies. In October 2005 the PaPUC concluded that “effective competition” does not exist in the retail natural gas supply market statewide. The PaPUC plans to reconvene a stakeholder group to explore ways to increase the participation of retail customers in choice programs. In New York, in August 2004, the NYPSC issued its Statement of Policy on Further Steps Toward Competition in Retail Energy Markets. This policy statement has a similar goal of encouraging customer choice of alternative natural gas providers. In 2005, the NYPSC stepped up its efforts to encourage customer choice at the retail residential level. These new forms of regulation may increase Distribution Corporation’s cost of doing business, put an additional portion of its business at regulatory risk, and create uncertainty for the future, all of which may make it more difficult to manage Distribution Corporation’s business profitably.

In its Pipeline and Storage segment, National Fuel is subject to the jurisdiction of the FERC with respect to Supply Corporation, and to the jurisdiction of the NYPSC with respect to Empire. These regulatory commissions, among other things, approve the rates that Supply Corporation may charge to its natural gas transportation and storage customers. Those approved rates also impact the returns that Supply Corporation may earn on the assets that are dedicated to those operations. State commissions can also petition the FERC to investigate whether Supply Corporation’s rates are still just and reasonable, and if not, to reduce those rates prospectively. If Supply Corporation is required in a rate proceeding to reduce the rates it charges its natural gas transportation and storage customers, or if Supply Corporation is unable to obtain approval for rate increases, particularly when necessary to cover increased costs, Supply Corporation’s revenue growth will be limited and its earnings may decrease.


	National Fuel’s liquidity, and in certain circumstances, its earnings, could be adversely affected by the cost of purchasing natural gas during periods in which natural gas prices are rising significantly.

Tariff rate schedules in each of the Utility segment’s service territories contain purchased gas adjustment clauses which permit Distribution Corporation to file with state regulators for rate adjustments to recover increases in the cost of purchased gas. Assuming those rate adjustments are granted, increases in the cost of purchased gas have no direct impact on profit margins. Nevertheless, increases in the cost of purchased gas affect cash flows and can therefore impact the amount or availability of National Fuel’s capital resources. National Fuel has issued commercial paper and used short-term borrowings in the past to temporarily finance storage inventories and purchased gas costs, and National Fuel expects to do so in the future.* Distribution Corporation is required to file an accounting reconciliation with the regulators in each of the Utility segment’s service territories regarding the costs of purchased gas. Due to the nature of the regulatory process, there is a risk of a disallowance of full recovery of these costs during any period in which there has been a substantial upward spike in these costs. Any material disallowance of purchased gas costs could have a material adverse effect on cash flow and earnings. In addition, even when Distribution Corporation is allowed full recovery of these purchased gas costs, during periods when natural gas prices are significantly higher than historical levels, customers may have trouble paying the resulting higher bills, and Distribution Corporation’s bad debt expenses may increase and ultimately reduce earnings.


	*Uncertain economic conditions may affect National Fuel’s ability to finance capital expenditures and to refinance maturing debt.*

National Fuel’s ability to finance capital expenditures and to refinance maturing debt will depend upon general economic conditions in the capital markets. The direction in which interest rates may move is uncertain. Declining interest rates have generally been believed to be favorable to utilities, while rising interest rates are generally believed to be unfavorable, because of the levels of debt that utilities may have

outstanding. In addition, National Fuel’s authorized rate of return in its regulated businesses is based upon certain assumptions regarding interest rates. If interest rates are lower than assumed rates, National Fuel’s authorized rate of return could be reduced. If interest rates are higher than assumed rates, National Fuel’s ability to earn its authorized rate of return may be adversely impacted.


	*Decreased oil and natural gas prices could adversely affect revenues, cash flows and profitability.*

National Fuel’s exploration and production operations are materially dependent on prices received for its oil and natural gas production. Both short-term and long-term price trends affect the economics of exploring for, developing, producing, gathering and processing oil and natural gas. Oil and natural gas prices can be volatile and can be affected by: weather conditions, including natural disasters; the supply and price of foreign oil and natural gas; the level of consumer product demand; national and worldwide economic conditions; political conditions in foreign countries; the price and availability of alternative fuels; the proximity to, and availability of capacity on, transportation facilities; regional levels of supply and demand; energy conservation measures; and government regulations, such as regulation of natural gas transportation, royalties, and price controls. National Fuel sells most of its oil and natural gas at current market prices rather than through fixed-price contracts, although as discussed below, National Fuel frequently hedges the price of a significant portion of its future production in the financial markets. The prices National Fuel receives depend upon factors beyond National Fuel’s control, which include: weather conditions; the supply and price of foreign oil and natural gas; the level of consumer product demand; worldwide economic conditions, including economic disruptions caused by terrorist activities or acts of war; political conditions in foreign countries; the price and availability of alternative fuels; the proximity to and capacity of transportation facilities; worldwide energy conservation measures; and government regulations, such as regulation of natural gas transportation and price controls. National Fuel believes that any prolonged reduction in oil and natural gas prices would restrict its ability to continue the level of activity National Fuel otherwise would pursue, which could have a material adverse effect on its revenues, cash flows and results of operations.*


	*National Fuel has significant transactions involving price hedging of its oil and natural gas production.*

In order to protect itself to some extent against unusual price volatility and to lock in fixed pricing on oil and natural gas production for certain periods of time, National Fuel periodically enters into commodity price derivatives contracts (hedging arrangements) with respect to a portion of its expected production. These contracts may at any time cover as much as 70% of National Fuel’s expected energy production during the upcoming 12 month period. These contracts reduce exposure to subsequent price drops but can also limit National Fuel’s ability to benefit from increases in commodity prices.

In addition, under the applicable accounting rules, such hedging arrangements are subject to quarterly effectiveness tests. Inherent within those effectiveness tests are assumptions concerning the long-term price differential between different types of crude oil, assumptions concerning the difference between published natural gas price indexes established by pipelines in which hedged natural gas production is delivered and the reference price established in the hedging arrangements, and assumptions regarding the levels of production that will be achieved. Depending on market conditions for natural gas and crude oil and the levels of production actually achieved, it is possible that certain of those assumptions may change in the future, and, depending on the magnitude of any such changes, it is possible that a portion of the Company’s hedges may no longer be considered highly effective. In that case, gains or losses from the ineffective derivative financial instruments would be marked-to-market on the income statement without regard to an underlying physical transaction. Gains would occur to the extent that hedge prices exceed market prices, and losses would occur to the extent that market prices exceed hedge prices.

Use of energy commodity price hedges also exposes National Fuel to the risk of non-performance by a contract counterparty. National Fuel carefully evaluates the financial strength of all contract counterparties, but these parties might not be able to perform their obligations under the hedge arrangements.

It is National Fuel’s policy that the use of commodity derivatives contracts be strictly confined to the price hedging of existing and forecast production, and National Fuel maintains a system of internal controls to monitor compliance with its policy. However, unauthorized speculative trades could occur that may expose National Fuel to substantial losses to cover positions in these contracts.


	*You should not place undue reliance on reserve information because such information represents estimates.*

This Form 10-K contains estimates of National Fuel’s proved oil and natural gas reserves and the future net cash flows from those reserves that were prepared by National Fuel’s petroleum engineers and reviewed by independent petroleum engineers. Petroleum engineers consider many factors and make assumptions in estimating National Fuel’s oil and natural gas reserves and future net cash flows. These factors include: historical production from the area compared with production from other producing areas; the assumed effect of governmental regulation; and assumptions concerning oil and natural gas prices, production and development costs, severance and excise taxes, and capital expenditures. Lower oil and natural gas prices generally cause lower estimates of proved reserves. Estimates of reserves and expected future cash flows prepared by different engineers, or by the same engineers at different times, may differ substantially. Ultimately, actual production, revenues and expenditures relating to National Fuel’s reserves will vary from any estimates, and these variations may be material. Accordingly, the accuracy of National Fuel’s reserve estimates is a function of the quality of available data and of engineering and geological interpretation and judgment.

If conditions remain constant, then National Fuel is reasonably certain that its reserve estimates represent economically recoverable oil and natural gas reserves and future net cash flows. If conditions change in the future, then subsequent reserve estimates may be revised accordingly. You should not assume that the present value of future net cash flows from National Fuel’s proved reserves is the current market value of National Fuel’s estimated oil and natural gas reserves. In accordance with SEC requirements, National Fuel bases the estimated discounted future net cash flows from its proved reserves on prices and costs as of the date of the estimate. Actual future prices and costs may differ materially from those used in the net present value estimate. Any significant price changes will have a material effect on the present value of National Fuel’s reserves.

Petroleum engineering is a subjective process of estimating underground accumulations of natural gas and other hydrocarbons that cannot be measured in an exact manner. The process of estimating oil and natural gas reserves is complex. The process involves significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Future economic and operating conditions are uncertain, and changes in those conditions could cause a revision to National Fuel’s future reserve estimates. Estimates of economically recoverable oil and natural gas reserves and of future net cash flows depend upon a number of variable factors and assumptions, including historical production from the area compared with production from other comparable producing areas, and the assumed effects of regulations by governmental agencies. Because all reserve estimates are to some degree subjective, each of the following items may differ materially from those assumed in estimating reserves: the quantities of oil and natural gas that are ultimately recovered, the timing of the recovery of oil and natural gas reserves, the production and operating costs incurred, the amount and timing of future development expenditures, and the price received for the production.


	The amount and timing of actual future oil and natural gas production and the cost of drilling are difficult to predict and may vary significantly from reserves and production estimates, which may reduce National Fuel’s earnings.

There are many risks in developing oil and natural gas, including numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures. The future success of National Fuel’s Exploration and Production segment depends on its ability to develop additional oil and natural gas reserves that are economically recoverable, and its failure to do so may reduce National Fuel’s earnings. The total and timing of actual future

production may vary significantly from reserves and production estimates. National Fuel’s drilling of development wells can involve significant risks, including those related to timing, success rates, and cost overruns, and these risks can be affected by lease and rig availability, geology, and other factors. Drilling for natural gas can be unprofitable, not only from dry wells, but from productive wells that do not produce sufficient revenues to return a profit. Also, title problems, weather conditions, governmental requirements, and shortages or delays in the delivery of equipment and services can delay drilling operations or result in their cancellation. The cost of drilling, completing, and operating wells is often uncertain, and new wells may not be productive or National Fuel may not recover all or any portion of its investment. Without continued successful exploitation or acquisition activities, National Fuel’s reserves and revenues will decline as a result of its current reserves being depleted by production. National Fuel cannot assure you that it will be able to find or acquire additional reserves at acceptable costs.


	*Financial accounting requirements regarding exploration and production activities may affect National Fuel’s profitability.*

National Fuel accounts for its exploration and production activities under the full-cost method of accounting. Each quarter, on a country-by-country basis, National Fuel must compare the level of its unamortized investment in oil and natural gas properties to the present value of the future net revenue projected to be recovered from those properties according to methods prescribed by the SEC. If, at the end of any quarter, the amount of the unamortized investment exceeds the net present value of the projected future revenues, such investment may be considered to be “impaired,” and the full-cost accounting rules require that the investment must be written down to the calculated net present value. Such an instance, if it were to occur, would require National Fuel to recognize an immediate expense in that quarter, and its earnings would be reduced. Because of the variability in National Fuel’s investment in oil and natural gas properties and the volatile nature of commodity prices, National Fuel cannot predict if, or when, it may be affected by such an impairment calculation.


	*Environmental regulation significantly affects National Fuel’s business.*

National Fuel’s business operations are subject to federal, state, and local laws and regulations (including those of Canada) relating to environmental protection. These laws and regulations concern the generation, storage, transportation, disposal or discharge of contaminants into the environment and the general protection of public health, natural resources, wildlife and the environment. Costs of compliance and liabilities could negatively affect National Fuel’s results of operations, financial condition and cash flows. In addition, compliance with environmental laws and regulations could require unexpected capital expenditures at National Fuel’s facilities. Because the costs of complying with environmental regulations are significant, additional regulation could negatively affect National Fuel’s business. Although National Fuel cannot predict the impact of the interpretation or enforcement of EPA standards or other federal, state and local regulations, National Fuel’s costs could increase if environmental laws and regulations become more strict.


	*The nature of National Fuel’s operations presents inherent risks of loss that could adversely affect its results of operations, financial condition and cash flows.*

National Fuel’s operations are subject to inherent hazards and risks such as: fires; natural disasters; explosions; formations with abnormal pressures; blowouts; collapses of wellbore casing or other tubulars; pipeline ruptures; spills; and other hazards and risks that may cause personal injury, death, property damage or business interruption losses. Additionally, National Fuel’s facilities, machinery, and equipment may be subject to sabotage. Any of these events could cause a loss of hydrocarbons, environmental pollution, personal injury or death claims, damage to National Fuel’s properties or damage to the properties of others. As protection against operational hazards, National Fuel maintains insurance coverage against some, but not all, potential losses. In addition, many of the agreements that National Fuel executes with contractors provide for the division of responsibilities between the contractor and National Fuel, and National Fuel seeks to obtain an indemnification from the contractor for certain of these risks. National Fuel is not always able, however, to secure written agreements with its contractors that contain indemnification, and sometimes

National Fuel is required to indemnify others. Insurance or indemnification agreements when obtained may not adequately protect National Fuel against liability from all of the consequences of the hazards described above. The occurrence of an event not fully insured or indemnified against, the failure of a contractor to meet its indemnification obligations, or the failure of an insurance company to pay valid claims could result in substantial losses to National Fuel. In addition, insurance may not be available, or if available may not be adequate, to cover any or all of these risks. It is also possible that insurance premiums or other costs may rise significantly in the future, so as to make such insurance prohibitively expensive. Furthermore, such hazards, risks, insurance and indemnification may subject National Fuel to litigation or administrative proceedings from time to time. Such litigation or proceedings could result in substantial monetary judgments, fines or penalties against National Fuel or be resolved on unfavorable terms, the result of which could have a material adverse effect on National Fuel’s results of operations, financial condition and cash flows.


	*National Fuel may be adversely affected by economic conditions.*

Periods of slowed economic activity generally result in decreased energy consumption, particularly by industrial and large commercial companies. As a consequence, national or regional recessions or other downturns in economic activity could adversely affect National Fuel’s revenues and cash flows or restrict its future growth. Economic conditions in National Fuel’s utility service territories also impact its collections of accounts receivable.


Item 1B	*Unresolved Staff Comments*

None


Item 2	*Properties*

General Information on Facilities

The investment of the Company in net property, plant and equipment was $2.8 billion at September 30, 2005. Approximately 62% of this investment was in the Utility and Pipeline and Storage segments, which are primarily located in western and central New York and northwestern Pennsylvania. The Exploration and Production segment, which has the next largest investment in net property, plant and equipment (34%), is primarily located in California, in the Appalachian region of the United States, in Wyoming, in the Gulf Coast region of Texas, Louisiana, and Alabama and in the provinces of Alberta, Saskatchewan and British Columbia in Canada. The remaining investment in net property, plant and equipment consisted primarily of the Timber segment (3%) which is located primarily in northwestern Pennsylvania, and All Other and Corporate operations (1%). During the past five years, the Company has made additions to property, plant and equipment in order to expand and improve transmission and distribution facilities for both retail and transportation customers. Net property, plant and equipment has increased $156.0 million, or 6%, since 2000. During 2005, the Company sold its majority interest in U.E., a district heating and electric generation business in the Czech Republic. Excluding the impact of that sale, net property, plant and equipment has increased $328.0 million, or 13%, since 2000.

The Utility segment had a net investment in property, plant and equipment of $1.1 billion at September 30, 2005. The net investment in its gas distribution network (including 14,784 miles of distribution pipeline) and its service connections to customers represent approximately 53% and 33%, respectively, of the Utility segment’s net investment in property, plant and equipment at September 30, 2005.

The Pipeline and Storage segment had a net investment of $680.6 million in property, plant and equipment at September 30, 2005. Transmission pipeline represents 37% of this segment’s total net investment and includes 2,533 miles of pipeline required to move large volumes of gas throughout its service area. Storage facilities consist of 32 storage fields, four of which are jointly owned and operated with certain pipeline suppliers, and 439 miles of pipeline. Net investment in storage facilities includes $90.9 million of gas stored underground-noncurrent, representing the cost of the gas required to maintain pressure levels for normal operating purposes as well as gas maintained for system balancing and other purposes, including that

needed for no-notice transportation service. The Pipeline and Storage segment has 28 compressor stations with 75,081 installed compressor horsepower.

The Exploration and Production segment had a net investment in property, plant and equipment of $974.8 million at September 30, 2005. Of this amount, $803.9 million relates to properties located in the United States. The remaining net investment of $170.9 million relates to properties located in Canada.

The Timber segment had a net investment in property, plant and equipment of $94.8 million at September 30, 2005. Located primarily in northwestern Pennsylvania, the net investment includes two sawmills, approximately 100,400 acres of land and timber, and approximately 4,200 timber rights acres.

The Utility and Pipeline and Storage segments’ facilities provided the capacity to meet the Company’s 2005 peak day sendout, including transportation service, of 1,672.2 MMcf, which occurred on January 21, 2005. Withdrawals from storage of 662.5 MMcf provided approximately 39.6% of the requirements on that day.

Company maps are included in exhibit 99.3 of this Form 10-K and are incorporated herein by reference.

Exploration and Production Activities

The Company is engaged in the exploration for, and the development and purchase of, natural gas and oil reserves in California, in the Appalachian region of the United States, and in the Gulf Coast region of Texas, Louisiana, and Alabama. Also, Exploration and Production operations are conducted in the provinces of Alberta, Saskatchewan and British Columbia in Canada. Further discussion of oil and gas producing activities is included in Item 8, Note O-Supplementary Information for Oil and Gas Producing Activities. Note O sets forth proved developed and undeveloped reserve information for Seneca. Seneca’s proved developed and undeveloped natural gas reserves increased from 225 Bcf at September 30, 2004 to 238 Bcf at September 30, 2005. This increase can be attributed to the fact that net extensions and discoveries outpaced production. However, Seneca’s proved developed and undeveloped oil reserves decreased from 65,213 Mbbl at September 30,2004 to 60,257 Mbbl at September 30, 2005. This decrease can be attributed to the fact that production outpaced net extensions and discoveries. During 2004, Seneca’s proved developed and undeveloped reserves decreased modestly from the prior year. Natural gas reserves decreased from 251 Bcf at September 30, 2003 to 225 Bcf at September 30, 2004 and oil reserves decreased from 69,764 Mbbl to 65,213 Mbbl. These decreases are attributed primarily to the fact that U.S. and Canadian production outpaced net extensions and discoveries.

Seneca’s oil and gas reserves reported in Note O as of September 30, 2005 were estimated by Seneca’s geologists and engineers and were audited by independent petroleum engineers from Ralph E. Davis Associates, Inc. Seneca reports its oil and gas reserve information on an annual basis to the Energy Information Administration (EIA), a statistical agency of the U.S. Department of Energy. The basis of reporting Seneca’s reserves to the EIA is identical to that reported in Note O.

The following is a summary of certain oil and gas information taken from Seneca’s records. All monetary amounts are expressed in U.S. dollars.

Production


		For the Year Ended
		September 30

		2005		2004		2003

United States
Gulf Coast Region
	Average Sales Price per Mcf of Gas	$	7.05	$	5.61	$	5.41
	Average Sales Price per Barrel of Oil	$	49.78	$	35.31	$	29.17
	Average Sales Price per Mcf of Gas (after hedging)	$	6.01	$	4.82	$	4.22
	Average Sales Price per Barrel of Oil (after hedging)	$	35.03	$	31.51	$	27.88
	Average Production (Lifting) Cost per Mcf Equivalent of Gas and Oil Produced	$	0.71	$	0.60	$	0.56
	Average Production per Day (in MMcf Equivalent of Gas and Oil Produced)		50		73		75
West Coast Region
	Average Sales Price per Mcf of Gas	$	6.85	$	5.54	$	5.01
	Average Sales Price per Barrel of Oil	$	42.91	$	31.89	$	26.12
	Average Sales Price per Mcf of Gas (after hedging)	$	6.15	$	5.72	$	5.12
	Average Sales Price per Barrel of Oil (after hedging)	$	23.01	$	22.86	$	23.67
	Average Production (Lifting) Cost per Mcf Equivalent of Gas and Oil Produced	$	1.15	$	1.05	$	1.00
	Average Production per Day (in MMcf Equivalent of Gas and Oil Produced)		53		55		59
Appalachian Region
	Average Sales Price per Mcf of Gas	$	7.60	$	5.91	$	5.07
	Average Sales Price per Barrel of Oil	$	48.28	$	31.30	$	28.77
	Average Sales Price per Mcf of Gas (after hedging)	$	7.01	$	5.72	$	5.10
	Average Sales Price per Barrel of Oil (after hedging)	$	48.28	$	31.30	$	28.77
	Average Production (Lifting) Cost per Mcf Equivalent of Gas and Oil Produced	$	0.63	$	0.54	$	0.43
	Average Production per Day (in MMcf Equivalent of Gas and Oil Produced)		13		14		14
Total United States
	Average Sales Price per Mcf of Gas	$	7.13	$	5.66	$	5.28
	Average Sales Price per Barrel of Oil	$	44.87	$	33.13	$	27.16
	Average Sales Price per Mcf of Gas (after hedging)	$	6.26	$	5.13	$	4.52
	Average Sales Price per Barrel of Oil (after hedging)	$	26.59	$	26.06	$	25.11
	Average Production (Lifting) Cost per Mcf Equivalent of Gas and Oil Produced	$	0.90	$	0.76	$	0.72
	Average Production per Day (in MMcf Equivalent of Gas and Oil Produced)		117		142		148


		For the Year Ended
		September 30

		2005		2004		2003

Canada
	Average Sales Price per Mcf of Gas	$	6.15	$	4.87	$	4.67
	Average Sales Price per Barrel of Oil	$	42.97	$	30.94	$	26.41
	Average Sales Price per Mcf of Gas (after hedging)	$	6.14	$	4.79	$	4.20
	Average Sales Price per Barrel of Oil (after hedging)	$	42.97	$	30.94	$	15.85
	Average Production (Lifting) Cost per Mcf Equivalent of Gas and Oil Produced	$	1.29	$	1.00	$	1.65
	Average Production per Day (in MMcf Equivalent of Gas and Oil Produced)		27		22		55
Total Company
	Average Sales Price per Mcf of Gas	$	6.86	$	5.51	$	5.18
	Average Sales Price per Barrel of Oil	$	44.72	$	32.98	$	26.90
	Average Sales Price per Mcf of Gas (after hedging)	$	6.23	$	5.06	$	4.47
	Average Sales Price per Barrel of Oil (after hedging)	$	27.86	$	26.40	$	21.84
	Average Production (Lifting) Cost per Mcf Equivalent of Gas and Oil Produced	$	0.98	$	0.80	$	0.97
	Average Production per Day (in MMcf Equivalent of Gas and Oil Produced)		144		164		203

Productive Wells


	United States

	Gulf Coast				West Coast				Appalachian
	Region				Region				Region				Total U. S.

At September 30, 2005	Gas		Oil		Gas		Oil		Gas		Oil		Gas		Oil

Productive Wells — Gross		33		35		—		1,248		1,995		31		2,028		1,314
Productive Wells — Net		20		15		—		1,240		1,918		25		1,938		1,280

Productive Wells


	Canada				Total Company

At September 30, 2005	Gas		Oil		Gas		Oil

Productive Wells — Gross		198		53		2,226		1,367
Productive Wells — Net		141		36		2,079		1,316

Developed and Undeveloped Acreage


		United States

		Gulf		West
		Coast		Coast		Appalachian		Total				Total
At September 30, 2005		Region		Region		Region		U.S.		Canada		Company

Developed Acreage — Gross			111,864		9,839		509,337		631,040		124,143		755,183
	— Net		82,695		9,469		482,453		574,617		86,454		661,071
Undeveloped Acreage — Gross			178,269		—		479,056		657,325		385,359		1,042,684
	— Net		94,251		—		454,513		548,764		254,794		803,558

As of September 30, 2005, the aggregate amount of gross undeveloped acreage expiring in the next three years and thereafter are as follows: 126,636 acres in 2006 (91,416 net acres), 144,846 acres in 2007

(94,995 net acres), 102,332 acres in 2008 (63,232 net acres), and 668,870 acres thereafter (553,915 net acres).

Drilling Activity


		Productive						Dry

For the Year Ended September 30		2005		2004		2003		2005		2004		2003

United States
Gulf Coast Region
Net Wells Completed — Exploratory			1.30		—		1.25		0.47		0.50		—
	— Development		0.23		0.65		2.10		—		—		—
West Coast Region Net Wells Completed — Exploratory			—		—		—		—		—		—
	— Development		116.97		49.00		30.97		—		—		—
Appalachian Region Net Wells Completed — Exploratory			3.00		—		3.00		4.00		3.00		0.10
	— Development		45.00		41.00		58.00		1.00		—		—
Total United States Net Wells Completed — Exploratory			4.30		—		4.25		4.47		3.50		0.10
	— Development		162.20		90.65		91.07		1.00		—		—
Canada
Net Wells Completed — Exploratory			21.14		52.85		5.00		2.00		6.08		2.50
	— Development		3.50		10.50		17.16		—		—		5.00
Total
Net Wells Completed — Exploratory			25.44		52.85		9.25		6.47		9.58		2.60
	— Development		165.70		101.15		108.23		1.00		—		5.00

Present Activities


		United States

		Gulf		West
		Coast		Coast		Appalachian		Total				Total
At September 30, 2005		Region		Region		Region		U.S.		Canada		Company

Wells in Process of Drilling(1) — Gross			7.00		5.00		52.00		64.00		4.00		68.00
	— Net		5.04		5.00		52.00		62.04		0.82		62.86


(1)	Includes wells awaiting completion.


Item 3	*Legal Proceedings*

In an action instituted in the New York State Supreme Court, Chautauqua County on January 31, 2000 against Seneca, NFR and “National Fuel Gas Corporation,” Donald J. and Margaret Ortel and Brian and Judith Rapp, “individually and on behalf of all those similarly situated,” allege, in an amended complaint which adds National Fuel Gas Company as a party defendant that (a) Seneca underpaid royalties due under leases operated by it, and (b) Seneca’s co-defendants (i) fraudulently participated in and concealed such alleged underpayment, and (ii) induced Seneca’s alleged breach of such leases. Plaintiffs seek an accounting, declaratory and related injunctive relief, and compensatory and exemplary damages. Defendants have denied each of plaintiffs’ material substantive allegations and set up twenty-five affirmative defenses in separate verified answers.

A motion was made by plaintiffs on July 15, 2002 to certify a class comprising all persons presently and formerly entitled to receive royalties on the sale of natural gas produced and sold from wells operated in New York by Seneca (and its predecessor Empire Exploration, Inc). On December 23, 2002, the court granted certification of the proposed class, as modified to exclude those leaseholders whose leases provide for calculation of royalties based upon a flat fee, or flat fee per cubic foot of gas produced. The court’s order states that there are approximately 749 potential class members. Discovery closed on July 31, 2005, and the plaintiffs thereafter filed a formal demand for a jury trial and a “Note of Issue and Statement of Readiness” to proceed to trial. A trial date has not been set.

On October 13, 2005, the Company and the attorneys for the class entered into a Stipulation of Settlement, under which (i) the class would be expanded for purposes of settlement to include similarly situated persons entitled to royalties on natural gas production in Pennsylvania, (ii) the Company would pay $2.25 million to the plaintiffs to settle all damages, interest, legal fees and costs, and (iii) the Company would comply with various procedures set out in the Stipulation regarding the marketing of natural gas produced and the calculation of royalties. A fairness hearing has been scheduled for December 19, 2005 to December 21, 2005, at which interested parties may object to the settlement, following which the judge will rule on whether the settlement is just and reasonable. The Company’s balance sheet at September 30, 2005 includes a liability for the $2.25 million settlement.

In an action instituted in the New York State Supreme Court, Kings County on February 18, 2003 against Distribution Corporation and Paul J. Hissin, an unaffiliated third party, plaintiff Donna Fordham-Coleman, as administratrix of the estate of Velma Arlene Fordham, alleges that Distribution Corporation’s denial of natural gas service in November 2000 to the plaintiff’s decedent, Velma Arlene Fordham, caused decedent’s death in February 2001. The plaintiff seeks damages for wrongful death and pain and suffering, plus punitive damages. Distribution Corporation has denied plaintiff’s material allegations, set up seven affirmative defenses in separate verified answers and filed a cross-claim against the co-defendant. Distribution Corporation believes, and will vigorously assert, that plaintiff’s allegations lack merit. The Court changed venue of the action to New York State Supreme Court, Erie County. Discovery has closed and a trial date has been scheduled for February 27, 2006.

On December 22, 2003, the Pennsylvania Department of Environmental Protection (DEP) issued an order to Seneca to halt its timber harvesting operations on 21,000 acres in Cameron, Elk and McKean counties in Pennsylvania. The order asserts certain violations of DEP regulations concerning erosion, sedimentation and stream crossings. The order requires Seneca to apply for certain permits, control erosion, submit plans for removal of water encroachments not included in permit applications, notify the DEP of additional current or planned timber harvesting operations, and grant the DEP access to timber acreage. On January 9, 2004, Seneca filed with the Pennsylvania Environmental Hearing Board (Hearing Board) a notice of appeal, objecting to each finding and order contained in the order, and asserting that the DEP’s findings are factually incorrect, an arbitrary exercise of the DEP’s functions and duties, and contrary to law. Also on January 9, 2004, Seneca filed with the Hearing Board a petition requesting a stay of operation of portions of the order. On January 16, 2004, the parties settled Seneca’s request for a stay. Seneca has resumed its timber harvesting operations pursuant to the terms of the settlement. The settlement preserves various issues raised by the DEP’s order for a hearing on the merits of Seneca’s notice of appeal. Seneca is engaged in settlement negotiations as it continues to litigate this matter.* The most substantial question in the appeal involves whether Seneca is required to apply for a permit under Section 102.5(b) of Title 25 of the Pennsylvania Code, governing earth disturbance activities of greater than 25 acres. The DEP takes the position that Seneca must aggregate the acreage of all of its logging sites across its entire 21,000 acre tract for purposes of determining whether its earth disturbing activities meet the 25 acres threshold. Seneca maintains that no permit is required, because the law does not require aggregation and each of its individual logging sites disturbs less than 25 acres.

The Company believes, based on the information presently known, that the ultimate resolution of these matters, individually or in the aggregate, will not be material to the consolidated financial condition, results of operations, or cash flow of the Company.* No assurances can be given, however, as to the ultimate outcomes

of these matters, and it is possible that the outcomes, individually or in the aggregate, could be material to results of operations or cash flow for a particular quarter or annual period.*

For a discussion of various environmental and other matters, refer to Item 7, MD&A and Item 8 at Note G — Commitments and Contingencies.

The Company is involved in litigation arising in the normal course of business. Also in the normal course of business, the Company is involved in tax, regulatory and other governmental audits, inspections, investigations and other proceedings that involve state and federal taxes, safety, compliance with regulations, rate base, cost of service and purchased gas cost issues, among other things. While the resolution of such litigation or regulatory matters could have a material effect on earnings and cash flows in the period of resolution, none of this litigation, and none of these regulatory matters, are expected to change materially the Company’s present liquidity position, nor have a material adverse effect on the financial condition of the Company.*


Item 4	*Submission of Matters to a Vote of Security Holders*

No matter was submitted to a vote of security holders during the quarter ended September 30, 2005.

PART II


Item 5	*Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Information regarding the market for the Company’s common equity and related stockholder matters appears under Item 12 at Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, Item 8 at Note D-Capitalization and Short-Term Borrowings and Note N-Market for Common Stock and Related Shareholder Matters (unaudited).

On July 1, 2005, the Company issued a total of 2,100 unregistered shares of Company common stock to the seven non-employee directors of the Company then serving on the Board of Directors, 300 shares to each such director. All of these unregistered shares were issued as partial consideration for such directors’ services during the quarter ended September 30, 2005, pursuant to the Company’s Retainer Policy for Non-Employee Directors. These transactions were exempt from registration under Section 4(2) of the Securities Act of 1933, as transactions not involving a public offering.

Issuer Purchases of Equity Securities


					Total Number of		Maximum Number
					Shares Purchased		of Shares that May
					as Part of Publicly		Yet Be Purchased
	Total Number of				Announced Share		Under Share
	Shares		Average Price		Repurchase Plans		Repurchase Plans
Period	Purchased(a)		Paid per Share		or Programs		or Programs

July 1-31, 2005		147,800	$	29.94		—		—
Aug. 1-31, 2005		31,878	$	29.60		—		—
Sept. 1-30, 2005		105,619	$	32.26		—		—

Total		285,297	$	30.76		—		—


(a)		Represents (i) shares of common stock of the Company purchased on the open market with Company “matching contributions” for the accounts of participants in the Company’s 401(k) plans, and (ii) shares of common stock of the Company tendered to the Company by holders of stock options or shares of restricted stock for the payment of option exercise prices and/or applicable withholding taxes.


Item 6	*Selected Financial Data (1)*


			Year Ended September 30

			2005			2004			2003			2002			2001

			(Thousands)
Summary of Operations
Operating Revenues			$	1,923,549		$	1,907,968		$	1,921,573		$	1,369,869		$	1,962,874

Operating Expenses:
	Purchased Gas			959,827			949,452			963,567			462,857			1,002,466
	Operation and Maintenance			404,517			385,519			361,898			372,063			348,270
	Property, Franchise and Other Taxes			69,076			68,978			79,692			69,837			81,571
	Depreciation, Depletion and Amortization			179,767			174,289			181,329			168,745			163,239
	Impairment of Oil and Gas Producing Properties			—			—			42,774			—			180,781

				1,613,187			1,578,238			1,629,260			1,073,502			1,776,327
Gain (Loss) on Sale of Timber Properties				—			(1,252	)		168,787			—			—
Gain (Loss) on Sale of Oil and Gas Producing Properties				—			4,645			(58,472	)		—			—

Operating Income				310,362			333,123			402,628			296,367			186,547
Other Income (Expense):
		Income from Unconsolidated Subsidiaries		3,362			805			535			224			1,794
		Impairment of Investment in Partnership		(4,158	)		—			—			(15,167	)		—
		Interest Income		6,496			1,771			2,204			2,593			4,010
		Other Income		12,744			2,908			2,427			3,184			5,337
		Interest Expense on Long-Term Debt		(73,244	)		(82,989	)		(91,381	)		(88,646	)		(78,297	)
		Other Interest Expense		(9,069	)		(6,763	)		(11,196	)		(15,109	)		(25,294	)

Income from Continuing Operations Before Income Taxes				246,493			248,855			305,217			183,446			94,097
Income Tax Expense				92,978			94,590			124,150			69,944			33,434

Income from Continuing Operations				153,515			154,265			181,067			113,502			60,663

Discontinued Operations:
		Income from Operations, Net of Tax		10,199			12,321			6,769			4,180			4,836
		Gain on Disposal, Net of Tax		25,774			—			—			—			—

Income from Discontinued Operations, Net of Tax				35,973			12,321			6,769			4,180			4,836

Income Before Cumulative Effect of Changes in Accounting				189,488			166,586			187,836			117,682			65,499
Cumulative Effect of Changes in Accounting				—			—			(8,892	)		—			—

Net Income Available for Common Stock			$	189,488		$	166,586		$	178,944		$	117,682		$	65,499


		Year Ended September 30

		2005		2004		2003		2002		2001

		(Thousands)
Per Common Share Data
	Basic Earnings from Continuing Operations per Common Share	$	1.84	$	1.88	$	2.24	$	1.42	$	0.77
	Diluted Earnings from Continuing Operations per Common Share	$	1.81	$	1.86	$	2.23	$	1.41	$	0.76
	Basic Earnings per Common Share(2)	$	2.27	$	2.03	$	2.21	$	1.47	$	0.83
	Diluted Earnings per Common Share(2)	$	2.23	$	2.01	$	2.20	$	1.46	$	0.82
	Dividends Declared	$	1.14	$	1.10	$	1.06	$	1.03	$	0.99
	Dividends Paid	$	1.13	$	1.09	$	1.05	$	1.02	$	0.97
	Dividend Rate at Year-End	$	1.16	$	1.12	$	1.08	$	1.04	$	1.01
At September 30:
Number of Common Shareholders			18,369		19,063		19,217		20,004		20,345

Net Property, Plant and Equipment (Thousands)
	Utility	$	1,064,588	$	1,048,428	$	1,028,393	$	960,015	$	945,693
	Pipeline and Storage		680,574		696,487		705,927		487,793		483,222
	Exploration and Production		974,806		923,730		925,833		1,072,200		1,081,622
	Energy Marketing		97		80		171		125		262
	Timber		94,826		82,838		87,600		110,624		90,453
	All Other		18,098		21,172		22,042		6,797		1,209
	Corporate(3)		6,311		234,029		221,082		207,191		178,252

Total Net Plant		$	2,839,300	$	3,006,764	$	2,991,048	$	2,844,745	$	2,780,713

Total Assets (Thousands)		$	3,722,652	$	3,717,603	$	3,725,414	$	3,429,163	$	3,452,566

Capitalization (Thousands)
Comprehensive Shareholders’ Equity		$	1,229,583	$	1,253,701	$	1,137,390	$	1,006,858	$	1,002,655
Long-Term Debt, Net of Current Portion			1,119,012		1,133,317		1,147,779		1,145,341		1,046,694

Total Capitalization		$	2,348,595	$	2,387,018	$	2,285,169	$	2,152,199	$	2,049,349


(1)	Certain prior year amounts have been reclassified to conform with current year presentation.

(2)	Includes discontinued operations and cumulative effect of changes in accounting.

(3)	Includes net plant of the former international segment as follows: $20 for 2005, $227,905 for 2004, $219,199 for 2003, $207,191 for 2002 and $178,250 for 2001.


Item 7	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

OVERVIEW

The Company is a diversified energy company consisting of five reportable business segments. Refer to Item I, Business, for a more detailed description of each of the segments. This Item 7, MD&A, provides information concerning:


	1.	The critical accounting policies of the Company;

	2.	Changes in revenues and earnings of the Company under the heading, “Results of Operations;”

	3.	Operating, investing and financing cash flows under the heading “Capital Resources and Liquidity;”

	4.	Off-Balance Sheet Arrangements;


	5.	Contractual Obligations; and

	6.	Other Matters, including: a.) 2005 and 2006 funding to the Company’s defined benefit retirement plan and post-retirement benefit plan, b.) disclosures and tables concerning market risk sensitive instruments, c.) rate matters in the Company’s New York, Pennsylvania and FERC regulated jurisdictions, d.) environmental matters, and e.) new accounting pronouncements.

The information in MD&A should be read in conjunction with the Company’s financial statements in Item 8 of this report.

The event that had the most significant earnings impact in 2005, and the main reason for the significant earnings increase over 2004, was the Company’s sale of its entire 85.16% interest in U.E., a district heating and electric generation business in the Czech Republic. This sale resulted in a $25.8 million gain, net of tax. Current market conditions, including the increasing value of the Czech currency as compared to the U.S. dollar, caused the value of the assets of U.E. to increase, providing an opportunity to sell the U.E. operations at a profit for the Company. As a result of the decision to sell its majority interest in U.E., the Company determined it appropriate to present the Czech Republic operations as discontinued operations beginning in June 2005. The Company also determined it appropriate to discontinue all reporting for an International segment in June 2005 since the Czech Republic operations represented substantially all of the activity in that segment. Any remaining international activity has been included in corporate operations for all periods presented below.

CRITICAL ACCOUNTING POLICIES

The Company has prepared its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements 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. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. The following is a summary of the Company’s most critical accounting policies, which are defined as those policies whereby judgments or uncertainties could affect the application of those policies and materially different amounts could be reported under different conditions or using different assumptions. For a complete discussion of the Company’s significant accounting policies, refer to Item 8 at Note A — Summary of Significant Accounting Policies.

Oil and Gas Exploration and Development Costs. In the Company’s Exploration and Production segment, oil and gas property acquisition, exploration and development costs are capitalized under the full cost method of accounting. Under this accounting methodology, all costs associated with property acquisition, exploration and development activities are capitalized, including internal costs directly identified with acquisition, exploration and development activities. The internal costs that are capitalized do not include any costs related to production, general corporate overhead, or similar activities.

The Company believes that determining the amount of the Company’s proved reserves is a critical accounting estimate. Proved reserves are estimated quantities of reserves that, based on geologic and engineering data, appear with reasonable certainty to be producible under existing economic and operating conditions. Such estimates of proved reserves are inherently imprecise and may be subject to substantial revisions as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. The estimates involved in determining proved reserves are critical accounting estimates because they serve as the basis over which capitalized costs are depleted under the full-cost method of accounting (on a units-of-production basis). Unevaluated properties are excluded from the depletion calculation until they are evaluated. Once they are evaluated, costs associated with these properties are transferred to the pool of costs being depleted.

In addition to depletion under the units-of-production method, proved reserves are a major component in the SEC full cost ceiling test. The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule 4-10. The ceiling test is performed on a country-by-country basis and determines a limit, or ceiling, to the amount of property acquisition, exploration and development costs that can be capitalized. The ceiling under this test represents (a) the present value of estimated future net revenues using a discount factor of 10%, which is computed by applying current market prices of oil and gas (as adjusted for hedging) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet, less estimated future expenditures, plus (b) the cost of unevaluated properties not being depleted, less (c) income taxes. The estimates of future production and future expenditures are based on internal budgets that reflect planned production from current wells and expenditures necessary to sustain such future production. The amount of the ceiling can fluctuate significantly from period to period because of additions or subtractions to proved reserves and significant fluctuations in oil and gas prices. The ceiling is then compared to the capitalized cost of oil and gas properties less accumulated depletion and related deferred income taxes. If the capitalized costs of oil and gas properties less accumulated depletion and related deferred taxes exceeds the ceiling at the end of any fiscal quarter, a non-cash impairment must be recorded to write down the book value of the reserves to their present value. This non-cash impairment cannot be reversed at a later date if the ceiling increases. It should also be noted that a non-cash impairment to write-down the book value of the reserves to their present value in any given period causes a reduction in future depletion expense. The Company recorded non-cash impairments relating to its Canadian properties in 2003 which amounted to $28.9 million (after tax) and resulted from downward revisions to crude oil reserves (related to the Canadian properties sold) as well as a decline in crude oil prices.

It is difficult to predict what factors could lead to future impairments under the SEC’s full cost ceiling test. As discussed above, fluctuations or subtractions to proved reserves and significant fluctuations in oil and gas prices have an impact on the amount of the ceiling at any point in time.

Regulation. The Company is subject to regulation by certain state and federal authorities. The Company, in its Utility and Pipeline and Storage segments, has accounting policies which conform to SFAS 71, and which are in accordance with the accounting requirements and ratemaking practices of the regulatory authorities. The application of these accounting policies allows the Company to defer expenses and income on the balance sheet as regulatory assets and liabilities when it is probable that those expenses and income will be allowed in the ratesetting process in a period different from the period in which they would have been reflected in the income statement by an unregulated company. These deferred regulatory assets and liabilities are then flowed through the income statement in the period in which the same amounts are reflected in rates. Management’s assessment of the probability of recovery or pass through of regulatory assets and liabilities requires judgment and interpretation of laws and regulatory commission orders. If, for any reason, the Company ceases to meet the criteria for application of regulatory accounting treatment for all or part of its operations, the regulatory assets and liabilities related to those portions ceasing to meet such criteria would be eliminated from the balance sheet and included in the income statement for the period in which the discontinuance of regulatory accounting treatment occurs. Such amounts would be classified as an extraordinary item. For further discussion of the Company’s regulatory assets and liabilities, refer to Item 8 at Note B — Regulatory Matters.

Accounting for Derivative Financial Instruments. The Company, in its Exploration and Production segment, Energy Marketing segment, Pipeline and Storage segment and All Other Category, uses a variety of derivative financial instruments to manage a portion of the market risk associated with fluctuations in the price of natural gas and crude oil. These instruments are categorized as price swap agreements, no cost collars, options and futures contracts. The Company, in its Pipeline and Storage segment, uses an interest rate collar to limit interest rate fluctuations on certain variable rate debt. In accordance with the provisions of SFAS 133, the Company accounts for these instruments as effective cash flow hedges or fair value hedges. As such, gains or losses associated with the derivative financial instruments are matched with gains or losses resulting from the underlying physical transaction that is being hedged. To the extent that the derivative financial instruments would ever be deemed to be ineffective, mark-to-market gains or losses from the derivative financial instruments would be recognized in the income statement without regard to an

underlying physical transaction. As discussed below, the Company was required to discontinue hedge accounting for a portion of its derivative financial instruments, resulting in a charge to earnings in 2005.

The Company uses both exchange-traded and non exchange-traded derivative financial instruments. The fair value of the non exchange-traded derivative financial instruments are based on valuations determined by the counterparties. Refer to the “Market Risk Sensitive Instruments” section in Item 7, MD&A, for further discussion of the Company’s derivative financial instruments.

Pension and Other Post-Retirement Benefits. The amounts reported in the Company’s financial statements related to its pension and other post-retirement benefits are determined on an actuarial basis, which uses many assumptions in the calculation of such amounts. These assumptions include the discount rate, the expected return on plan assets, the rate of compensation increase and, for other post-retirement benefits, the expected annual rate of increase in per capita cost of covered medical and prescription benefits. The discount rate used by the Company is equal to the Moody’s Aa Long Term Corporate Bond index, rounded to the nearest 25 basis points. The duration of the securities underlying that index reasonably matches the expected timing of anticipated future benefit payments. The expected return on plan assets assumption used by the Company reflects the anticipated long-term rate of return on the plan’s current and future assets. The Company utilizes historical investment data, projected capital market conditions, and the plan’s target asset class and investment manager allocations to set the assumption regarding the expected return on plan assets. Changes in actuarial assumptions and actuarial experience could have a material impact on the amount of pension and post-retirement benefit costs and funding requirements experienced by the Company.* However, the Company expects to recover substantially all of its net periodic pension and other post-retirement benefit costs attributable to employees in its Utility and Pipeline and Storage segments in accordance with the applicable regulatory commission authorization.* For financial reporting purposes, the difference between the amounts of pension cost and post-retirement benefit cost recoverable in rates and the amounts of such costs as determined under applicable accounting principles is recorded as either a regulatory asset or liability, as appropriate, as discussed above under “Regulation.” For further discussion of the Company’s pension and other post-retirement benefits, refer to Other Matters in this Item 7 and to Item 8 at Note F — Retirement Plan and Other Post Retirement Benefits.

RESULTS OF OPERATIONS

EARNINGS

2005 Compared with 2004

The Company’s earnings were $189.5 million in 2005 compared with earnings of $166.6 million in 2004. As previously discussed, the Company has presented its Czech Republic operations as discontinued operations. Prior year amounts have been reclassified to reflect this change in presentation. The Company’s earnings from continuing operations were $153.5 million in 2005 compared with $154.3 million in 2004. The Company’s earnings from discontinued operations were $36.0 million in 2005 compared with $12.3 million in 2004. Earnings from continuing operations did not change significantly as higher earnings in the Pipeline and Storage segment were largely offset by lower earnings in the Utility and Exploration and Production segments and a higher loss in the All Other category. The increase in earnings from discontinued operations resulted from the gain on the sale of U.E. in 2005. In the discussion that follows, note that all amounts used in the earnings discussions are after tax amounts. Earnings from continuing operations and discontinued operations were impacted by several events in 2005 and 2004, including:


	*2005 Events*


	•	A $25.8 million gain on the sale of U.E., which was completed in July 2005. This amount is included in earnings from discontinued operations;

	•	A $2.6 million gain in the Pipeline and Storage segment associated with a FERC approved sale of base gas;


	•	A $3.9 million gain in the Pipeline and Storage segment associated with insurance proceeds received in prior years for which a contingency was resolved during 2005;

	•	A $3.3 million loss related to certain derivative financial instruments that no longer qualified as effective hedges;

	•	A $2.7 million impairment in the value of the Company’s 50% investment in ESNE (recorded in the All Other category), a limited liability company that owns an 80-megawatt, combined cycle, natural gas-fired power plant in the town of North East, Pennsylvania; and

	•	A $1.8 million impairment of a gas-powered turbine in the All Other category that the Company had planned to use in the development of a co-generation plant.


	*2004 Events*


	•	A $5.2 million reduction to deferred income tax expense in the International segment resulting from a change in the statutory income tax rate in the Czech Republic. This amount is included in earnings from discontinued operations;

	•	Settlement of a pension obligation which resulted in the recording of additional expense amounting to $6.4 million, allocated among the segments as follows: $2.2 million to the Utility segment ($1.2 million in the New York jurisdiction and $1.0 million in the Pennsylvania jurisdiction), $2.0 million to the Pipeline and Storage segment ($1.8 million to Supply Corporation and $0.2 million to Empire State Pipeline), $0.9 million to the Exploration and Production segment, $0.3 million to the Energy Marketing segment and $1.0 million to the Corporate and All Other categories;

	•	An adjustment to the 2003 sale of the Company’s Southeast Saskatchewan oil and gas properties in the Exploration and Production segment which increased 2004 earnings by $4.6 million; and

	•	An adjustment to the Company’s 2003 sale of its timber properties in the Timber segment, which reduced 2004 earnings by $0.8 million.

2004 Compared with 2003

The Company’s earnings were $166.6 million in 2004 compared with earnings of $178.9 million in 2003. The Company’s earnings from continuing operations were $154.3 million in 2004 compared with $181.1 million in 2003. The Company’s earnings from discontinued operations were $12.3 million in 2004 compared with $6.8 million in 2003. The Company also reduced earnings by $8.9 million in 2003 associated with the cumulative effect of changes in accounting. The decrease in earnings from continuing operations is primarily the result of lower earnings in the Timber and Utility segments partially offset by higher earnings in the Exploration and Production, and Pipeline and Storage segments, as shown in the table below. Earnings were impacted by the 2004 events discussed above and several events in 2003, including:


	*2003 Events*


	•	The Company’s Timber segment completed the sale of approximately 70,000 acres of its timber property, increasing earnings by $102.2 million;

	•	The Company’s Exploration and Production segment completed the sale of its Southeast Saskatchewan oil and gas properties in Canada, reducing earnings by $39.6 million;

	•	The Company’s Exploration and Production segment recorded impairment charges related to its Canadian oil and gas assets which reduced earnings by $28.9 million;

	•	An impairment in the amount of $8.3 million, representing the cumulative effect of a change in accounting for goodwill associated with the Company’s operations in the Czech Republic; and


	•	A reduction in the amount of $0.6 million, representing the cumulative effect of a change in accounting for plugging and abandonment costs in the Company’s Exploration and Production segment.

For a more complete discussion of the cumulative effect of changes in accounting, refer to Note A — Summary of Significant Accounting Policies in Item 8 of this report. Additional discussion of earnings in each of the business segments can be found in the business segment information that follows.

Earnings (Loss) by Segment


		Year Ended September 30

		2005			2004			2003

		(Thousands)
Utility		$	39,197		$	46,718		$	56,808
Pipeline and Storage			60,454			47,726			45,230
Exploration and Production			50,659			54,344			(31,293	)
Energy Marketing			5,077			5,535			5,868
Timber			5,032			5,637			112,450

	Total Reportable Segments		160,419			159,960			189,063
All Other			(2,616	)		1,530			193
Corporate(1)			(4,288	)		(7,225	)		(8,189	)

	Total Earnings from Continuing Operations	$	153,515		$	154,265		$	181,067

Earnings from Discontinued Operations			35,973			12,321			6,769
Cumulative Effect of Changes in Accounting(2)			—			—			(8,892	)

	Total Consolidated	$	189,488		$	166,586		$	178,944


(1)	Includes earnings from the former International segment’s activity other than the activity from the Czech Republic operations included in Earnings from Discontinued Operations.

(2)	Includes $8.3 million for the cumulative effect of a change in accounting for goodwill associated with the Company’s operations in the Czech Republic and $0.6 million for the cumulative effect of a change in accounting for plugging and abandonment costs in the Company’s Exploration and Production segment.

UTILITY

Revenues

Utility Operating Revenues


		Year Ended September 30

		2005		2004		2003

		(Thousands)
Retail Revenues:
	Residential	$	868,292	$	808,740	$	801,984
	Commercial		145,393		137,092		137,905
	Industrial		13,998		17,454		23,263

			1,027,683		963,286		963,152

Off-System Sales			—		106,841		107,220
Transportation			83,669		80,563		86,374
Other			5,715		1,951		6,237

		$	1,117,067	$	1,152,641	$	1,162,983

Utility Throughput — million cubic feet (MMcf)


		Year Ended September 30

		2005		2004		2003

Retail Sales:
	Residential		66,903		70,109		76,449
	Commercial		11,984		12,752		14,177
	Industrial		1,387		2,261		3,537

			80,274		85,122		94,163

Off-System Sales			—		16,839		17,999
Transportation			59,770		60,565		64,232

			140,044		162,526		176,394

Degree Days


						Percent (Warmer)
						Colder Than

Year Ended September 30		Normal		Actual		Normal			Prior Year

2005:	Buffalo		6,692		6,587		(1.6	)%		0.2	%
	Erie		6,243		6,247		0.1	%		2.6	%
2004:	Buffalo		6,729		6,572		(2.3	)%		(7.9	%)
	Erie		6,277		6,086		(3.0	)%		(10.1	%)
2003:	Buffalo		6,815		7,137		4.7	%		22.9	%
	Erie		6,135		6,769		10.3	%		26.9	%

2005 Compared with 2004

Operating revenues for the Utility segment decreased $35.6 million in 2005 compared with 2004. This resulted primarily from the absence of off-system sales revenues of $106.8 million, offset by an increase of $64.4 million in retail revenues. Effective September 22, 2004, Distribution Corporation stopped making off-system sales as a result of the FERC’s Order 2004, “Standards of Conduct for Transmission Providers,” as discussed more fully in the Rate Matters section below. However, due to profit sharing with retail customers, the margins resulting from off-system sales have been minimal and there was not a material impact to margins in 2005. The increase in retail revenues was primarily the result of the recovery of higher gas costs (gas costs are recovered dollar for dollar in revenues), colder weather in the Pennsylvania jurisdiction and the impact of base rate increases in both New York and Pennsylvania. The recovery of higher gas costs resulted from a much higher cost of purchased gas. See further discussion of purchased gas below under the heading “Purchased Gas.” Lower retail sales volumes, due primarily to lower customer usage per account, partially offset the increase in retail revenues associated with the recovery of higher gas costs and the base rate increases. Also, retail industrial sales revenue declined due to fuel switching and production declines of certain large volume industrial customers as a result of a general economic downturn in the Utility segment’s service territory.

The increase in other operating revenues of $3.8 million is largely related to amounts recorded pursuant to rate settlements with the NYPSC. In accordance with these settlements, Distribution Corporation was allowed to utilize certain refunds from upstream pipeline companies and certain other credits (referred to as the “cost mitigation reserve”) to offset certain specific expense items. In 2005, Distribution Corporation utilized $7.8 million of the cost mitigation reserve, which increased other operating revenues, to recover previous undercollections of pension and post-retirement expenses. The impact of that increase in other operating revenues was offset by an equal amount of operation and maintenance expense (thus there is no earnings impact). This increase to other operating revenues was partially offset by two out-of-period regulatory adjustments recorded during 2005. The first adjustment related to the final settlement with the Staff of the NYPSC of the earnings sharing liability for the 2001 to 2003 time period. As a result of that

settlement, the New York rate jurisdiction recorded additional earnings sharing expense (as an offset to other operating revenues) of $0.9 million. The second adjustment related to a regulatory liability recorded for previous over-collections of New York State gross receipts tax. In preparing for the implementation of the recent settlement agreement in New York, the Company determined that it needed to adjust that regulatory liability by $3.1 million (of which $1.0 million was recorded as a reduction of other operating revenues and $2.1 million was recorded as additional interest expense) related to fiscal years 2004 and prior.

2004 Compared with 2003

Operating revenues for the Utility segment decreased $10.3 million in 2004 compared with 2003. This resulted largely from a decrease in transportation revenues of $5.8 million and a decrease in other revenues of $4.3 million. Transportation revenues decreased because of lower volumes being transported as a result of fuel switching, a general economic downturn in the Utility segment’s service territory and warmer weather, as shown in the degree day table above. Retail revenues did not change significantly from the prior year as the impact to revenues of lower retail sales volumes was largely offset by the recovery of higher gas costs (gas costs are recovered dollar for dollar in revenues) and a base rate increase in the Utility segment’s Pennsylvania jurisdiction. The recovery of higher gas costs resulted from a much higher cost of purchased gas. See further discussion of purchased gas below under the heading “Purchased Gas.” Warmer weather and lower customer usage per account were the major factors in the decrease in retail sales volumes. The decrease in retail industrial sales volumes can be attributed to fuel switching and a general economic downturn in the Utility segment’s service territory.

The decrease in other operating revenues is largely related to the three-year rate settlement approved by the NYPSC which ended on September 30, 2003. As part of the three-year rate settlement, Distribution Corporation was allowed to utilize certain refunds from upstream pipeline companies and certain other credits (referred to as the “cost mitigation reserve”) to offset certain specific expense items. In 2003, Distribution Corporation utilized $7.6 million of the cost mitigation reserve by recording $7.6 million of other operating revenues. While the three-year rate settlement was extended for an additional year, the provisions of the settlement which gave rise to the other operating revenues in 2003 did not continue in 2004, causing other operating revenues to decrease by $7.6 million in 2004. The impact of utilizing a portion of the cost mitigation reserve in revenues in 2003 was offset by an equal amount of operation and maintenance expense and interest expense (thus there is no earnings impact). Partially offsetting this decrease in revenues, in accordance with the three-year rate settlement which ended on September 30, 2003, Distribution Corporation recorded a refund provision of $4.0 million as a reduction of other operating revenues. While the provisions of the settlement were extended for a one-year period, as previously discussed, this refund provision did not recur in 2004 because the New York rate jurisdiction’s earnings did not exceed the sharing threshold. The refund provision relates to a 50% sharing with customers of earnings over a predetermined amount.

Earnings

2005 Compared with 2004

The Utility segment’s earnings in 2005 were $39.2 million, a decrease of $7.5 million when compared with earnings of $46.7 million in 2004. The major factors driving this decrease were lower weather-normalized usage per customer account in both the New York and Pennsylvania jurisdictions ($8.2 million) and an increase in bad debt expenses of $6.7 million. The increase in bad debt expenses is attributable to the increase in the reserve for doubtful accounts to reflect the increase in final billed balances, as well as the increased age of outstanding receivables heading into the heating season. These negative factors were partially offset by the impact of base rate increases in both New York and Pennsylvania ($3.9 million) and the recording of accrued interest on a pension related asset in accordance with the New York rate case settlement agreement ($2.4 million), as well as the impact of colder than normal weather in Pennsylvania ($1.0 million). The earnings impact of the two out-of-period regulatory adjustments discussed above was largely offset by lower interest expense on borrowings due to lower debt balances.

The impact of weather on the Utility segment’s New York rate jurisdiction is tempered by a WNC. The WNC, which covers the eight month period from October through May, has had a stabilizing effect on earnings for the New York rate jurisdiction. In addition, in periods of colder than normal weather, the WNC benefits the Utility segment’s New York customers. In 2005, the WNC did not have a significant impact on earnings. For 2004, the WNC preserved earnings of approximately $1.0 million because it was warmer than normal in the New York service territory.

2004 Compared with 2003

The Utility segment’s earnings in 2004 were $46.7 million, a decrease of $10.1 million when compared with earnings of $56.8 million in 2003. The major factors driving this decrease were an increase in pension and other post-retirement expenses of $9.9 million, higher bad debt expenses of $3.8 million, warmer weather in the Pennsylvania jurisdiction ($2.5 million), and lower usage per customer account in the New York jurisdiction ($2.2 million). These negative factors were partially offset by the absence of a refund provision in the New York jurisdiction in 2004 related to an earnings sharing mechanism in the New York jurisdiction ($2.6 million), as discussed above. Other offsetting factors included a base rate increase in the Pennsylvania jurisdiction of $1.5 million and lower interest expense of $4.7 million.

The increase in pension and other post-retirement expenses referred to above can be attributed largely to three factors. First, in accordance with a one-year settlement extension commencing on October 1, 2003 in the New York rate jurisdiction (referred to above), the Company was required to record an additional $8.0 million before tax ($5.2 million after tax) of pension and other post-retirement expense for the year ended September 30, 2004 without a corresponding increase in revenues. Second, the Utility segment recorded $2.2 million of expense associated with the settlement of a pension obligation. Third, pension and other post-retirement expenses in the Pennsylvania rate jurisdiction increased by $2.5 million as the rate settlement in that jurisdiction reflected higher pension funding amounts and the amortization of previous other post-retirement deferrals.

In 2004, the WNC preserved $1.0 million of earnings since the weather was warmer than normal in the New York service territory. For 2003, the WNC reduced earnings by approximately $3.8 million because it was colder than normal in the New York service territory.

Purchased Gas

The cost of purchased gas is the Company’s single largest operating expense. Annual variations in purchased gas costs are attributed directly to changes in gas sales volumes, the price of gas purchased and the operation of purchased gas adjustment clauses.

Currently, Distribution Corporation has contracted for long-term firm transportation capacity with Supply Corporation and six other upstream pipeline companies, for long-term gas supplies with a combination of producers and marketers, and for storage service with Supply Corporation and three nonaffiliated companies. In addition, Distribution Corporation satisfies a portion of its gas requirements through spot market purchases. Changes in wellhead prices have a direct impact on the cost of purchased gas. Distribution Corporation’s average cost of purchased gas, including the cost of transportation and storage, was $9.19 per Mcf in 2005, an increase of 26% from the average cost of $7.30 per Mcf in 2004. The average cost of purchased gas in 2004 was 5% higher than the average cost of $6.94 per Mcf in 2003. Additional discussion of the Utility segment’s gas purchases appears under the heading “Sources and Availability of Raw Materials” in Item 1.

PIPELINE AND STORAGE

Revenues

Pipeline and Storage Operating Revenues


	Year Ended September 30

	2005		2004		2003

	(Thousands)
Firm Transportation	$	117,146	$	120,443	$	109,508
Interruptible Transportation		4,413		3,084		3,944

		121,559		123,527		113,452

Firm Storage Service		65,320		63,962		63,223
Interruptible Storage Service		267		20		36

		65,587		63,982		63,259

Other		28,713		22,198		24,709

	$	215,859	$	209,707	$	201,420

Pipeline and Storage Throughput — (MMcf)


	Year Ended September 30

	2005		2004		2003

Firm Transportation		357,585		338,991		340,925
Interruptible Transportation		14,794		12,692		10,004

		372,379		351,683		350,929

2005 Compared with 2004

Operating revenues for the Pipeline and Storage segment increased $6.2 million in 2005 as compared with 2004. This increase is primarily attributable to higher revenues from unbundled pipeline sales of $5.5 million included in other revenues in the table above, due to higher natural gas prices. Higher cashout revenues of $1.1 million, reported as part of other revenues in the table above, also contributed to the increase. Cashout revenues are completely offset by purchased gas expense. In addition, interruptible transportation revenues increased by $1.3 million, primarily due to an increase in Supply Corporation’s gathering revenues, and firm storage revenues increased $1.4 million, primarily due to higher rate agreements contracted with Supply Corporation customers. Offsetting these increases, the decrease in firm transportation revenues of $3.3 million reflects the cancellation of contracts with Supply Corporation by certain large usage non-affiliated customers ($2.6 million) and the Utility segment’s cancellation of a portion of its firm transportation with Supply Corporation in April 2005 ($0.6 million). In addition, firm transportation revenues decreased by $1.0 million because Supply Corporation no longer charges customers a surcharge for its membership to the Gas Research Institute (GRI). The decrease in revenues resulting from cancellation of the GRI surcharge was completely offset by lower operation expense. While Supply Corporation’s transportation volumes increased during the year, volume fluctuations generally do not have a significant impact on revenues as a result of Supply Corporation’s straight fixed-variable rate design. Offsetting the decreases in Supply Corporation’s firm transportation revenues was a $1.0 million increase in Empire’s firm transportation revenues, primarily due to an increase in transportation volumes.

2004 Compared with 2003

Operating revenues for the Pipeline and Storage segment increased $8.3 million in 2004 as compared with 2003. The acquisition of Empire from Duke Energy Corporation on February 6, 2003 was a significant factor contributing to the revenue increase. For 2004, Empire recorded operating revenues of $33.4 million

($32.3 million in firm transportation revenues, $0.3 million in interruptible transportation revenues and $0.8 million in other revenues). For the period of February 6, 2003 to September 30, 2003, Empire recorded operating revenues of $20.9 million ($19.8 million in firm transportation revenues, $0.8 million in interruptible transportation revenues and $0.3 million in other revenues). Another factor contributing to the increase in operating revenues in the Pipeline and Storage segment was a $5.0 million increase in revenues from unbundled pipeline sales included in other revenues in the table above due to higher natural gas commodity prices and higher volumes. These increases to operating revenues were partially offset by lower intercompany rental income of approximately $6.5 million and lower cashout revenues of $1.3 million, both of which are included in other revenues in the table above. While transportation volumes increased during the year, volume fluctuations generally do not have a significant impact on revenues as a result of Supply Corporation’s straight fixed-variable rate design.

Earnings

2005 Compared with 2004

The Pipeline and Storage segment’s earnings in 2005 were $60.5 million, an increase of $12.8 million when compared with earnings of $47.7 million in 2004. Contributing to the increase was a gain of $3.9 million associated with the insurance proceeds received in prior years for which a contingency was resolved during 2005. The other main factors contributing to the increase were higher revenues from unbundled pipeline sales ($3.6 million), lower interest expense ($2.4 million), $2.0 million of expense that did not recur in 2005 associated with the settlement of a pension obligation recognized in 2004, as well as a $2.6 million gain on the FERC approved sale of base gas in March, 2005. An increase in the reserve for preliminary project costs associated with the Empire Connector project ($1.8 million) partially offset these increases.

The sale of Ellisburg base gas, which amounted to 680 MDth, will open up 680 MDth of space for ongoing storage service. At current market rates, it is expected that future storage service revenues (including related transportation revenues) may increase by approximately $1.0 million per year with almost no increase in operating expenses associated with the higher revenues. The additional storage has already been contracted for, effective April 1, 2005, resulting in approximately $0.5 million of additional storage revenues and related transportation revenues in 2005 compared with 2004.

2004 Compared with 2003

The Pipeline and Storage segment’s earnings in 2004 were $47.7 million, an increase of $2.5 million when compared with earnings of $45.2 million in 2003. The increase can be attributed primarily to the earnings impact of the increase in revenues from unbundled pipeline sales of $3.2 million, discussed above, as well as the increased earnings contribution from Empire of $2.8 million. Also, Supply Corporation interest expense decreased by $1.9 million. Offsetting these increases, Supply Corporation recorded $1.8 million of expense associated with the settlement of a pension obligation in 2004. Supply Corporation also experienced an earnings impact associated with higher operation and maintenance expense of $1.5 million.

EXPLORATION AND PRODUCTION

Revenues

Exploration and Production Operating Revenues


	Year Ended September 30

	2005			2004			2003

	(Thousands)
Gas (after Hedging)	$	181,713		$	167,127		$	150,982
Oil (after Hedging)		107,801			119,564			147,101
Gas Processing Plant		36,350			28,614			28,879
Other		(2,733	)		1,815			1,308
Intrasegment Elimination(1)		(29,706	)		(23,422	)		(22,956	)

	$	293,425		$	293,698		$	305,314


(1)	Represents the elimination of certain West Coast gas production revenue included in “Gas (after Hedging)” in the table above that is sold to the gas processing plant shown in the table above. An elimination for the same dollar amount is made to reduce the gas processing plant’s purchased gas expense.

Production Volumes


		Year Ended September 30

		2005		2004		2003

Gas Production (MMcf)
	Gulf Coast		12,468		17,596		18,441
	West Coast		4,052		4,057		4,467
	Appalachia		4,650		5,132		5,123
	Canada		8,009		6,228		5,774

			29,179		33,013		33,805

Oil Production (Mbbl)
	Gulf Coast		989		1,534		1,473
	West Coast		2,544		2,650		2,872
	Appalachia		36		20		10
	Canada		300		324		2,382

			3,869		4,528		6,737

Average Prices


		Year Ended September 30

		2005		2004		2003

Average Gas Price/ Mcf
	Gulf Coast	$	7.05	$	5.61	$	5.41
	West Coast	$	6.85	$	5.54	$	5.01
	Appalachia	$	7.60	$	5.91	$	5.07
	Canada	$	6.15	$	4.87	$	4.67
	Weighted Average	$	6.86	$	5.51	$	5.18
	Weighted Average After Hedging(1)	$	6.23	$	5.06	$	4.47
Average Oil Price/ Barrel (bbl)
	Gulf Coast	$	49.78	$	35.31	$	29.17
	West Coast(2)	$	42.91	$	31.89	$	26.12
	Appalachia	$	48.28	$	31.30	$	28.77
	Canada	$	42.97	$	30.94	$	26.41
	Weighted Average	$	44.72	$	32.98	$	26.90
	Weighted Average After Hedging(1)	$	27.86	$	26.40	$	21.84


(1)	Refer to further discussion of hedging activities below under “Market Risk Sensitive Instruments” and in Note E — Financial Instruments in Item 8 of this report.

(2)	Includes low gravity oil which generally sells for a lower price.

2005 Compared with 2004

Operating revenues for the Exploration and Production segment decreased $0.3 million in 2005 as compared with 2004. Oil production revenue after hedging decreased $11.8 million due to a 659 Mbbl decline in production offset partly by higher weighted average prices after hedging ($1.46 per barrel). Most of the decrease in oil production occurred in the Gulf Coast Region (a 545 Mbbl decrease). Gas production revenue after hedging increased $14.6 million. Increases in the weighted average price of gas after hedging ($1.17 per Mcf) more than offset an overall decrease in gas production (3,834 MMcf). Most of the decrease in gas production occurred in the Gulf Coast (a 5,128 MMcf decline). The decreases in Gulf Coast oil and gas production are consistent with the expected decline rates in the region. This decrease in Gulf Coast gas production was partially offset by a 1,781 MMcf increase in Canadian gas production. The increase in Canadian gas production is attributable to the Sukunka 60-E well, in which the Company has a 20% working interest. Other revenues decreased $4.5 million largely due to a $5.1 million mark-to-market adjustment for losses on certain derivative financial instruments that no longer qualified as effective hedges due to the anticipated delays in oil and gas production volumes caused by Hurricane Rita. These volumes were originally forecast to be produced in the first quarter of 2006. The anticipated delays in oil and gas production volumes has caused the Company to lower its production forecast for 2006, from a range of 50 to 55 Bcfe to a range of 46 to 51 Bcfe.*

Refer to further discussion of derivative financial instruments in the “Market Risk Sensitive Instruments” section that follows. Refer to the tables above for production and price information.

2004 Compared with 2003

Operating revenues for the Exploration and Production segment decreased $11.6 million in 2004 as compared with 2003. Oil production revenue after hedging decreased $27.5 million due to a 2,209 Mbbl decline in production offset partly by higher weighted average prices after hedging ($4.56 per barrel). Most of the decrease in oil production occurred in Canada (a 2,058 Mbbl decrease) as a result of the September 2003 sale of the Company’s Southeast Saskatchewan properties, which is discussed below. Gas production revenue

after hedging increased $16.1 million. Increases in the weighted average price of gas after hedging ($0.59 per Mcf) more than offset an overall decrease in gas production. Most of the decrease in gas production occurred in the Gulf Coast (a 845 MMcf decline), which is consistent with the expected decline rates in the region. Lower West Coast production (a 410 MMcf decline), down mainly due to a decline in this segment’s South Lost Hills wells, was more than offset by a 454 MMcf increase in Canadian gas production. The increase in Canadian gas production is attributable to additional drilling in East Central Alberta. The decline in the South Lost Hills wells was attributable to the maturing of the wells.

Refer to further discussion of derivative financial instruments in the “Market Risk Sensitive Instruments” section that follows. Refer to the tables above for production and price information.

Earnings

2005 Compared with 2004

The Exploration and Production segment’s earnings in 2005 were $50.7 million, a decrease of $3.6 million when compared with earnings of $54.3 million in 2004. In 2004, the Company recorded an adjustment to the sale of its Southeast Saskatchewan properties that increased 2004 earnings by $4.6 million. In 2005, the Company recorded a mark-to-market adjustment, as discussed above under “Revenues”, that decreased 2005 earnings by $3.3 million. Higher lease operating and depletion expenses also decreased 2005 earnings by $2.1 million and $0.6 million, respectively. The increase in lease operating expenses resulted mainly from increased Canadian production and higher steaming costs associated with heavy crude oil production in the West Coast Region. Depletion expense increased despite a drop in production mostly due to an increase in the per unit depletion rate, which was largely the result of the higher finding and development costs experienced by Seneca in 2005. All of these factors, which collectively resulted in a $10.6 million decrease in 2005 earnings, were partially offset by higher oil and gas revenues, which increased 2005 earnings by $1.8 million. Also, 2005 earnings benefited from higher interest income ($1.8 million) and lower interest expense ($1.2 million). The fluctuations in interest income and interest expense reflect the fact that the Exploration and Production segment has been operating solely within its own cash flow from operations. Short-term borrowings have been eliminated and excess cash has been invested, resulting in higher interest income. This excess cash will be used to fund operations and future capital expenditures.* Lower general and administrative expenses, largely due to lower legal costs, also increased 2005 earnings by $1.0 million.

2004 Compared with 2003

The Exploration and Production segment’s earnings in 2004 were $54.3 million, an increase of $86.2 million when compared with a loss of $31.9 million ($31.3 million from continuing operations and $0.6 million included in cumulative effect of changes in accounting) in 2003. Earnings were impacted by a few events. In 2003, the Company sold its Southeast Saskatchewan properties, recording a loss of $39.6 million. In 2004, the Company recorded an adjustment to the sale of its Southeast Saskatchewan properties which increased 2004 earnings by $4.6 million. When the transaction closed in September 2003, the initial proceeds received were subject to an adjustment based on actual working capital and the resolution of certain income tax matters. Those items were resolved with the buyer in 2004 and, as a result, the Company received an additional $4.6 million of sales proceeds. The Company recorded impairment charges of $28.9 million in 2003 related to its Canadian oil and gas properties. Also contributing to the increase was the fact that the loss in 2003 included a charge of $0.6 million representing the cumulative effect of a change in accounting for plugging and abandonment costs. These events sum up to $73.7 million of the overall earnings increase of $86.2 million. The remaining increase can be attributed to decreases in depletion, lease operating, and interest expense of $6.2 million, $15.9 million, and $1.7 million, respectively, which more than offset the earnings impact of a $7.4 million decrease in oil and gas revenues, discussed above, and a $3.2 million increase in income tax expense due to a higher effective tax rate. The decrease in depletion and lease operating expenses primarily reflects the absence of the Company’s former Southeast Saskatchewan properties from results of operations in 2004. The decrease in interest expense was the result of lower debt balances. The higher effective tax rate resulted from the elimination of cross-border intercompany loans in September 2003 as a result of the sale of the Southeast Saskatchewan properties.

ENERGY MARKETING

Revenues

Energy Marketing Operating Revenues


	Year Ended September 30

	2005		2004		2003

	(Thousands)
Natural Gas (after Hedging)	$	329,560	$	283,747	$	304,390
Other		154		602		270

	$	329,714	$	284,349	$	304,660

Energy Marketing Volumes

Year Ended September 30

2005

2004

2003

Natural Gas — (MMcf)

40,683

41,651

45,135

2005 Compared with 2004

Operating revenues for the Energy Marketing segment increased $45.4 million in 2005 as compared with 2004. The increase primarily reflects an increase in the price of natural gas. Volumes were down compared to the prior year due to the loss of certain lower margin wholesale customers.

2004 Compared with 2003

Operating revenues for the Energy Marketing segment decreased $20.3 million in 2004 as compared with 2003. This decrease primarily reflects lower gas sales revenue due to lower throughput, which was the result of warmer weather and the loss of several large volume, but low margin, customers to other marketers.

Earnings

2005 Compared with 2004

The Energy Marketing segment earnings in 2005 were $5.1 million, a decrease of $0.4 million when compared with earnings of $5.5 million in 2004. The decrease primarily reflects lower margins caused by a reduction in the benefit of storage gas and, to a lesser extent, lower throughput.

2004 Compared with 2003

The Energy Marketing segment earnings in 2004 were $5.5 million, a decrease of $0.4 million when compared with earnings of $5.9 million in 2003. While margins on gas sales improved slightly, this increase was offset by expenses associated with the settlement of a pension obligation and a higher effective tax rate.

TIMBER

Revenues

Timber Operating Revenues


	Year Ended September 30

	2005		2004		2003

	(Thousands)
Log Sales	$	22,478	$	21,790	$	27,341
Green Lumber Sales		7,296		5,923		6,200
Kiln Dry Lumber Sales		29,651		27,416		21,814
Other		1,861		841		871

	$	61,286	$	55,970	$	56,226

Timber Board Feet


	Year Ended September 30

	2005		2004		2003

	(Thousands)
Log Sales		7,601		6,848		8,764
Green Lumber Sales		10,489		9,552		11,913
Kiln Dry Lumber Sales		15,491		15,020		13,300

		33,581		31,420		33,977

2005 Compared with 2004

Operating revenues for the Timber segment increased $5.3 million in 2005 as compared with 2004. This increase can be partially attributed to an increase in kiln dry lumber sales of $2.2 million largely due to an increase in cherry lumber sales volumes of 1.6 million board feet. While there was a decline in kiln dry lumber sales volumes from other species (1.1 million board feet), the revenue from those species is not significant. Cherry kiln dry lumber revenues represent over 90% of the Timber segment’s total kiln dry lumber revenues. The increase in volume is a result of the addition of two new kilns in February 2005, allowing for an increase in the amount of kiln dry lumber that can be processed. In addition, green lumber sales also increased by $1.4 million due to increased sales of maple green lumber primarily as a result of favorable weather conditions that allowed for an increase in harvesting.

2004 Compared with 2003

Operating revenues for the Timber segment did not change significantly in 2004 as compared with 2003. The decrease in log sales of $5.6 million was principally due to the Company’s August 2003 sale of approximately 70,000 acres of timber properties discussed below. However, kiln dry lumber sales increased $5.6 million due to an increase in activity at the Company’s mill operations. As a result of the sale of the timber properties, a larger percentage of timber processed in the Company’s mills is now purchased from third parties.

Earnings

2005 Compared with 2004

The Timber segment earnings in 2005 were $5.0 million, a decrease of $0.6 million when compared with earnings of $5.6 million in 2004. Increases in the cost of goods sold during 2005 due to a greater amount of timber being harvested on purchased stumpage, which has a higher cost basis than other raw material sources, is primarily responsible for the earnings decline. Also contributing to the decline were overall increases in operating expenses due to higher utility costs. Partially offsetting these declines in earnings were

the increased sales of kiln dry lumber and green lumber discussed above, as well as the favorable earnings impact associated with the non-recurrence of a $0.8 million loss recorded in 2004 related to the Company’s fiscal 2003 sale of timber properties, as discussed below.

2004 Compared with 2003

The Timber segment earnings in 2004 were $5.6 million, a decrease of $106.9 million when compared with earnings of $112.5 million in 2003. This earnings fluctuation is largely a reflection of the sale of approximately 70,000 acres of timber properties on August 1, 2003 for approximately $186.0 million. As a result of the sale, the Company recorded a gain of $102.2 million in 2003. In 2004, the Company received final timber cruise information of the properties it sold and, based on that information, determined that property records pertaining to $1.3 million of timber property were not properly shown as having been transferred to the purchaser. As a result, the Company removed those assets from its property records and adjusted the previously recognized gain downward by recognizing a loss of $0.8 million. The combination of these two events caused earnings to be lower by $103.0 million. The remainder of the decrease is attributable to lower sales of cherry logs in 2004. While kiln dry lumber sales increased, this benefit was largely offset by an increase in costs associated with purchased timber.

ALL OTHER AND CORPORATE OPERATIONS

All Other and Corporate Operations primarily includes the operations of Horizon LFG, Horizon Power, former International segment activity other than the activity from the Czech Republic operations, and corporate operations. Horizon LFG owns and operates short-distance landfill gas pipeline companies. Horizon Power’s activity primarily consists of equity method investments in Seneca Energy, Model City and ESNE. Horizon Power has a 50% ownership interest in each of these entities. The income from these equity method investments is reported as Operations of Unconsolidated Subsidiaries on the Consolidated Statement of Income. Seneca Energy and Model City generate and sell electricity using methane gas obtained from landfills owned by outside parties. ESNE generates electricity from an 80-megawatt, combined cycle, natural gas-fired power plant in North East, Pennsylvania. Horizon Power also owns a gas-powered turbine and other assets which it had planned to use in the development of a co-generation plant. The Company is in the process of selling these assets. The former International segment activity primarily consists of project development activities, the largest being projects in Italy and Bulgaria.

Earnings

2005 Compared with 2004

All Other and Corporate operations experienced a loss of $6.9 million in 2005, which was $1.2 million greater than a loss of $5.7 million in 2004. During 2005, Horizon Power recorded a $2.7 million impairment in the value of its 50% investment in ESNE. Management believes that there is a decline in the market value of ESNE that is other than temporary in nature given continuing high commodity prices for natural gas and the negative impact these prices have had on operations. ESNE has experienced losses over the last few years. It also recorded a $1.8 million impairment of the gas-powered turbine mentioned above. This impairment was based on a review of current market prices for similar turbines. However, these impairments were partially offset by higher equity method income from Horizon Power’s investments in Seneca Energy and Model City ($1.4 million). Horizon LFG’s earnings decreased by $1.3 million due to lower margins on gas sales. The overall decreases experienced by Horizon Power and Horizon LFG were partially offset by a $1.7 million improvement in the losses experienced by the former International segment, largely due to lower project development costs, and a $1.2 million improvement in earnings of Corporate operations.

2004 Compared with 2003

All Other and Corporate operations experienced a loss of $5.7 million in 2004, an improvement of $2.3 million over a loss of $8.0 million in 2003. This improvement can be attributed primarily to a

$1.4 million increase in the earnings of Horizon LFG and a $1.8 million improvement in the losses experienced by the former International segment.

INTEREST INCOME

Interest income was $4.7 million higher in 2005 compared to 2004. As discussed in the earnings discussion by segment above, the main reason for this increase was the accrual of $3.7 million in interest on a pension related asset in accordance with the New York rate case settlement agreement that was completed in 2005. Interest Income for 2004 did not change significantly from interest income in 2003.

OTHER INCOME

Other income was $9.8 million higher in 2005 compared to 2004. As discussed in the earnings discussion by segment above, the main reasons for this increase included a $2.6 million gain in the Pipeline and Storage segment associated with a FERC approved sale of base gas in 2005 and a $3.9 million gain in the Pipeline and Storage segment associated with insurance proceeds received in prior years for which a contingency was resolved during 2005. Other Income for 2004 did not change significantly from other income in 2003.

INTEREST CHARGES

Although most of the variances in Interest Charges are discussed in the earnings discussion by segment above, following is a summary on a consolidated basis:

Interest on long-term debt decreased $9.7 million in 2005 and $8.4 million in 2004. The decrease in both years was primarily the result of a lower average amount of long-term debt outstanding.

Other interest charges were $2.3 million higher in 2005 compared to 2004; however, other interest charges were $4.4 million lower in 2004 compared to 2003. The increase in 2005 resulted mainly from $2.1 million of interest expense recorded by the Utility segment as part of an adjustment to a regulatory liability recorded for previous over-collections of New York State gross receipts tax. The decrease in 2004 was primarily the result of lower weighted average interest rates on short-term debt combined with a lower average amount of short-term debt outstanding.

CAPITAL RESOURCES AND LIQUIDITY

The primary sources and uses of cash during the last three years are summarized in the following condensed statement of cash flows:

Sources (Uses) of Cash


	Year Ended September 30

	2005			2004			2003

	(Millions)
Provided by Operating Activities	$	317.3		$	437.1		$	325.7
Capital Expenditures		(219.5	)		(172.3	)		(152.2	)
Investment in Subsidiaries, Net of Cash Acquired		—			—			(228.8	)
Investment in Partnerships		—			—			(0.4	)
Net Proceeds from Sale of Foreign Subsidiary		111.6			—			—
Net Proceeds from Sale of Timber Properties		—			—			186.0
Net Proceeds from Sale of Oil and Gas Producing Properties		1.4			7.1			78.5
Other Investing Activities		3.2			2.0			12.1
Short-Term Debt, Net Change		(115.4	)		38.6			(147.6	)
Long-Term Debt, Net Change		(13.3	)		(243.1	)		20.7
Issuance of Common Stock		20.3			23.8			17.0
Dividends Paid on Common Stock		(94.1	)		(89.1	)		(84.5	)
Dividends Paid to Minority Interest		(12.7	)		—			—
Effect of Exchange Rates on Cash		1.3			3.5			1.6

Net Increase in Cash and Temporary Cash Investments	$	0.1		$	7.6		$	28.1

OPERATING CASH FLOW

Internally generated cash from operating activities consists of net income available for common stock, adjusted for noncash expenses, noncash income and changes in operating assets and liabilities. Noncash items include depreciation, depletion and amortization, impairment of investment in partnership, deferred income taxes, income or loss from unconsolidated subsidiaries net of cash distributions, minority interest in foreign subsidiaries, gain or loss on sale of timber properties, gain or loss on sale of oil and gas producing properties, gain on the sale of discontinued operations, and cumulative effect of changes in accounting.

Cash provided by operating activities in the Utility and Pipeline and Storage segments may vary substantially from year to year because of the impact of rate cases. In the Utility segment, supplier refunds, over- or under-recovered purchased gas costs and weather also significantly impact cash flow. The impact of weather on cash flow is tempered in the Utility segment’s New York rate jurisdiction by its WNC and in the Pipeline and Storage segment by Supply Corporation’s straight fixed-variable rate design.

Cash provided by operating activities in the Exploration and Production segment may vary from period to period as a result of changes in the commodity prices of natural gas and crude oil. The Company uses various derivative financial instruments, including price swap agreements, no cost collars, options and futures contracts in an attempt to manage this energy commodity price risk.

Net cash provided by operating activities totaled $317.3 million in 2005, a decrease of $119.8 million compared with the $437.1 million provided by operating activities in 2004. Much of this decrease can be attributed to higher hedging collateral deposits in the Energy Marketing and Exploration and Production segments. The decrease is also attributable to gas cost recovery timing differences as well as increased working capital requirements in the Utility segment. Partially offsetting this decrease, the Corporate operation experienced a significant cash outflow in January 2004 due to a $23.0 million lump sum payment to a

participant of the Company’s nonqualified defined benefit plan under a provision of an agreement previously entered into between the Company and the participant. No such cash outflow occurred during 2005.

INVESTING CASH FLOW

Expenditures for Long-Lived Assets

The Company’s expenditures for long-lived assets from continuing operations totaled $213.6 million in 2005. The table below presents these expenditures:


		Year Ended
		September 30, 2005

		Total Expenditures
		For Long-Lived Assets

		(Millions)
Utility		$	50.1
Pipeline and Storage			21.1
Exploration and Production			122.4
Timber			18.9
All Other and Corporate			1.1

	Total Expenditures from Continuing Operations(1)	$	213.6

( 1) Excludes expenditures from discontinued operations of $5.9 million.

Utility

The majority of the Utility capital expenditures were made for replacement of mains and main extensions, as well as for the replacement of service lines.

Pipeline and Storage

The majority of the Pipeline and Storage segment’s capital expenditures were made for additions, improvements and replacements to this segment’s transmission and gas storage systems.

The Company completed a FERC approved sale of base gas from Supply Corporation’s jointly-owned Ellisburg Storage Pool in March 2005 for $4.6 million in sales proceeds. As a result of the sale, property, plant, and equipment was reduced by $0.7 million for the cost basis of the gas and a $3.9 million gain before tax on the sale ($2.6 million after tax) was recognized by the Company in 2005. The proceeds of this sale are included in Other Investing Activities on the Consolidated Statement of Cash Flows at September 30, 2005. The gain is included in Other Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities.

Exploration and Production

The Exploration and Production segment’s capital expenditures were primarily well drilling and completion expenditures and included approximately $38.5 million for the Canadian region, $41.8 million for the Gulf Coast region ($40.8 million for the off-shore program in the Gulf of Mexico), $29.6 million for the West Coast region and $12.5 million for the Appalachian region. These amounts included approximately $19.2 million spent to develop proved undeveloped reserves.

Timber

The majority of the Timber segment capital expenditures were made for the purchase of land and timber rights in Elk County, Pennsylvania in January 2005. The land and timber, consisting of approximately 12,324 acres, was purchased for approximately $17.6 million. The remaining $1.3 million of capital expenditures in 2005 was made for purchases of equipment for Highland’s sawmill and kiln operations.

All Other and Corporate

The majority of the All Other and Corporate capital expenditures were for capital improvements to the Company’s corporate headquarters and to the Company’s landfill gas pipeline operations.

Estimated Capital Expenditures

The Company’s estimated capital expenditures for the next three years are:*


	Year Ended September 30

	2006		2007		2008

	(Millions)
Utility	$	56.0	$	56.0	$	55.0
Pipeline and Storage		34.0		157.0		52.0
Exploration and Production(1)		155.0		110.0		115.0
Timber		2.0		1.0		1.0
All Other and Corporate		2.0		—		—

	$	249.0	$	324.0	$	223.0


(1)	Includes estimated expenditures for the years ended September 30, 2006, 2007 and 2008 of approximately $42 million, $22 million and $30 million, respectively, to develop proved undeveloped reserves.

Estimated capital expenditures for the Utility segment in 2006 will be concentrated in the areas of main and service line improvements and replacements and, to a minor extent, the purchase of new equipment.*

Estimated capital expenditures for the Pipeline and Storage segment in 2006 will be concentrated in the reconditioning of storage wells, replacement of storage and transmission lines, and improvements of compressor stations.* The estimated capital expenditures for 2006 also includes $12 million for the Empire Connector project.

The Company continues to explore various opportunities to expand its capabilities to transport gas to the East Coast, either through the Supply Corporation or Empire systems or in partnership with others. In October 2005, Empire filed an application with the FERC for the authority to build and operate the Empire Connector project to expand its natural gas pipeline operations to serve new markets in New York and elsewhere in the Northeast by extending the Empire Pipeline.* Assuming the proposed Millennium Pipeline is constructed, the Empire Connector will provide an upstream supply link for Phase I of the Millennium Pipeline and will transport Canadian and other natural gas supplies to downstream customers, including KeySpan Gas East Corporation, which has entered into precedent agreements to subscribe for at least 150 MDth per day of natural gas transportation service through the Empire State Pipeline and the Millennium Pipeline systems.* The Empire Connector will be designed to move up to approximately 250 MDth of natural gas per day.* Empire anticipates that FERC will provide a determination on this application by November 2006.* The forecasted expenditures for this project over the next three years are as follows: $12.0 million in 2006, $105.0 million in 2007, and $22.0 million in 2008.* These expenditures are included as Pipeline and Storage estimated capital expenditures in the table above. The targeted in-service date is November 2007.* The Company anticipates financing this project with cash on hand and/or through the use of the Company’s bi-lateral lines of credit.* As of September 30, 2005, the Company had incurred approximately $4.0 million in costs (all of which have been reserved) related to this project. Of this amount, $3.4 million and $0.6 million were incurred during the years ended September 30, 2005 and September 30, 2004, respectively.

The Company also plans to extend Supply Corporation’s pipeline system from the Tuscarora storage field to the intersection of the proposed Millennium and Empire Connector pipelines (the Tuscarora Extension).* The Tuscarora Extension will be designed initially to move up to approximately 130 MDth of natural gas per day.* The forecasted expenditures for this project over the next three years are as follows: $0 in 2006, $30.0 million in 2007 and $8.0 million in 2008. These expenditures are included as Pipeline and Storage estimated capital expenditures in the table above. The targeted in-service date is late in calendar 2007 or early

in calendar 2008.* The Company anticipates financing this project with cash on hand and/or through the use of the Company’s bi-lateral lines of credit.* The Tuscarora Extension is contingent on market developments, and the Company has not yet filed an application with the FERC for the authority to build and operate it.

Estimated capital expenditures in 2006 for the Exploration and Production segment include approximately $46.0 million for Canada, $58.0 million for the Gulf Coast region ($54.0 million on the off-shore program in the Gulf of Mexico), $28.0 million for the West Coast region and $23.0 million for the Appalachian region.*

Estimated capital expenditures in the Timber segment will be concentrated on the construction or purchase of new facilities and equipment for this segment’s sawmill and kiln operations.*

Estimated capital expenditures in the All Other and Corporate category will be concentrated on the construction of a distributed generation facility at the Company’s corporate headquarters.

The Company continuously evaluates capital expenditures and investments in corporations, partnerships and other business entities. The amounts are subject to modification for opportunities such as the acquisition of attractive oil and gas properties, timber or natural gas storage facilities and the expansion of natural gas transmission line capacities. While the majority of capital expenditures in the Utility segment are necessitated by the continued need for replacement and upgrading of mains and service lines, the magnitude of future capital expenditures or other investments in the Company’s other business segments depends, to a large degree, upon market conditions.*

FINANCING CASH FLOW

The Company did not have any outstanding short-term notes payable to banks or commercial paper at September 30, 2005. However, the Company continues to consider short-term debt (consisting of short-term notes payable to banks and commercial paper) an important source of cash for temporarily financing capital expenditures and investments in corporations and/or partnerships, gas-in-storage inventory, unrecovered purchased gas costs, margin calls on derivative financial instruments, exploration and development expenditures and other working capital needs. Fluctuations in these items can have a significant impact on the amount and timing of short-term debt. The Company has SEC authorization under the Holding Company Act to borrow and have outstanding as much as $750.0 million of short-term debt at any time through December 31, 2005. The Company has applied for and expects to receive an extension of this authority through February 8, 2006.* Effective February 8, 2006, the Holding Company Act will be repealed and the Company will no longer need authorization from the SEC thereunder to issue short-term debt. As for bank loans, the Company maintains a number of individual (bi-lateral) uncommitted or discretionary lines of credit with certain financial institutions for general corporate purposes. Borrowings under these lines of credit are made at competitive market rates. Each of these credit lines, which aggregate to $380.0 million, are revocable at the option of the financial institutions and are reviewed on an annual basis. The Company anticipates that these lines of credit will continue to be renewed.* The total amount available to be issued under the Company’s commercial paper program is $200.0 million. The commercial paper program is backed by a syndicated committed credit facility totaling $300.0 million. On August 19, 2005, the Company entered into a new committed credit facility agreement with nine lenders that extends through September 30, 2010. With the committed credit facility agreement in place, the Company plans to increase the size of its commercial paper program from $200.0 million to $300.0 million.*

Under the Company’s committed credit facility, the Company has agreed that its debt to capitalization ratio will not exceed .65 at the last day of any fiscal quarter from September 30, 2005 through September 30, 2010. At September 30, 2005, the Company’s debt to capitalization ratio (as calculated under the facility) was .48. The constraints specified in the committed credit facility would permit an additional $1.16 billion in short-term and/or long-term debt to be outstanding (further limited by the indenture covenants discussed below) before the Company’s debt to capitalization ratio would exceed .65. If a downgrade in any of the Company’s credit ratings were to occur, access to the commercial paper markets might not be possible.* However, the Company expects that it could borrow under its uncommitted bank lines of credit or rely upon other liquidity sources, including cash provided by operations.*

Under the Company’s existing indenture covenants, at September 30, 2005, the Company would have been permitted to issue up to a maximum of $696.0 million in additional long-term unsecured indebtedness at then current market interest rates in addition to being able to issue new indebtedness to replace maturing debt. The Company’s present liquidity position is believed to be adequate to satisfy known demands.*

The Company’s 1974 indenture, pursuant to which $399.0 million (or 35%) of the Company’s long-term debt (as of September 30, 2005) was issued, contains a cross-default provision whereby the failure by the Company to perform certain obligations under other borrowing arrangements could trigger an obligation to repay the debt outstanding under the indenture. In particular, a repayment obligation could be triggered if the Company fails (i) to pay any scheduled principal or interest on any debt under any other indenture or agreement or (ii) to perform any other term in any other such indenture or agreement, and the effect of the failure causes, or would permit the holders of the debt to cause, the debt under such indenture or agreement to become due prior to its stated maturity, unless cured or waived.

The Company’s $300.0 million committed credit facility also contains a cross-default provision whereby the failure by the Company or its significant subsidiaries to make payments under other borrowing arrangements, or the occurrence of certain events affecting those other borrowing arrangements, could trigger an obligation to repay any amounts outstanding under the committed credit facility. In particular, a repayment obligation could be triggered if (i) the Company or any of its significant subsidiaries fails to make a payment when due of any principal or interest on any other indebtedness aggregating $20.0 million or more or (ii) an event occurs that causes, or would permit the holders of any other indebtedness aggregating $20.0 million or more to cause, such indebtedness to become due prior to its stated maturity. As of September 30, 2005, the Company had no debt outstanding under the committed credit facility.

The Company’s embedded cost of long-term debt was 6.4% at both September 30, 2005 and September 30, 2004. Refer to “Interest Rate Risk” in this Item for a more detailed breakdown of the Company’s embedded cost of long-term debt.

The Company also has authorization from the SEC, under the Holding Company Act, to issue long-term debt securities and equity securities in an aggregate amount of up to $1.5 billion during the order’s authorization period, which commenced in November 2002 and extends through December 31, 2005. The Company has applied for and expects to receive an extension of this authority through February 8, 2006.* Effective February 8, 2006, the Holding Company Act will be repealed and the Company will no longer need Holding Company Act authorization to issue long-term debt securities and equity securities. The Company has an effective registration statement on file with the SEC under which it has available capacity to issue an additional $550.0 million of debt and equity securities under the Securities Act of 1933, and within the authorization granted by the SEC under the Holding Company Act. The Company may sell all or a portion of the remaining registered securities if warranted by market conditions and the Company’s capital requirements. Any offer and sale of the above mentioned $550.0 million of debt and equity securities will be made only by means of a prospectus meeting the requirements of the Securities Act of 1933 and the rules and regulations thereunder.

The amounts and timing of the issuance and sale of debt or equity securities will depend on market conditions, indenture requirements, regulatory authorizations and the capital requirements of the Company.

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. It is expected that this share repurchase program will be funded with cash provided by operating activities and/or through the use of the Company’s bi-lateral lines of credit.* The timing of repurchases will depend on market conditions.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has entered into certain off-balance sheet financing arrangements. These financing arrangements are primarily operating and capital leases. The Company’s consolidated subsidiaries have

operating leases, the majority of which are with the Utility and the Pipeline and Storage segments, having a remaining lease commitment of approximately $52.2 million. These leases have been entered into for the use of buildings, vehicles, construction tools, meters, computer equipment and other items and are accounted for as operating leases. The Company’s unconsolidated subsidiaries, which are accounted for under the equity method, have capital leases of electric generating equipment having a remaining lease commitment of approximately $9.2 million. The Company has guaranteed 50%, or $4.6 million, of these capital lease commitments.

CONTRACTUAL OBLIGATIONS

The following table summarizes the Company’s expected future contractual cash obligations as of September 30, 2005, and the twelve-month periods over which they occur:


			Payments by Expected Maturity Dates

			2006		2007		2008		2009		2010		Thereafter		Total

			(Millions)
Long-Term Debt, including interest expense(2)			$	81.2	$	80.7	$	275.9	$	158.9	$	51.8	$	1,016.6	$	1,665.1
Operating Lease Obligations			$	8.5	$	7.4	$	6.6	$	5.6	$	4.0	$	20.1	$	52.2
Capital Lease Obligations			$	1.3	$	0.8	$	0.9	$	0.5	$	0.5	$	0.6	$	4.6
Purchase Obligations:
	Gas Purchase
		Contracts(1)	$	997.3	$	96.1	$	18.9	$	7.6	$	7.4	$	85.2	$	1,212.5
	Transportation and Storage Contracts		$	138.5	$	135.4	$	134.6	$	133.2	$	75.1	$	7.0	$	623.8
	Other		$	12.4	$	8.2	$	1.7	$	1.3	$	1.3	$	0.9	$	25.8


(1)	Gas prices are variable based on the NYMEX prices adjusted for basis.

(2)	Refer to Note D — Capitalization and Short-Term Borrowings, as well as the table under Interest Rate Risk in the Market Risk Sensitive Instruments section below, for the amounts excluding interest expense.

The Company has made certain other guarantees on behalf of its subsidiaries. The guarantees relate primarily to: (i) obligations under derivative financial instruments, which are included on the consolidated balance sheet in accordance with the Financial Accounting Standards Board’s Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities” (see Item 7, MD&A under the heading “Critical Accounting Policies — Accounting for Derivative Financial Instruments”); (ii) NFR obligations to purchase gas or to purchase gas transportation/storage services where the amounts due on those obligations each month are included on the consolidated balance sheet as a current liability; and (iii) other obligations which are reflected on the consolidated balance sheet. The Company believes that the likelihood it would be required to make payments under the guarantees is remote, and therefore has not included them in the table above.*

OTHER MATTERS

The Company has a tax-qualified, noncontributory defined-benefit retirement plan (Retirement Plan) that covers approximately 85% of the Company’s domestic employees. The Company has been making

contributions to the Retirement Plan over the last several years and anticipates that it will continue making contributions to the Retirement Plan.* During 2005, the Company contributed $26.1 million to the Retirement Plan. The Company anticipates that the annual contribution to the Retirement Plan in 2006 will be in the range of $15.0 million to $20.0 million.* The Company expects that all subsidiaries having domestic employees covered by the Retirement Plan will make contributions to the Retirement Plan.* The funding of such contributions will come from amounts collected in rates in the Utility and Pipeline and Storage segments or through short-term borrowings or through cash from operations.*

The Company provides health care and life insurance benefits for substantially all domestic retired employees under a post-retirement benefit plan (Post-Retirement Plan). The Company has been making contributions to the Post-Retirement Plan over the last several years and anticipates that it will continue making contributions to the Post-Retirement Plan.* During 2005, the Company contributed $39.9 million to the Post-Retirement Plan. The Company anticipates that the annual contribution to the Post-Retirement Plan in 2006 will be in the range of $30.0 million to $40.0 million.* The funding of such contributions will come from amounts collected in rates in the Utility and Pipeline and Storage segments.*

MARKET RISK SENSITIVE INSTRUMENTS

Energy Commodity Price Risk

The Company, in its Exploration and Production segment, Energy Marketing segment, Pipeline and Storage segment, and All Other category, uses various derivative financial instruments (derivatives), including price swap agreements, no cost collars, options and futures contracts, as part of the Company’s overall energy commodity price risk management strategy. Under this strategy, the Company manages a portion of the market risk associated with fluctuations in the price of natural gas and crude oil, thereby attempting to provide more stability to operating results. The Company has operating procedures in place that are administered by experienced management to monitor compliance with the Company’s risk management policies. The derivatives are not held for trading purposes. The fair value of these derivatives, as shown below, represents the amount that the Company would receive from or pay to the respective counterparties at September 30, 2005 to terminate the derivatives. However, the tables below and the fair value that is disclosed do not consider the physical side of the natural gas and crude oil transactions that are related to the financial instruments.

The following tables disclose natural gas and crude oil price swap information by expected maturity dates for agreements in which the Company receives a fixed price in exchange for paying a variable price as quoted in “Inside FERC” or on the NYMEX. Notional amounts (quantities) are used to calculate the contractual payments to be exchanged under the contract. The weighted average variable prices represent the weighted average settlement prices by expected maturity date as of September 30, 2005. At September 30, 2005, the Company had not entered into any natural gas or crude oil price swap agreements extending beyond 2009.


	*Natural Gas Price Swap Agreements*


	Expected Maturity Dates

	2006		2007		2008		2009		Total

Notional Quantities (Equivalent Bcf)		14.0		2.8		1.7		0.3		18.8
Weighted Average Fixed Rate (per Mcf)	$	5.77	$	5.82	$	5.40	$	5.05	$	5.73
Weighted Average Variable Rate (per Mcf)	$	12.13	$	10.66	$	9.16	$	8.64	$	11.60


	*Crude Oil Price Swap Agreements*


	Expected Maturity Dates

	2006		2007		2008		Total

Notional Quantities (Equivalent bbls)		1,935,000		855,000		45,000		2,835,000
Weighted Average Fixed Rate (per bbl)	$	34.14	$	37.03	$	39.00	$	35.09
Weighted Average Variable Rate (per bbl)	$	66.74	$	65.82	$	64.20	$	66.42

At September 30, 2005, the Company would have had to pay its respective counterparties an aggregate of approximately $93.6 million to terminate the natural gas price swap agreements outstanding at that date. The Company would have had to pay an aggregate of approximately $85.6 million to its counterparties to terminate the crude oil price swap agreements outstanding at September 30, 2005.

At September 30, 2004, the Company had natural gas price swap agreements covering 23.0 Bcf at a weighted average fixed rate of $5.47 per Mcf. The Company also had crude oil price swap agreements covering 5,038,000 bbls at a weighted average fixed rate of $32.01 per bbl. The decrease in natural gas price swap agreements from September 2004 to September 2005 is largely attributable to management’s decision to utilize more no cost collars as a means of hedging natural gas production in the Exploration and Production segment. The decrease in crude oil price swap agreements is primarily due to the fact that the Company has not been entering into new swap agreements for its West Coast crude oil production. This decision is related to the price, or “basis,” differential that exists between the Company’s West Coast heavy sour crude oil and the West Texas Intermediate light sweet crude oil that is quoted on the NYMEX. The Company has been unable to hedge against changes in the basis differential.

The following table discloses the notional quantities, the weighted average ceiling price and the weighted average floor price for the no cost collars used by the Company to manage natural gas price risk. The no cost collars provide for the Company to receive monthly payments from (or make payments to) other parties when a variable price falls below an established floor price (the Company receives payment from the counterparty) or exceeds an established ceiling price (the Company pays the counterparty). At September 30, 2005, the Company had not entered into any natural gas or crude oil no cost collars extending beyond 2007.


	*No Cost Collars*


		Expected Maturity Dates

		2006		2007		Total

Natural Gas
	Notional Quantities (Equivalent Bcf)		6.1		2.4		8.5
	Weighted Average Ceiling Price (per Mcf)	$	14.37	$	18.82	$	15.62
	Weighted Average Floor Price (per Mcf)	$	7.57	$	7.45	$	7.54

At September 30, 2005, the Company would have had to pay an aggregate of approximately $11.2 million to terminate the natural gas no cost collars outstanding at that date. The Company did not have any outstanding crude oil no cost collars at September 30, 2005.

At September 30, 2004, the Company had natural gas no cost collars covering 5.5 Bcf at a weighted average floor price of $4.93 per Mcf and a weighted average ceiling price of $8.28 per Mcf. The Company also had crude oil no cost collars covering 105,000 bbls at a weighted average floor price of $25.00 per bbl and a weighted average ceiling price of $28.56 per bbl. The increase in natural gas no cost collars from September 2004 to September 2005 is a result of management’s decision to utilize more no cost collars as a means of hedging natural gas production in the Exploration and Production segment. No cost collars provide an attractive floor price for the Company’s natural gas production while allowing the Company to retain a portion of the upside potential of higher prices.

The following table discloses the notional quantities and weighted average strike prices by expected maturity dates for options used by the Exploration and Production segment to manage natural gas price risk. The put options provide for the Company to receive monthly payments from other parties when a variable

price falls below an established floor or “strike” price. The call options provide for the Company to pay monthly payments to other parties when a variable price rises above an established ceiling or “strike” price. At September 30, 2005, the Company held no options with maturity dates extending beyond 2006.


	*Options*


		Expected
		Maturity Dates

		2006		Total

Natural Gas Put Options Purchased
	Notional Quantities (Equivalent Bcf)		0.6		0.6
	Weighted Average Strike Price (per Mcf)	$	5.54	$	5.54
Natural Gas Call Options Sold
	Notional Quantities (Equivalent Bcf)		0.6		0.6
	Weighted Average Strike Price (per Mcf)	$	7.98	$	7.98

At September 30, 2005, the Company would have received from the respective counterparties an aggregate of approximately $4 thousand to terminate the put options outstanding at that date. The Company would have had to pay an aggregate of approximately $3.4 million to terminate the call options outstanding at that date.

At September 30, 2004, the Company had natural gas put options covering 1.1 Bcf at an average strike price of $5.99. The Company would have received from the respective counterparties an average of approximately $0.2 million to terminate the put options outstanding at that date. At September 30, 2004, the Company had natural gas call options covering 1.1 Bcf at an average strike price of $8.06. The Company would have had to pay an aggregate of approximately $1.0 million to terminate the call options outstanding at that date.

The following table discloses the net contract volumes purchased (sold), weighted average contract prices and weighted average settlement prices by expected maturity date for futures contracts used to manage natural gas price risk. At September 30, 2005, the Company held no futures contracts with maturity dates extending beyond 2009.


	*Futures Contracts*


	Expected Maturity Dates

	2006			2007		2008			2009			Total

Net Contract Volumes Purchased (Sold) (Equivalent Bcf)		(2.2	)		0.1		(0.1	)		—	(1)		(2.2	)
Weighted Average Contract Price (per Mcf)	$	8.72		$	7.12	$	6.95		$	6.95		$	8.63
Weighted Average Settlement Price (per Mcf)	$	14.71		$	11.33	$	9.15		$	8.14		$	14.48


(1)	The Energy Marketing segment has sold 2 futures contracts for 2009.

At September 30, 2005, the Company would have had to pay $14.8 million to terminate these futures contracts.

At September 30, 2004, the Company had futures contracts covering 3.8 Bcf (net short position) at a weighted average contract price of $6.17 per Mcf.

The Company may be exposed to credit risk on some of the derivatives disclosed above. Credit risk relates to the risk of loss that the Company would incur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. To mitigate such credit risk, management performs a credit check and then, on an ongoing basis, monitors counterparty credit exposure. Management has obtained guarantees from the parent companies of the respective counterparties to its derivatives. At September 30, 2005, the Company used eight counterparties for its over the counter derivatives. At September 30, 2005, no

individual counterparty represented greater than 27% of total credit risk (measured as volumes hedged by an individual counterparty as a percentage of the Company’s total volumes hedged).

Exchange Rate Risk

The Exploration and Production segment’s investment in Canada is valued in Canadian dollars, and, as such, this investment is subject to currency exchange risk when the Canadian dollars are translated into U.S. dollars. This exchange rate risk to the Company’s investment in Canada results in increases or decreases to the CTA, a component of Accumulated Other Comprehensive Income/ Loss on the Consolidated Balance Sheets. When the foreign currency increases in value in relation to the U.S. dollar, there is a positive adjustment to CTA. When the foreign currency decreases in value in relation to the U.S. dollar, there is a negative adjustment to CTA.

Interest Rate Risk

The Company’s exposure to interest rate risk arises primarily from the $32.1 million of variable rate debt included in Other Notes in the table below. To mitigate this risk, the Company uses an interest rate collar to limit interest rate fluctuations. Under the interest rate collar the Company makes quarterly payments to (or receives payments from) another party when a variable rate falls below an established floor rate (the Company pays the counterparty) or exceeds an established ceiling rate (the Company receives payment from the counterparty). Under the terms of the collar, which extends until 2009, the variable rate is based on LIBOR. The floor rate of the collar is 5.15% and the ceiling rate is 9.375%. The Company would have had to pay $0.5 million to terminate the interest rate collar at September 30, 2005.

The following table presents the principal cash repayments and related weighted average interest rates by expected maturity date for the Company’s long-term fixed rate debt as well as the other long-term debt of certain of the Company’s subsidiaries. The interest rates for the variable rate debt are based on those in effect at September 30, 2005:


	Principal Amounts by Expected Maturity Dates

	2006			2007			2008			2009			Thereafter			Total

	(Dollars in millions)
National Fuel Gas Company
Long-Term Fixed Rate Debt	$	—		$	—		$	200		$	100		$	796.2		$	1,096.2
Weighted Average Interest Rate Paid		—			—			6.3	%		6.0	%		6.5	%		6.4	%
Fair Value = $1,149.4 million
Other Notes
Long-Term Debt(1)	$	9.4		$	9.4		$	9.3		$	4.1			—		$	32.2
Weighted Average Interest Rate Paid(2)		4.9	%		4.9	%		4.9	%		4.9	%		—			4.9	%
Fair Value = $32.2 million


(1)	$32.1 million is variable rate debt.

(2)	Weighted average interest rate excludes the impact of an interest rate collar on $32.1 million of variable rate debt.

RATE AND REGULATORY MATTERS

Energy Policy Act

On August 8, 2005, President Bush signed into law the Energy Policy Act, which, among other things, repeals the Holding Company Act effective February 8, 2006. With repeal of the Holding Company Act, the Company will no longer be subject to that act’s broad regulatory provisions, including provisions relating to the issuance of securities, sales and acquisitions of securities and utility assets, intra-company transactions and limitations on diversification. The Energy Policy Act, among other things, grants the FERC and state public utility regulatory commissions access to certain books and records of companies in holding company

systems, provides (upon request of a state commission or holding company system) for FERC review of allocations of costs of non-power goods and administrative services in electric utility holding company systems, and modifies the jurisdiction of FERC over certain mergers and acquisitions involving public utilities or holding companies. The Company is unable to predict at this time what the ultimate outcome of these or future legislative or regulatory changes will be. The Company is still in the process of analyzing the effect of the Energy Policy Act on the Company, including the effects of any related proceeding at the state level and new regulations at the federal level.

Utility Operation

Base rate adjustments in both the New York and Pennsylvania jurisdictions do not reflect the recovery of purchased gas costs. Such costs are recovered through operation of the purchased gas adjustment clauses of the appropriate regulatory authorities.

New York Jurisdiction

On August 27, 2004, Distribution Corporation filed proposed tariff amendments and supporting testimony designed to increase its annual revenues by $41.3 million beginning October 1, 2004. Parties, including the NYPSC Staff, the New York State Consumer Protection Board, Multiple Intervenors (an advocate for large commercial and industrial customers), natural gas marketers and others, filed responsive testimony recommending a base rate decrease, among other things. Thereafter, the Parties and other interests commenced settlement negotiations. On April 15, 2005, Distribution Corporation, the Parties and others executed an agreement settling all outstanding issues. In an order issued July 22, 2005, the NYPSC, approved the April 15, 2005 settlement agreement, substantially as filed, for an effective date of August 1, 2005. The settlement agreement provides for a rate increase of $21 million by means of the elimination of bill credits ($5.8 million) and an increase in base rates ($15.2 million). For the two-year term of the agreement and thereafter, the return on equity level above which earnings must be shared with rate payers will be 11.5%.

Pennsylvania Jurisdiction

On September 15, 2004, Distribution Corporation filed proposed tariff amendments with PaPUC to increase annual revenues by $22.8 million to cover increases in the cost of service to be effective November 14, 2004. The rate request was filed to address throughput reductions and increased operating costs such as uncollectibles and personnel expenses. Applying standard procedure, the PaPUC suspended Distribution Corporation’s tariff filing to perform an investigation and hold hearings. On February 16, 2005, the parties reached a settlement of all issues. The settlement was submitted to the Administrative Law Judge, who, on March 2, 2005 issued a decision recommending adoption of the settlement. The settlement provides for a base rate increase of $12.0 million and terminates the tracking of pension expenses versus the rate allowance. The settlement was approved by PaPUC on March 23, 2005, and the new rates went into effect on April 15, 2005.

Pipeline and Storage

Supply Corporation currently does not have a rate case on file with the FERC. Management will continue to monitor Supply Corporation’s financial position to determine the necessity of filing a rate case in the future.

On November 25, 2003, the FERC issued Order 2004 “Standards of Conduct for Transmission Providers” (“Order 2004”). Order 2004 was clarified in Order 2004-A on April 16, 2004 and Order 2004-B on August 2, 2004. Order 2004, which went into effect September 22, 2004, regulates the conduct of transmission providers (such as Supply Corporation) with their “energy affiliates.” The FERC broadened the definition of “energy affiliates” to include any affiliate of a transmission provider if that affiliate engages in or is involved in transmission (gas or electric) transactions, or manages or controls transmission capacity, or buys, sells, trades or administers natural gas or electric energy or engages in financial transactions relating to the sale or transmission of natural gas or electricity. Supply Corporation’s principal energy affiliates are Seneca, NFR

and, possibly, Distribution Corporation.* Order 2004 provides that companies may request waivers, which the Company has done with respect to Distribution Corporation and is awaiting rulings. Order 2004 also provides an exemption for local distribution companies that are affiliated with interstate pipelines (such as Distribution Corporation), but the exemption is limited, with very minor exceptions, to local distribution corporations that do not make any off-system sales. Distribution Corporation stopped making such off-system sales effective September 22, 2004, although it continues to make certain sales permitted by a prior FERC order; FERC has required Supply Corporation to provide arguments justifying the continued effectiveness of that order. Supply Corporation and Distribution Corporation would like to continue operating as they do, whether by waiver, amendment or further clarification of the new rules, or by complying with the requirements applicable if Distribution Corporation were an energy affiliate. Treating Distribution Corporation as an energy affiliate, without any waivers, would require changes in the way Supply Corporation and Distribution Corporation operate which would decrease efficiency, but probably would not increase capital or operating expenses to an extent that would be material to the financial condition of the Company.* Until there is further clarification from the FERC on the scope of these exemptions and rulings on the Company’s waiver requests, the Company is unable to predict the impact Order 2004 will have on the Company. As previously mentioned, Distribution Corporation stopped making off-system sales, effective September 22, 2004. The Company does not expect that change to have a material effect on the Company’s results of operations, as margins resulting from off-system sales are minimal as a result of profit sharing with retail customers.*

Empire currently does not have a rate case on file with the NYPSC. Management will continue to monitor its financial position in the New York jurisdiction to determine the necessity of filing a rate case in the future.

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. The Company has estimated its clean-up costs related to former manufactured gas plant sites and third party waste disposal sites will be $3.7 million.* This liability has been recorded on the Consolidated Balance Sheet at September 30, 2005. The Company entered into a transfer agreement for environmental obligations related to a former manufactured gas plant site in New York. Under the terms of the agreement, the Company paid $12.7 million during 2005 to settle its environmental obligations related to this site. The Company also reached a settlement for environmental obligations at another former manufactured gas plant site during 2005, and paid $4.4 million in August 2005 under the terms of the settlement agreement. The Company will continue to be responsible for future ongoing maintenance of the site. The estimated obligation for ongoing maintenance of the site is included in the $3.7 million environmental liability at September 30, 2005. The Company expects to recover its environmental clean-up costs from a combination of rate recovery and insurance proceeds.* Other than discussed in Note G (referred to below), the Company is currently not aware of any material additional exposure to environmental liabilities. However, adverse changes in environmental regulations or other factors could impact the Company.*

For further discussion refer to Item 8 at Note G — Commitments and Contingencies under the heading “Environmental Matters.”

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS 123R. SFAS 123R replaces SFAS 123 and supercedes APB 25. The Company currently follows APB 25 in accounting for stock-based compensation, as disclosed above. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Company does not believe that adoption of SFAS 123R will have a

material impact on its financial condition and results of operations.* For further discussion of SFAS 123R and its impact on the Company, refer to Item 8 at Note A — Summary of Significant Accounting Policies.

In March 2005, the FASB issued FIN 47, an interpretation of SFAS 143. FIN 47 provides additional guidance on the term “conditional asset retirement obligation” as used in SFAS 143, and in particular the standard clarifies when a Company must record a liability for a conditional asset retirement obligation. The Company is currently evaluating the impact of FIN 47, if any, on its consolidated financial statements. For further discussion of FIN 47 and its impact on the Company, refer to Item 8 at Note A — Summary of Significant Accounting Policies.

In May 2005, the FASB issued SFAS 154. SFAS 154 replaces APB 20 and SFAS 3 and changes the requirements for the accounting for and reporting of a change in accounting principle. The Company’s financial condition and results of operations will only be impacted by SFAS 154 if there are any accounting changes or corrections of errors in the future. For further discussion of SFAS 154 and its impact on the Company, refer to Item 8 at Note A — Summary of Significant Accounting Policies.

EFFECTS OF INFLATION

Although the rate of inflation has been relatively low over the past few years, the Company’s operations remain sensitive to increases in the rate of inflation because of its capital spending and the regulated nature of a significant portion of its business.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

The Company is including the following cautionary statement in this Form 10-K to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements include statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements which are other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature. All such subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are also expressly qualified by these cautionary statements. Certain statements contained in this report, including, without limitation, those which are designated with an asterisk (“*”) and those which are identified by the use of the words “anticipates,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” and similar expressions, are “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995 and accordingly involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The forward-looking statements contained herein are based on various assumptions, many of which are based, in turn, upon further assumptions. The Company’s expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including, without limitation, management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties, but there can be no assurance that management’s expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors and matters discussed elsewhere herein, the following are important factors that, in the view of the Company, could cause actual results to differ materially from those discussed in the forward-looking statements:


	1.	Changes in laws and regulations to which the Company is subject, including changes in tax, environmental, safety and employment laws and regulations, repeal of the Holding Company Act, and changes in laws and regulations relating to repeal of the Holding Company Act;

	2.	Changes in economic conditions, including economic disruptions caused by terrorist activities, acts of war or major accidents;

	3.	Changes in demographic patterns and weather conditions, including the occurrence of severe weather, such as hurricanes;


	4.	Changes in the availability and/or price of natural gas or oil and the effect of such changes on the accounting treatment or valuation of derivative financial instruments or the Company’s natural gas and oil reserves;

	5.	Impairments under the SEC’s full cost ceiling test for natural gas and oil reserves;

	6.	Changes in the availability and/or price of derivative financial instruments;

	7.	Changes in the price differentials between various types of oil;

	8.	Failure of the price differential between heavy sour crude oil and light sweet crude oil to return to its historical norm;

	9.	Inability to obtain new customers or retain existing ones;


10.	Significant changes in competitive factors affecting the Company;

11.	Governmental/regulatory actions, initiatives and proceedings, including those involving acquisitions, financings, rate cases (which address, among other things, allowed rates of return, rate design and retained gas), affiliate relationships, industry structure, franchise renewal, and environmental/safety requirements;

12.	Unanticipated impacts of restructuring initiatives in the natural gas and electric industries;

13.	Significant changes from expectations in actual capital expenditures and operating expenses and unanticipated project delays or changes in project costs or plans, including changes in the plans of the sponsors of the proposed Millennium Pipeline to proceed with that project;

14.	The nature and projected profitability of pending and potential projects and other investments;

15.	Occurrences affecting the Company’s ability to obtain funds from operations, debt or equity to finance needed capital expenditures and other investments, including any downgrades in the Company’s credit ratings;

16.	Uncertainty of oil and gas reserve estimates;

17.	Ability to successfully identify and finance acquisitions or other investments and ability to operate and integrate existing and any subsequently acquired business or properties;

18.	Ability to successfully identify, drill for and produce economically viable natural gas and oil reserves;

19.	Significant changes from expectations in the Company’s actual production levels for natural gas or oil;

20.	Regarding foreign operations, changes in trade and monetary policies, inflation and exchange rates, taxes, operating conditions, laws and regulations related to foreign operations, and political and governmental changes;

21.	Significant changes in tax rates or policies or in rates of inflation or interest;

22.	Significant changes in the Company’s relationship with its employees or contractors and the potential adverse effects if labor disputes, grievances or shortages were to occur;

23.	Changes in accounting principles or the application of such principles to the Company;

24.	The cost and effects of legal and administrative claims against the Company;

25.	Changes in actuarial assumptions and the return on assets with respect to the Company’s retirement plan and post-retirement benefit plans;

26.	Increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide post-retirement benefits; or

27.	Increasing costs of insurance, changes in coverage and the ability to obtain insurance.

The Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.


Item 7A	*Quantitative and Qualitative Disclosures About Market Risk*

Refer to the “Market Risk Sensitive Instruments” section in Item 7, MD&A.


Item 8	*Financial Statements and Supplementary Data*


	*Index to Financial Statements*


		Page

Financial Statements:
	Report of Independent Registered Public Accounting Firm		58
	Consolidated Statements of Income and Earnings Reinvested in the Business, three years ended September 30, 2005		60
	Consolidated Balance Sheets at September 30, 2005 and 2004		61
	Consolidated Statement of Cash Flows, three years ended September 30, 2005		62
	Consolidated Statements of Comprehensive Income, three years ended September 30, 2005		63
	Notes to Consolidated Financial Statements		64
Financial Statement Schedules:
	For the three years ended September 30, 2005
	Schedule II — Valuation and Qualifying Accounts		108

All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.


	*Supplementary Data*

Supplementary data that is included in Note M — Quarterly Financial Data (unaudited) and Note O — Supplementary Information for Oil and Gas Producing Activities, appears under this Item, and reference is made thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of National Fuel Gas Company:

We have completed an integrated audit of National Fuel Gas Company’s fiscal 2005 consolidated financial statements and of its internal control over financial reporting as of September 30, 2005 and audits of its fiscal 2004 and 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of National Fuel Gas Company and its subsidiaries at September 30, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note A to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, and No. 143, Accounting for Asset Retirement Obligations, on October 1, 2002.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in “Management’s Report on Internal Control Over Financial Reporting” appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of September 30, 2005 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


	PricewaterhouseCoopers LLP

Buffalo, New York

December 8, 2005

NATIONAL FUEL GAS COMPANY

CONSOLIDATED STATEMENTS OF INCOME AND EARNINGS

REINVESTED IN THE BUSINESS


		Year Ended September 30

		2005			2004			2003

		(Thousands of dollars, except per
		common share amounts)
INCOME
Operating Revenues		$	1,923,549		$	1,907,968		$	1,921,573

Operating Expenses
	Purchased Gas		959,827			949,452			963,567
	Operation and Maintenance		404,517			385,519			361,898
	Property, Franchise and Other Taxes		69,076			68,978			79,692
	Depreciation, Depletion and Amortization		179,767			174,289			181,329
	Impairment of Oil and Gas Producing Properties		—			—			42,774

			1,613,187			1,578,238			1,629,260
	Gain (Loss) on Sale of Timber Properties		—			(1,252	)		168,787
	Gain (Loss) on Sale of Oil and Gas Producing Properties		—			4,645			(58,472	)

Operating Income			310,362			333,123			402,628
Other Income (Expense):
	Income from Unconsolidated Subsidiaries		3,362			805			535
	Impairment of Investment in Partnership		(4,158	)		—			—
	Interest Income		6,496			1,771			2,204
	Other Income		12,744			2,908			2,427
	Interest Expense on Long-Term Debt		(73,244	)		(82,989	)		(91,381	)
	Other Interest Expense		(9,069	)		(6,763	)		(11,196	)

Income from Continuing Operations Before Income Taxes			246,493			248,855			305,217
	Income Tax Expense		92,978			94,590			124,150

Income from Continuing Operations			153,515			154,265			181,067
Discontinued Operations:
	Income from Operations, Net of Tax		10,199			12,321			6,769
	Gain on Disposal, Net of Tax		25,774			—			—

Income from Discontinued Operations			35,973			12,321			6,769

Income Before Cumulative Effect of Changes In Accounting			189,488			166,586			187,836
Cumulative Effect of Changes in Accounting			—			—			(8,892	)

Net Income Available for Common Stock			189,488			166,586			178,944

EARNINGS REINVESTED IN THE BUSINESS
Balance at Beginning of Year			718,926			642,690			549,397

			908,414			809,276			728,341
Dividends on Common Stock			95,394			90,350			85,651

Balance at End of Year		$	813,020		$	718,926		$	642,690

Earnings Per Common Share:
Basic:
	Income from Continuing Operations	$	1.84		$	1.88		$	2.24
	Income from Discontinued Operations		0.43			0.15			0.08
	Cumulative Effect of Changes in Accounting		—			—			(0.11	)

	Net Income Available for Common Stock	$	2.27		$	2.03		$	2.21

Diluted:
	Income from Continuing Operations	$	1.81		$	1.86		$	2.23
	Income from Discontinued Operations		0.42			0.15			0.08
	Cumulative Effect of Changes in Accounting		—			—			(0.11	)

	Net Income Available for Common Stock	$	2.23		$	2.01		$	2.20

Weighted Average Common Shares Outstanding:
	Used in Basic Calculation		83,541,627			82,045,535			80,808,794
	Used in Diluted Calculation		85,029,131			82,900,438			81,357,896

See Notes to Consolidated Financial Statements

NATIONAL FUEL GAS COMPANY

CONSOLIDATED BALANCE SHEETS


				At September 30

				2005			2004

				(Thousands of dollars)
ASSETS
Property, Plant and Equipment				$	4,423,255		$	4,602,779
			Less — Accumulated Depreciation, Depletion and Amortization		1,583,955			1,596,015

					2,839,300			3,006,764

Current Assets
		Cash and Temporary Cash Investments			57,607			57,541
		Hedging Collateral Deposits			77,784			8,612
		Receivables — Net of Allowance for Uncollectible Accounts of $26,940 and $17,440, Respectively			155,064			129,825
		Unbilled Utility Revenue			20,465			18,574
		Gas Stored Underground			64,529			68,511
		Materials and Supplies — at average cost			33,267			35,516
		Unrecovered Purchased Gas Costs			14,817			7,532
		Prepayments and Other Current Assets			65,469			35,364
		Deferred Income Taxes			83,774			43,105
		Fair Value of Derivative Financial Instruments			—			23

					572,776			404,603

Other Assets
		Recoverable Future Taxes			85,000			83,847
		Unamortized Debt Expense			17,567			19,573
		Other Regulatory Assets			47,028			32,958
		Deferred Charges			4,474			3,411
		Other Investments			80,394			72,556
		Investments in Unconsolidated Subsidiaries			12,658			16,444
		Goodwill			5,476			5,476
		Intangible Assets			42,302			45,994
		Other			15,677			25,977

					310,576			306,236

	Total Assets			$	3,722,652		$	3,717,603

CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders’ Equity
	Common Stock, $1 Par Value
		Authorized — 200,000,000 Shares; Issued and Outstanding — 84,356,748 Shares and 82,990,340 Shares, Respectively		$	84,357		$	82,990
	Paid In Capital				529,834			506,560
	Earnings Reinvested in the Business				813,020			718,926

Total Common Shareholders’ Equity Before Items Of Other Comprehensive Loss					1,427,211			1,308,476
	Accumulated Other Comprehensive Loss				(197,628	)		(54,775	)

Total Comprehensive Shareholders’ Equity					1,229,583			1,253,701
Long-Term Debt, Net of Current Portion					1,119,012			1,133,317

Total Capitalization					2,348,595			2,387,018

Minority Interest in Foreign Subsidiaries					—			37,048

Current and Accrued Liabilities
	Notes Payable to Banks and Commercial Paper				—			156,800
	Current Portion of Long-Term Debt				9,393			14,260
	Accounts Payable				155,485			115,979
	Amounts Payable to Customers				1,158			3,154
	Dividends Payable				24,445			23,210
	Other Accruals and Current Liabilities				60,404			46,952
	Fair Value of Derivative Financial Instruments				209,072			95,099

					459,957			455,454

Deferred Credits
	Deferred Income Taxes				489,720			501,200
	Taxes Refundable to Customers				11,009			11,065
	Unamortized Investment Tax Credit				6,796			7,498
	Cost of Removal Regulatory Liability				90,396			82,020
	Other Regulatory Liabilities				66,339			66,488
	Pension and Other Post-Retirement Benefit Liabilities				143,687			70,410
	Asset Retirement Obligation				41,411			32,292
	Other Deferred Credits				64,742			67,110

					914,100			838,083

Commitments and Contingencies					—			—

Total Capitalization and Liabilities				$	3,722,652		$	3,717,603

See Notes to Consolidated Financial Statements

NATIONAL FUEL GAS COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS


			Year Ended September 30

			2005			2004			2003

			(Thousands of dollars)
Operating Activities
	Net Income Available for Common Stock		$	189,488		$	166,586		$	178,944
	Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
	Gain on Sale of Discontinued Operations			(27,386	)		—			—
	(Gain) Loss on Sale of Timber Properties			—			1,252			(168,787	)
	(Gain) Loss on Sale of Oil and Gas Producing Properties			—			(4,645	)		58,472
	Impairment of Oil and Gas Producing Properties			—			—			42,774
	Depreciation, Depletion and Amortization			193,144			189,538			195,226
	Deferred Income Taxes			40,388			40,329			78,369
	Cumulative Effect of Changes in Accounting			—			—			8,892
	(Income) Loss from Unconsolidated Subsidiaries, Net of Cash Distributions			(1,372	)		(19	)		703
	Impairment of Investment in Partnership			4,158			—			—
	Minority Interest in Foreign Subsidiaries			2,645			1,933			785
	Other			7,390			9,839			11,289
	Change in:
		Hedging Collateral Deposits		(69,172	)		(7,151	)		(1,109	)
		Receivables and Unbilled Utility Revenue		(31,246	)		4,840			(28,382	)
		Gas Stored Underground and Materials and Supplies		1,934			13,662			(13,826	)
		Unrecovered Purchased Gas Costs		(7,285	)		21,160			(16,261	)
		Prepayments and Other Current Assets		(30,390	)		37,390			(12,628	)
		Accounts Payable		48,089			(5,134	)		13,699
		Amounts Payable to Customers		(1,996	)		2,462			692
		Other Accruals and Current Liabilities		16,085			2,082			9,343
		Other Assets		(13,461	)		(2,525	)		(9,343	)
		Other Liabilities		(3,667	)		(34,450	)		(23,124	)

Net Cash Provided by Operating Activities				317,346			437,149			325,728

Investing Activities
	Capital Expenditures			(219,530	)		(172,341	)		(152,251	)
	Investment in Subsidiaries, Net of Cash Acquired			—			—			(228,814	)
	Investment in Partnerships			—			—			(375	)
	Net Proceeds from Sale of Foreign Subsidiary			111,619			—			—
	Net Proceeds from Sale of Timber Properties			—			—			186,014
	Net Proceeds from Sale of Oil and Gas Producing Properties			1,349			7,162			78,531
	Other			3,238			1,974			12,065

Net Cash Used in Investing Activities				(103,324	)		(163,205	)		(104,830	)

Financing Activities
	Change in Notes Payable to Banks and Commercial Paper			(115,359	)		38,600			(147,622	)
	Net Proceeds from Issuance of Long-Term Debt			—			—			248,513
	Reduction of Long-Term Debt			(13,317	)		(243,085	)		(227,826	)
	Proceeds from Issuance of Common Stock			20,279			23,763			17,019
	Dividends Paid on Common Stock			(94,159	)		(89,092	)		(84,530	)
	Dividends Paid to Minority Interest			(12,676	)		—			—

Net Cash Used in Financing Activities				(215,232	)		(269,814	)		(194,446	)

Effect of Exchange Rates on Cash				1,276			3,451			1,644

Net Increase in Cash and Temporary Cash Investments				66			7,581			28,096
Cash and Temporary Cash Investments At Beginning of Year				57,541			49,960			21,864

Cash and Temporary Cash Investments At End of Year			$	57,607		$	57,541		$	49,960

Supplemental Disclosure of Cash Flow Information Cash Paid For:
	Interest		$	84,455		$	90,705		$	104,452
	Income Taxes		$	83,542		$	30,214		$	56,146

See Notes to Consolidated Financial Statements

NATIONAL FUEL GAS COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Year Ended September 30

	2005			2004			2003

	(Thousands of dollars)
Net Income Available for Common Stock	$	189,488		$	166,586		$	178,944

Other Comprehensive Income (Loss), Before Tax:
Minimum Pension Liability Adjustment		(83,379	)		56,612			(86,170	)
Foreign Currency Translation Adjustment		14,286			21,466			54,472
Reclassification Adjustment for Realized Foreign Currency Translation Gain in Net Income		(37,793	)		—			(9,607	)
Unrealized Gain on Securities Available for Sale Arising During the Period		2,891			3,629			2,419
Reclassification Adjustment for Realized Gains On Securities Available for Sale in Net Income		(651	)		—			—
Unrealized Loss on Derivative Financial Instruments Arising During the Period		(206,847	)		(129,934	)		(47,777	)
Reclassification Adjustment for Realized Loss on Derivative Financial Instruments in Net Income		97,689			49,142			69,809

Other Comprehensive Income (Loss), Before Tax:		(213,804	)		915			(16,854	)

Income Tax Expense (Benefit) Related to Minimum Pension Liability Adjustment		(29,183	)		19,814			(30,159	)
Income Tax Expense Related to Foreign Currency Translation Adjustment		112			—			—
Reclassification Adjustment for Income Tax Expense on Foreign Currency Translation Adjustment in Net Income		(112	)		—			—
Income Tax Expense Related to Unrealized Gain on Securities Available for Sale Arising During the Period		1,012			1,270			847
Reclassification Adjustment for Income Tax Expense on Realized Gains from Securities Available for Sale in Net Income		(228	)		—			—
Income Tax Benefit Related to Unrealized Loss on Derivative Financial Instruments Arising During the Period		(79,059	)		(49,113	)		(18,594	)
Reclassification Adjustment for Income Tax Benefit on Realized Loss on Derivative Financial Instruments In Net Income		36,507			18,182			26,953

Income Taxes — Net		(70,951	)		(9,847	)		(20,953	)

Other Comprehensive Income (Loss)		(142,853	)		10,762			4,099

Comprehensive Income	$	46,635		$	177,348		$	183,043

See Notes to Consolidated Financial Statements

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A — Summary of Significant Accounting Policies


	*Principles of Consolidation*

The Company consolidates its majority owned subsidiaries. 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 accounting principles generally accepted in the United States of America 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.


	*Regulation*

The Company is subject to regulation by certain state and federal authorities. The Company has accounting policies which conform to accounting principles generally accepted in the United States of America, as applied to regulated enterprises, and are in accordance with the accounting requirements and ratemaking practices of the regulatory authorities. Reference is made to Note B — Regulatory Matters for further discussion.


	*Revenues*

The Company’s Utility segment records revenue as bills are rendered, except that service supplied but not billed is reported as unbilled utility revenue and is included in operating revenues for the year in which service is furnished. The Company’s Pipeline and Storage and Energy Marketing segments record revenue as bills are rendered for service supplied on a calendar month basis. The Company’s Timber segment records revenue on lumber and log sales as products are shipped.

The Company’s Exploration and Production segment records revenue based on entitlement, which means that revenue is recorded based on the actual amount of gas or oil that is delivered to a pipeline and the Company’s ownership interest in the producing well. If a production imbalance occurs between what was supposed to be delivered to a pipeline and what was actually produced and delivered, the Company accrues the difference as an imbalance.


	*Regulatory Mechanisms*

The Company’s rate schedules in the Utility segment contain clauses that permit adjustment of revenues to reflect price changes from the cost of purchased gas included in base rates. Differences between amounts currently recoverable and actual adjustment clause revenues, as well as other price changes and pipeline and storage company refunds not yet includable in adjustment clause rates, are deferred and accounted for as either unrecovered purchased gas costs or amounts payable to customers. Such amounts are generally recovered from (or passed back to) customers during the following fiscal year.

Estimated refund liabilities to ratepayers represent management’s current estimate of such refunds. Reference is made to Note B — Regulatory Matters for further discussion.

The impact of weather on revenues in the Utility segment’s New York rate jurisdiction is tempered by a WNC, which covers the eight-month period from October through May. The WNC is designed to adjust the rates of retail customers to reflect the impact of deviations from normal weather. Weather that is more than

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2.2% warmer than normal results in a surcharge being added to customers’ current bills, while weather that is more than 2.2% colder than normal results in a refund being credited to customers’ current bills. Since the Utility segment’s Pennsylvania rate jurisdiction does not have a WNC, weather variations have a direct impact on the Pennsylvania rate jurisdiction’s revenues.

In the Pipeline and Storage segment, the allowed rates that Supply Corporation bills its customers are based on a straight fixed-variable rate design, which allows recovery of all fixed costs in fixed monthly reservation charges. The allowed rates that Empire bills its customers are based on a modified-fixed variable rate design, which allows recovery of most fixed costs in fixed monthly reservation charges. To distinguish between the two rate designs, the modified fixed-variable rate design recovers return on equity and income taxes through variable charges whereas straight fixed-variable recovers all fixed costs, including return on equity and income taxes, through its monthly reservation charge. Because of the difference in rate design, changes in throughput due to weather variations do not have a significant impact on Supply Corporation’s revenues but may have a significant impact on Empire’s revenues.


	*Property, Plant and Equipment*

The principal assets of the Utility and Pipeline and Storage segments, consisting primarily of gas plant in service, are recorded at the historical cost when originally devoted to service in the regulated businesses, as required by regulatory authorities.

Oil and gas property acquisition, exploration and development costs are capitalized under the full-cost method of accounting. All costs directly associated with property acquisition, exploration and development activities are capitalized, up to certain specified limits. If capitalized costs exceed these limits at the end of any quarter, a permanent impairment is required to be charged to earnings in that quarter. The Company’s capitalized costs exceeded the full-cost ceiling for the Company’s Canadian properties at June 30, 2003 and September 30, 2003. The Company recognized impairments of $31.8 million and $11.0 million at June 30, 2003 and September 30, 2003, respectively.

Maintenance and repairs of property and replacements of minor items of property are charged directly to maintenance expense. The original cost of the regulated subsidiaries’ property, plant and equipment retired, and the cost of removal less salvage, are charged to accumulated depreciation.


	*Depreciation, Depletion and Amortization*

For oil and gas properties, depreciation, depletion and amortization is computed based on quantities produced in relation to proved reserves using the units of production method. The cost of unevaluated oil and gas properties is excluded from this computation. For timber properties, depletion, determined on a property by property basis, is charged to operations based on the actual amount of timber cut in relation to the total amount of recoverable timber. For all other property, plant and equipment, depreciation, depletion and

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

amortization is computed using the straight-line method in amounts sufficient to recover costs over the estimated service lives of property in service. The following is a summary of depreciable plant by segment:


	As of September 30

	2005		2004(1)

	(Thousands)
Utility	$	1,462,527	$	1,426,540
Pipeline and Storage		960,066		946,866
Exploration and Production		1,665,774		1,517,856
Energy Marketing		1,108		1,169
Timber		114,352		97,290
All Other and Corporate		29,275		28,500

	$	4,233,102	$	4,018,221

(1)

On July 18, 2005 the Company completed the sale of its majority interest in U.E., a district heating and electric generation business in the Czech Republic. With this change, the Company has discontinued reporting for an International Segment as explained further in Note 8 — Business Segment Information. U. E.’s depreciable plant at September 30, 2004 was $379,298 and is not included in this table.

Average depreciation, depletion and amortization rates are as follows:


	Year Ended September 30

	2005			2004			2003

Utility		2.8	%		2.8	%		2.8	%
Pipeline and Storage		4.1	%		4.1	%		4.4	%
Exploration and Production, per Mcfe(2)	$	1.74		$	1.49		$	1.34
Energy Marketing		7.6	%		8.7	%		10.9	%
Timber		6.2	%		6.5	%		7.0	%
All Other and Corporate		4.3	%		6.2	%		1.8	%


(2)	Amounts include depletion of oil and gas producing properties as well as depreciation of fixed assets. As disclosed in Note O — Supplementary Information for Oil and Gas Producing Properties, depletion of oil and gas producing properties amounted to $1.72, $1.47 and $1.30 per Mcfe of production in 2005, 2004 and 2003, respectively.


	*Cumulative Effect of Changes in Accounting*

Effective October 1, 2002, the Company adopted SFAS 143. SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. For the Company, this liability represents plugging and abandonment costs associated with the Exploration and Production segment’s crude oil and natural gas wells. When the liability is initially recorded, the entity capitalizes the estimated cost of retiring the asset as part of the carrying amount of the related long-lived asset. Over time, the liability is adjusted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. The cumulative effect of adopting SFAS 143 reduced earnings by $0.6 million, net of

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

income tax. A reconciliation of the Company’s asset retirement obligation calculated in accordance with SFAS 143 is shown below ($000s):


	Year Ended September 30

	2005			2004			2003

	(Thousands)
Balance at Beginning of Year	$	32,292		$	27,493		$	36,090
Liabilities Incurred and Revisions of Estimates		8,343			3,510			242
Liabilities Settled		(1,938	)		(831	)		(13,227	)
Accretion Expense		2,448			1,933			2,602
Exchange Rate Impact		266			187			1,786

Balance at End of Year	$	41,411		$	32,292		$	27,493

In the Company’s Utility and Pipeline and Storage segment, costs of removal are collected from customers through depreciation expense. These removal costs are not a legal retirement obligation in accordance with SFAS 143. Rather, they represent a regulatory liability. However, SFAS 143 requires that such costs of removal be reclassified from accumulated depreciation to other regulatory liabilities. At September 30, 2005 and 2004, the costs of removal reclassified to other regulatory liabilities amounted to $90.4 million and $82.0 million, respectively.

Effective October 1, 2002, the Company adopted SFAS 142. In accordance with SFAS 142, the Company stopped amortization of goodwill and tested it for impairment as of October 1, 2002. The Company’s goodwill balance as of October 1, 2002 totaled $8.3 million and was related to the Company’s investments in the Czech Republic, which were discontinued in 2005. As a result of the impairment test, the Company recognized an impairment of $8.3 million. In accordance with SFAS 142, this impairment was reported as a cumulative effect of change in accounting. Refer to Note H — Discontinued Operations for further discussion of the Company’s sale of its district heating and electric generation business in the Czech Republic.


	*Financial Instruments*

Unrealized gains or losses from the Company’s investments in an equity mutual fund and the stock of an insurance company (securities available for sale) are recorded as a component of accumulated other comprehensive income (loss). Reference is made to Note E — Financial Instruments for further discussion.

The Company uses a variety of derivative financial instruments to manage a portion of the market risk associated with fluctuations in the price of natural gas and crude oil. These instruments include price swap agreements, no cost collars, options and futures contracts. The Company accounts for these instruments as either cash flow hedges or fair value hedges. In both cases, the fair value of the instrument is recognized on the Consolidated Balance Sheets as either an asset or a liability labeled fair value of derivative financial instruments. Fair value represents the amount the Company would receive or pay to terminate these instruments.

For effective cash flow hedges, the offset to the asset or liability that is recorded is a gain or loss recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. Any ineffectiveness associated with the cash flow hedges is recorded in the Consolidated Statements of Income. The Company did not experience any material ineffectiveness with regard to its cash flow hedges during 2004 or 2003. The gain or loss recorded in accumulated other comprehensive income (loss) remains there until the hedged transaction occurs, at which point the gains or losses are reclassified to operating revenues or interest expense on the Consolidated Statements of Income. At September 30, 2005, it was determined that certain derivative financial instruments no longer qualified as effective cash flow hedges due to anticipated delays in oil and gas production volumes caused by Hurricane Rita. These volumes were originally forecast to be produced in the

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

first quarter of 2006. As such, at September 30, 2005, the Company reclassified $5.1 million in accumulated losses on such derivative financial instruments from accumulated other comprehensive loss on the Consolidated Balance Sheet to other revenues on the Consolidated Statement of Income. For fair value hedges, the offset to the asset or liability that is recorded is a gain or loss recorded to operating revenues or purchased gas expense on the Consolidated Statements of Income. However, in the case of fair value hedges, the Company also records an asset or liability on the Consolidated Balance Sheets representing the change in fair value of the asset or firm commitment that is being hedged. The offset to this asset or liability is a gain or loss recorded to operating revenues or purchased gas expense on the Consolidated Statements of Income as well. If the fair value hedge is effective, the gain or loss from the derivative financial instrument is offset by the gain or loss that arises from the change in fair value of the asset or firm commitment that is being hedged. The Company did not experience any material ineffectiveness with regard to its fair value hedges during 2005, 2004 or 2003.


	*Accumulated Other Comprehensive Income (Loss)*

The components of Accumulated Other Comprehensive Income (Loss) are as follows:


	Year Ended September 30

	2005			2004

	(Thousands)
Minimum Pension Liability Adjustment	$	(107,844	)	$	(53,648	)
Cumulative Foreign Currency Translation Adjustment		28,009			51,516
Net Unrealized Loss on Derivative Financial Instruments		(123,339	)		(56,733	)
Net Unrealized Gain on Securities Available for Sale		5,546			4,090

Accumulated Other Comprehensive Loss	$	(197,628	)	$	(54,775	)

At September 30, 2005, it is estimated that $105.8 million of the net unrealized loss on derivative financial instruments shown in the table above will be reclassified into the Consolidated Statement of Income during 2006. As disclosed in Note E — Financial Instruments, the Company’s derivative financial instruments extend out to 2009.


	*Gas Stored Underground — Current*

In the Utility segment, gas stored underground — current in the amount of $35.9 million is carried at lower of cost or market, on a last-in, first-out (LIFO) method. Based upon the average price of spot market gas purchased in September 2005, including transportation costs, the current cost of replacing this inventory of gas stored underground-current exceeded the amount stated on a LIFO basis by approximately $289.4 million at September 30, 2005. All other gas stored underground — current is carried at lower of cost or market on an average cost method.


	*Purchased Timber Rights*

In the Timber segment, the Company purchases the right to harvest timber from land owned by other parties. These rights, which extend from several months to several years, are purchased to ensure a consistent supply of timber for the Company’s sawmill and kiln operations. The historical value of timber rights expected to be harvested during the following year are included in Materials and Supplies on the Consolidated Balance Sheets while the historical value of timber rights expected to be harvested beyond one

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

year are included in Other Assets on the Consolidated Balance Sheets. The components of the Company’s purchased timber rights are as follows:


	Year Ended
	September 30

	2005		2004

	(Thousands)
Materials and Supplies	$	10,610	$	10,550
Other Assets		11,510		8,406

	$	22,120	$	18,956


	*Unamortized Debt Expense*

Costs associated with the issuance of debt by the Company are deferred and amortized over the lives of the related debt. Costs associated with the reacquisition of debt related to rate-regulated subsidiaries are deferred and amortized over the remaining life of the issue or the life of the replacement debt in order to match regulatory treatment.


	*Foreign Currency Translation*

The functional currency for the Company’s foreign operations is the local currency of the country where the operations are located. Asset and liability accounts are translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated at the average exchange rate during the period. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income (loss).


	*Income Taxes*

The Company and its domestic subsidiaries file a consolidated federal income tax return. Investment tax credit, prior to its repeal in 1986, was deferred and is being amortized over the estimated useful lives of the related property, as required by regulatory authorities having jurisdiction.


	*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 three months or less to be cash equivalents.


	*Hedging Collateral Account*

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


	*Prepayments and Other Current Assets*

Prepayments and Other Current Assets consists of prepayments in the amounts of $38,323,000 and $28,796,000 at September 30, 2005 and 2004, respectively, as well as federal income taxes receivable in the amounts of $27,146,000 and $6,568,000 at September 30, 2005 and 2004, respectively.


	*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

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

exercised or converted into common stock. The only potentially dilutive securities the Company has outstanding are stock options. The diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflect the potential dilution as a result of these stock options as determined using the Treasury Stock Method. Stock options that are antidilutive are excluded from the calculation of diluted earnings per common share. There were no stock options excluded as being antidilutive for 2005. For 2004 and 2003, 2,296,828 and 7,789,688 stock options, respectively, were excluded as being antidilutive.


	*Stock-Based Compensation*

The Company, through September 30, 2005, has accounted for stock-based compensation using the intrinsic value method specified by APB 25, and related interpretations. Under that method, no compensation expense was recognized for options granted under the plans for the years ended September 30, 2005, 2004 and 2003. However, in accordance with APB 25, the Company records compensation expense for the market value of restricted stock on the date of award over the periods during which the vesting restrictions exist. Had compensation expense associated with stock options been determined based on fair value at the grant dates, which is the accounting treatment specified by SFAS 123, the Company’s net income and earnings per share would have been reduced to the pro forma amounts below:


		Year Ended September 30

		2005			2004			2003

		(Thousands, except per share amounts)
Net Income Available for Common Stock As Reported		$	189,488		$	166,586		$	178,944
Add: Stock-Based Compensation Expense Included in Reported Net Income, Net of Tax			336			543			677
Deduct: Stock-Based Compensation Expense Determined Based on Fair Value at the Grant Dates, Net of Tax			(2,782	)		(1,861	)		(3,782	)

Pro Forma Net Income Available for Common Stock		$	187,042		$	165,268		$	175,839

Earnings Per Common Share:
	Basic — As Reported	$	2.27		$	2.03		$	2.21
	Basic — Pro Forma	$	2.24		$	2.01		$	2.18
	Diluted — As Reported	$	2.23		$	2.01		$	2.20
	Diluted — Pro Forma	$	2.20		$	1.99		$	2.16

The weighted average fair value per share of options granted in 2005, 2004 and 2003 was $4.59, $4.66 and $4.17, respectively. These weighted average fair values were estimated on the date of grant using a binomial option pricing model with the following weighted average assumptions:


	Year Ended September 30

	2005			2004			2003

Quarterly Dividend Yield		1.00	%		1.12	%		1.10	%
Annual Standard Deviation (Volatility)		17.76	%		21.77	%		22.24	%
Risk Free Rate		4.46	%		4.61	%		3.33	%
Expected Term — in Years		7.0			7.0			6.5


	*New Accounting Pronouncements*

In December 2004, the FASB issued SFAS 123R. SFAS 123R replaces SFAS 123 and supercedes APB 25. The Company followed APB 25 in accounting for stock-based compensation through September 30, 2005, as disclosed above. SFAS 123R addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This standard focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. Under this standard, companies are required to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award at the date of grant. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. The Company will adopt this standard during the first quarter of 2006. In accordance with SFAS 123R, the Company will use the modified version of prospective application. Under modified prospective application, SFAS 123R applies to new awards and to awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for the Company’s disclosure under SFAS 123. The Company will not restate any prior periods as a result of adopting SFAS 123R. The Company does not believe that adoption of SFAS 123R will have a material impact on its financial condition and results of operations because substantially all of the Company’s options were vested by September 30, 2005.

In March 2005, the FASB issued FIN 47, an interpretation of SFAS 143. FIN 47 provides clarification of the term “conditional asset retirement obligation” as used in SFAS 143, defined as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. Under this standard, a company must record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN 47 also serves to clarify when a company would have sufficient information to reasonably estimate the fair value of a conditional asset retirement obligation. FIN 47 becomes effective no later than the end of 2006. The Company is currently evaluating the impact of FIN 47, if any, on its consolidated financial statements.

In May 2005, the FASB issued SFAS 154. SFAS 154 replaces APB 20 and SFAS 3 and changes the requirements for the accounting for and reporting of a change in accounting principle. The Company is required to adopt SFAS 154 for accounting changes and corrections of errors that occur in 2007. Early adoption is permitted. The Company’s financial condition and results of operations will only be impacted by SFAS 154 if there are any accounting changes or corrections of errors in the future.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note B — Regulatory Matters


	*Regulatory Assets and Liabilities*

The Company has recorded the following regulatory assets and liabilities:


		At September 30

		2005			2004

		(Thousands)
Regulatory Assets(1):
Recoverable Future Taxes (Note C)		$	85,000		$	83,847
Unrecovered Purchased Gas Costs (See Regulatory Mechanisms in Note A)			14,817			7,532
Unamortized Debt Expense (Note A)			9,088			9,882
Pension and Post-Retirement Benefit Costs(2) (Note F)			27,135			28,760
Environmental Site Remediation Costs(2) (Note G)			13,054			—
Other(2)			6,839			4,198

	Total Regulatory Assets		155,933			134,219

Regulatory Liabilities:
Cost of Removal Regulatory Liability (See Cumulative Effect Discussion in Note A)			90,396			82,020
Amounts Payable to Customers (See Regulatory Mechanisms in Note A)			1,158			3,154
New York Rate Settlements(3)			53,205			50,451
Taxes Refundable to Customers (Note C)			11,009			11,065
Pension and Post-Retirement Benefit Costs(3) (Note F)			12,751			12,051
Other(3)			383			3,986

	Total Regulatory Liabilities		168,902			162,727

Net Regulatory Position		$	(12,969	)	$	(28,508	)


(1)	The Company recovers the cost of its regulatory assets but, with the exception of Unrecovered Purchased Gas Costs, does not earn a return on them.

(2)	Included in Other Regulatory Assets on the Consolidated Balance Sheets.

(3)	Included in Other Regulatory Liabilities on the Consolidated Balance Sheets.

If for any reason the Company ceases to meet the criteria for application of regulatory accounting treatment for all or part of its operations, the regulatory assets and liabilities related to those portions ceasing to meet such criteria would be eliminated from the balance sheet and included in income of the period in which the discontinuance of regulatory accounting treatment occurs. Such amounts would be classified as an extraordinary item.


	*New York Rate Settlements*

With respect to utility services provided in New York, the Company has entered into rate settlements approved by the NYPSC. The rate settlements have given rise to several significant liabilities, which are described as follows:

Gross Receipts Tax Over-collections — In accordance with NYPSC policies, Distribution Corporation deferred the difference between the revenues it collects under a New York State gross receipts tax surcharge

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and its actual New York State income tax expense. Distribution Corporation’s cumulative gross receipts tax revenues exceeded its New York State income tax expense, resulting in a regulatory liability at September 30, 2005 and 2004 of $34.3 million and $20.8 million, respectively. Under the terms of its 2005 rate settlement, Distribution Corporation will pass back that regulatory liability to rate payers over a twenty-four month period beginning August 1, 2005. Further, the gross receipts tax surcharge that gave rise to the regulatory liability was eliminated from Distribution Corporation’s tariff (New York State income taxes are now recovered as a component of base rates).

Cost Mitigation Reserve (“CMR”) — The CMR is a regulatory liability that can be used to offset certain expense items specified in Distribution Corporation’s rate settlements. The source of the CMR is principally the accumulation of certain refunds from upstream pipeline companies. During 2005, under the terms of the 2005 rate settlement, Distribution Corporation transferred the remaining balance in a generic restructuring reserve (which had been established in a prior rate settlement) and the balances it had accumulated under various earnings sharing mechanisms to the CMR. The balance in the CMR at September 30, 2005 and 2004 amounted to $7 million and $21.1 million, respectively (note that the 2004 balance includes amounts reclassified in 2005).

Other — The 2005 settlement also established a reserve to fund area development projects, which amounted to $3.8 million at September 30, 2005 (Distribution Corporation established the reserve by transferring the amount from the CMR discussed above). Various other regulatory liabilities have also been created through the New York rate settlements and amounted to $8.1 million and $8.6 million at September 30, 2005 and 2004, respectively.

Note C — Income Taxes

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


				Year Ended September 30

				2005			2004			2003

				(Thousands)
Operating Expenses:
	Current Income Taxes —
			Federal	$	40,062		$	42,679		$	37,401
			State		14,413			7,871			11,990
			Foreign		1,503			206			504
	Deferred Income Taxes —
			Federal		27,412			29,559			53,311
			State		2,280			9,620			12,983
			Foreign		7,308			4,655			7,961

					92,978			94,590			124,150
Other Income:
	Deferred Investment Tax Credit				(697	)		(697	)		(693	)
Discontinued Operations
		Operations			9,310			(1,479	)		3,445
		Gain on Sale			1,612			—			—
Cumulative Effect of Change in Accounting					—			—			(354	)

Total Income Taxes				$	103,203		$	92,414		$	126,548

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


	Year Ended September 30

	2005		2004		2003

	(Thousands)
U.S.	$	223,113	$	232,928	$	383,695
Foreign		69,578		26,072		(78,202	)

	$	292,691	$	259,000	$	305,493

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:


		Year Ended September 30

		2005			2004			2003

		(Thousands)
Income Tax Expense, Computed at U.S. Federal Statutory Rate of 35%		$	102,442		$	90,650		$	106,923
Increase (Reduction) in Taxes Resulting from:
	State Income Taxes		10,850			11,369			16,232
	Foreign Tax Differential		(4,845	)		(1,166	)		3,318
	Foreign Tax Rate Reduction		—			(5,174	)		—
	Miscellaneous		(5,244	)		(3,265	)		75

Total Income Taxes		$	103,203		$	92,414		$	126,548

The foreign tax differential amount shown above for 2005 includes tax effects relating to the disposition of a foreign subsidiary. The foreign tax rate reduction amount shown above for 2004 relates to the reduction of the statutory income tax rate in the Czech Republic.

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


		At September 30

		2005			2004

		(Thousands)
Deferred Tax Liabilities:
	Property, Plant and Equipment	$	567,850		$	568,114
	Other		52,436			37,051

Total Deferred Tax Liabilities			620,286			605,165

Deferred Tax Assets:
	Minimum Pension Liability Adjustment		(58,069	)		(28,887	)
	Capital Loss Carryover		(9,145	)		(12,546	)
	Unrealized Hedging Losses		(75,657	)		(33,890	)
	Other		(74,346	)		(74,624	)

			(217,217	)		(149,947	)

	Valuation Allowance		2,877			2,877

Total Deferred Tax Assets			(214,340	)		(147,070	)

Total Net Deferred Income Taxes		$	405,946		$	458,095

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	At September 30

	2005			2004

	(Thousands)
Presented as Follows:
Net Deferred Tax Asset — Current		(83,774	)		(43,105	)
Net Deferred Tax Liability — Non-Current		489,720			501,200

Total Net Deferred Income Taxes	$	405,946		$	458,095

Regulatory liabilities representing the reduction of previously recorded deferred income taxes associated with rate-regulated activities that are expected to be refundable to customers amounted to $11.0 million and $11.1 million at September 30, 2005 and 2004, respectively. Also, regulatory assets representing future amounts collectible from customers, corresponding to additional deferred income taxes not previously recorded because of prior ratemaking practices, amounted to $85.0 million and $83.8 million at September 30, 2005 and 2004, respectively.

In the quarter ended June 30, 2005, the Company recorded a tax liability of $3.8 million relating to a dividend of $72.8 million received from a foreign subsidiary. The tax was recorded at a rate of 5.25% in accordance with the applicable provisions of the American Jobs Creation Act of 2004.

A capital loss carryover of $26.1 million exists at September 30, 2005, which expires if not utilized by September 30, 2008. Although realization is not assured, management estimates that a portion of the deferred tax asset associated with this carryover will be realized during the carryover period, and a valuation allowance is recorded for the remaining portion. Adjustments to the valuation allowance may be necessary in the future if estimates of capital gain income are revised.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note D — Capitalization and Short-Term Borrowings


	*Summary of Changes in Common Stock Equity*


										Earnings			Accumulated
	Common Stock									Reinvested			Other
							Paid In			in the			Comprehensive
	Shares			Amount			Capital			Business			Income (Loss)

	(Thousands, except per share amounts)
Balance at September 30, 2002		80,265		$	80,265		$	446,832		$	549,397		$	(69,636	)
Net Income Available for Common Stock											178,944
Dividends Declared on Common Stock ($1.06 Per Share)											(85,651	)
Other Comprehensive Income, Net of Tax														4,099
Cancellation of Shares		(3	)		(3	)		(63	)
Common Stock Issued Under Stock and Benefit Plans(1)		1,176			1,176			32,030

Balance at September 30, 2003		81,438			81,438			478,799			642,690			(65,537	)
Net Income Available for Common Stock											166,586
Dividends Declared on Common Stock ($1.10 Per Share)											(90,350	)
Other Comprehensive Income, Net of Tax														10,762
Common Stock Issued Under Stock and Benefit Plans(1)		1,552			1,552			27,761

Balance at September 30, 2004		82,990			82,990			506,560			718,926			(54,775	)
Net Income Available for Common Stock											189,488
Dividends Declared on Common Stock ($1.14 Per Share)											(95,394	)
Other Comprehensive Loss, Net of Tax														(142,853	)
Cancellation of Shares		(2	)		(2	)		(52	)
Common Stock Issued Under Stock and Benefit Plans(1)		1,369			1,369			23,326

Balance at September 30, 2005		84,357		$	84,357		$	529,834		$	813,020	(2)	$	(197,628	)


(1)	Paid in Capital includes tax benefits of $3.7 million, $1.5 million and $0.2 million for September 30, 2005, 2004 and 2003, respectively, associated with the exercise of stock options.

(2)	The availability of consolidated earnings reinvested in the business for dividends payable in cash is limited under terms of the indentures covering long-term debt. At September 30, 2005, $738.6 million of accumulated earnings was free of such limitations.


	*Common Stock*

The Company has various plans which allow shareholders, employees and others to purchase shares of the Company common stock. The National Fuel Gas Company Direct Stock Purchase and Dividend Reinvestment Plan allows shareholders to reinvest cash dividends and make cash investments in the Company’s common stock and provides investors the opportunity to acquire shares of the Company common stock without the payment of any brokerage commissions in connection with such acquisitions. The 401(k) Plans allow employees the opportunity to invest in the Company common stock, in addition to a variety of

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

other investment alternatives. Generally, at the discretion of the Company, shares purchased under these plans are either original issue shares purchased directly from the Company or shares purchased on the open market by an independent agent.

The Company also has a Director Stock Program under which it issues shares of the Company common stock to its non-employee directors as partial consideration for their services as directors.


	*Shareholder Rights Plan*

In 1996, the Company’s Board of Directors adopted a shareholder rights plan (Plan). Effective April 30, 1999, the Plan was amended and is now embodied in an Amended and Restated Rights Agreement, under which the Board of Directors made adjustments in connection with the two-for-one stock split of September 7, 2001.

The holders of the Company’s common stock have one right (Right) for each of their shares. Each Right, which will initially be evidenced by the Company’s common stock certificates representing the outstanding shares of common stock, entitles the holder to purchase one-half of one share of common stock at a purchase price of $65.00 per share, being $32.50 per half share, subject to adjustment (Purchase Price).

The Rights become exercisable upon the occurrence of a distribution date. At any time following a distribution date, each holder of a Right may exercise its right to receive common stock (or, under certain circumstances, other property of the Company) having a value equal to two times the Purchase Price of the Right then in effect. However, the Rights are subject to redemption or exchange by the Company prior to their exercise as described below.

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

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

At any time prior to the end of the business day on the tenth day following the announcement that a person or group has acquired, or obtained the right to acquire, beneficial ownership of 10% or more of the total voting power of the Company, the Company may redeem the Rights in whole, but not in part, at a price of $0.005 per Right, payable in cash or stock. A decision to redeem the Rights requires the vote of 75% of the Company’s full Board of Directors. Also, at any time following the announcement that a person or group has acquired, or obtained the right to acquire, beneficial ownership of 10% or more of the total voting power of the Company, 75% of the Company’s full Board of Directors may vote to exchange the Rights, in whole or in part, at an exchange rate of one share of common stock, or other property deemed to have the same value, per Right, subject to certain adjustments.

After a distribution date, Rights that are owned by an acquiring person will be null and void. Upon exercise of the Rights, the Company may need additional regulatory approvals to satisfy the requirements of

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Rights Agreement. The Rights will expire on July 31, 2008, unless they are exchanged or redeemed earlier than that date.

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


	*Stock Option and Stock Award Plans*

The Company has various stock option and stock award plans which provide or provided for the issuance of one or more of the following to key employees: incentive stock options, nonqualified stock options, restricted stock, performance units or performance shares. Stock options under all plans have exercise prices equal to the average market price of Company common stock on the date of grant, and generally no option is exercisable less than one year or more than ten years after the date of each grant.

Transactions involving option shares for all plans are summarized as follows:


	Number of
	Shares Subject			Weighted Average
	to Option			Exercise Price

Outstanding at September 30, 2002		14,629,504		$	22.12
Granted in 2003		233,500		$	24.61
Exercised in 2003(1)		(673,866	)	$	16.56
Forfeited in 2003		(123,800	)	$	23.55

Outstanding at September 30, 2003		14,065,338		$	22.41
Granted in 2004		87,000		$	24.95
Exercised in 2004(1)		(1,573,794	)	$	18.29
Forfeited in 2004		(84,633	)	$	25.42

Outstanding at September 30, 2004		12,493,911		$	22.93
Granted in 2005		700,000		$	28.19
Exercised in 2005(1)		(2,140,518	)	$	20.21
Forfeited in 2005		(56,500	)	$	25.03

Outstanding at September 30, 2005		10,996,893		$	23.78

Option shares exercisable at September 30, 2005		10,846,727		$	23.78
Option shares exercisable at September 30, 2004		11,594,368		$	22.83
Option shares exercisable at September 30, 2003		12,420,444		$	22.16
Option shares available for future grant at September 30, 2005(2)		537,634


(1)	In connection with exercising these options, 766,946, 557,410 and 200,708 shares were surrendered and canceled during 2005, 2004 and 2003, respectively.

(2)	Including shares available for restricted stock grants.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes information about options outstanding at September 30, 2005:


	Options Outstanding						Options Exercisable

			Weighted
	Number		Average		Weighted		Number		Weighted
	Outstanding		Remaining		Average		Exercisable		Average
Range of Exercise Price	at 9/30/05		Contractual Life		Exercise Price		at 9/30/05		Exercise Price

$17.14-$19.99		759,422		1.0	$	18.38		759,422	$	18.38
$20.00-$22.85		3,999,974		3.7	$	21.87		3,959,974	$	21.88
$22.86-$25.70		3,396,665		5.0	$	23.89		3,319,664	$	23.89
$25.71-$28.57		2,840,832		6.3	$	27.79		2,807,667	$	27.80

Restricted stock is subject to restrictions on vesting and transferability. Restricted stock awards entitle the participants to full dividend and voting rights. The market value of restricted stock on the date of the award is recorded as compensation expense over the vesting period. Certificates for shares of restricted stock awarded under the Company’s stock option and stock award plans are held by the Company during the periods in which the restrictions on vesting are effective.

No awards of restricted stock have been made over the past three years.

As of September 30, 2005, 64,928 shares of non-vested restricted stock were outstanding. Vesting restrictions will lapse as follows: 2006 — 34,600 shares; 2007 — 29,000 shares; and 2010 — 1,328 shares.

Compensation expense related to restricted stock under the Company’s stock plans was $0.4 million, $0.7 million and $1.0 million for the years ended September 30, 2005, 2004 and 2003, respectively.


	*Redeemable Preferred Stock*

As of September 30, 2005, there were 10,000,000 shares of $1 par value Preferred Stock authorized but unissued.


	*Long-Term Debt*

The outstanding long-term debt is as follows:


			At September 30

			2005		2004

			(Thousands)
Medium-Term Notes(1):
	6.0% to 7.50% due May 2008 to June 2025		$	749,000	$	749,000
Notes(1):
	5.25% to 6.50% due March 2013 to September 2022(2)			347,222		347,272

				1,096,222		1,096,272

Other Notes:
		Secured(3)		32,100		41,433
		Unsecured		83		9,872

Total Long-Term Debt				1,128,405		1,147,577
Less Current Portion				9,393		14,260

			$	1,119,012	$	1,133,317

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(1)	These medium-term notes and notes are unsecured.

(2)	At September 30, 2005 and 2004, $97,222,000 and $97,272,000, respectively, of these notes were callable at par at any time after September 15, 2006. The change in the amount outstanding from year to year is attributable to the estates of individual note holders exercising put options due to the death of an individual note holder.

(3)	These notes constitute “project financing” and are secured by the various project documentation and natural gas transportation contracts related to the Empire State Pipeline. The interest rate on these notes is a variable rate based on LIBOR.

As of September 30, 2005, the aggregate principal amounts of long-term debt maturing during the next five years and thereafter are as follows: $9.4 million in 2006, $9.4 million in 2007, $209.3 million in 2008, $104.1 million in 2009, zero in 2010, and $796.2 million thereafter.


	*Short-Term Borrowings*

The Company historically has obtained short-term funds either through bank loans or the issuance of commercial paper. As for the former, the Company maintains a number of individual (bi-lateral) uncommitted or discretionary lines of credit with certain financial institutions for general corporate purposes. Borrowings under these lines of credit are made at competitive market rates. Each of these credit lines, which aggregate to $380.0 million, are revocable at the option of the financial institutions and are reviewed on an annual basis. The Company anticipates that these lines of credit will continue to be renewed. The total amount available to be issued under the Company’s commercial paper program is $200.0 million. The commercial paper program is backed by a syndicated committed credit facility totaling $300.0 million, which is committed to the Company through September 30, 2010.

At September 30, 2005, the Company had no outstanding short-term notes payable to banks or commercial paper. At September 30, 2004, the Company had outstanding notes payable to banks and commercial paper of $26.5 million and $130.3 million, respectively. All of this debt was domestic.

The weighted average interest rate on notes payable to banks was 1.82% at September 30, 2004. The weighted average interest rate on commercial paper was 1.85% at September 30, 2004.


	*Debt Restrictions*

Under the Company’s committed credit facility, the Company has agreed that its debt to capitalization ratio will not exceed .65 at the last day of any fiscal quarter from September 30, 2005 through September 30, 2010. At September 30, 2005, the Company’s debt to capitalization ratio (as calculated under the facility) was .48. The constraints specified in the committed credit facility would permit an additional $1.16 billion in short-term and/or long-term debt to be outstanding (further limited by the indenture covenants discussed below) before the Company’s debt to capitalization ratio would exceed .65. If a downgrade in any of the Company’s credit ratings were to occur, access to the commercial paper markets might not be possible. However, the Company expects that it could borrow under its uncommitted bank lines of credit or rely upon other liquidity sources, including cash provided by operations.

The Company’s 1974 indenture pursuant to which $399.0 million (or 35%) of the Company’s long-term debt (as of September 30, 2005) was issued contains a cross-default provision whereby the failure by the Company to perform certain obligations under other borrowing arrangements could trigger an obligation to

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

repay the debt outstanding under the indenture. In particular, a repayment obligation could be triggered if the Company fails (i) to pay any scheduled principal or interest or any debt under any other indenture or agreement or (ii) to perform any other term in any other such indenture or agreement, and the effect of the failure causes, or would permit the holders of the debt to cause, the debt under such indenture or agreement to become due prior to its stated maturity, unless cured or waived.

Note E — Financial Instruments


	*Fair Values*

The fair market value of the Company’s long-term debt is estimated based on quoted market prices of similar issues having the same remaining maturities, redemption terms and credit ratings. Based on these criteria, the fair market value of long-term debt, including current portion, was as follows:

At September 30

2005

2004

Carrying

2005 Fair

Carrying

2004 Fair

Amount

Value

Amount

Value

(Thousands)

Long-Term Debt

1,128,405

1,181,599

1,147,577

1,199,189

The fair value amounts are not intended to reflect principal amounts that the Company will ultimately be required to pay.

Temporary cash investments, notes payable to banks and commercial paper are stated at cost, which approximates their fair value due to the short-term maturities of those financial instruments. Investments in life insurance are stated at their cash surrender values as discussed below. Investments in an equity mutual fund and the stock of an insurance company (marketable equity securities), as discussed below, are stated at fair value based on quoted market prices.


	*Other Investments*

Other investments includes cash surrender values of insurance contracts and marketable equity securities. The cash surrender values of the insurance contracts amounted to $59.6 million and $56.1 million at September 30, 2005 and 2004, respectively. During 2005, the Company sold all of its interest in one equity mutual fund for $8.5 million and reinvested the proceeds in another equity mutual fund. The Company recognized a gain of $0.7 million on the sale of the equity mutual fund. The fair value of the equity mutual fund purchased in 2005 was $9.8 million at September 30, 2005 and the gross unrealized gain on this equity mutual fund was $0.4 million at September 30, 2005. The fair value of the equity mutual fund sold during 2005 was $7.8 million at September 30, 2004 and the gross unrealized gain on this equity mutual fund was $0.1 million at September 30, 2004. The fair value of the stock of an insurance company was $10.5 million and $8.7 million at September 30, 2005 and 2004, respectively. The gross unrealized gain on this stock was $8.1 million and $6.2 million at September 30, 2005 and 2004, respectively. The insurance contracts and

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

marketable equity securities are primarily informal funding mechanisms for various benefit obligations the Company has to certain employees.


	*Derivative Financial Instruments*

The Company uses a variety of derivative financial instruments to manage a portion of the market risk associated with the fluctuations in the price of natural gas and crude oil. These instruments include price swap agreements, no cost collars, options and futures contracts.

Under the price swap agreements, the Company receives monthly payments from (or makes payments to) other parties based upon the difference between a fixed price and a variable price as specified by the agreement. The variable price is either a crude oil or natural gas price quoted on the New York Mercantile Exchange (NYMEX) or a quoted natural gas price in “Inside FERC.” The majority of these derivative financial instruments are accounted for as cash flow hedges and are used to lock in a price for the anticipated sale of natural gas and crude oil production in the Exploration and Production segment and the All Other category. The Energy Marketing segment accounts for these derivative financial instruments as fair value hedges and uses them to hedge against falling prices, a risk to which they are exposed on their fixed price gas purchase commitments. The Energy Marketing segment also uses these derivative financial instruments to hedge against rising prices, a risk to which they are exposed on their fixed price sales commitments. At September 30, 2005, the Company had natural gas price swap agreements covering a notional amount of 18.8 Bcf extending through 2009 at a weighted average fixed rate of $5.73 per Mcf. Of this amount, 4.3 Bcf is accounted for as fair value hedges at a weighted average fixed rate of $5.12 per Mcf. The remaining 14.5 Bcf are accounted for as cash flow hedges at a weighted average fixed rate of $5.91 per Mcf. The Company also had crude oil price swap agreements covering a notional amount of 2,835,000 bbls extending through 2008 at a weighted average fixed rate of $35.09 per bbl. At September 30, 2005, the Company would have had to pay a net $179.2 million to terminate the price swap agreements.

Under the no cost collars, the Company receives monthly payments from (or makes payments to) other parties when a variable price falls below an established floor price (the Company receives payment from the counterparty) or exceeds an established ceiling price (the Company pays the counterparty). The variable price is either a crude oil price quoted on the NYMEX or a quoted natural gas price in “Inside FERC.” These derivative financial instruments are accounted for as cash flow hedges and are used to lock in a price range for the anticipated sale of natural gas and crude oil production in the Exploration and Production segment. At September 30, 2005, the Company had no cost collars on natural gas covering a notional amount of 8.5 Bcf extending through 2007 with a weighted average floor price of $7.54 per Mcf and a weighted average ceiling price of $15.62 per Mcf. The Company did not have any outstanding no cost collars on crude oil at September 30, 2005. At September 30, 2005, the Company would have had to pay $11.2 million to terminate the no cost collars.

At September 30, 2005, the Company, in the Exploration and Production segment, had purchased natural gas put options and sold natural gas call options extending through 2006. The call options sold by the Company cover a notional amount of 0.6 Bcf at a weighted average strike price of $7.98 per Mcf. The put options purchased by the Company cover a notional amount of 0.6 Bcf at a weighted average strike price of $5.54 per Mcf. These derivative financial instruments are accounted for as cash flow hedges. The call options are used to establish a ceiling price (the Company makes payments to the counterparty when a variable price rises above the ceiling price) for the anticipated sale of natural gas in the Exploration and Production segment. At September 30, 2005, the Company would have had to pay $3.4 million to terminate these call options. The put options are used to establish a floor price (the Company receives payment from the counterparty when a variable price falls below the floor price) for the anticipated sale of natural gas in the Exploration and Production segment. At September 30, 2005, the Company would have received $4 thousand to terminate these put options.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At September 30, 2005, the Company had long (purchased) futures contracts covering 1.2 Bcf of gas extending through 2007 at a weighted average contract price of $9.12 per Mcf. They are accounted for as fair value hedges and are used by the Company’s Energy Marketing segment to hedge against rising prices, a risk to which this segment is exposed due to the fixed price gas sales commitments that it enters into with commercial and industrial customers. The Company would have received $6.0 million to terminate these futures contracts at September 30, 2005.

At September 30, 2005, the Company had short (sold) futures contracts covering 3.4 Bcf of gas extending through 2009 at a weighted average contract price of $8.44 per Mcf. Of this amount, 2.3 Bcf is accounted for as cash flow hedges as these contracts relate to the anticipated sale of natural gas by the Energy Marketing segment. The remaining 1.1 Bcf is accounted for as fair value hedges. The Company would have had to pay $20.8 million to terminate these futures contracts at September 30, 2005.

The Company may be exposed to credit risk on some of the derivative financial instruments discussed above. Credit risk relates to the risk of loss that the Company would incur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. To mitigate such credit risk, management performs a credit check, and then on an ongoing basis monitors counterparty credit exposure. Management has obtained guarantees from the parent companies of the respective counterparties to its derivative financial instruments. At September 30, 2005, the Company used eight counterparties for its over the counter derivative financial instruments. At September 30, 2005, no individual counterparty represented greater than 27% of total credit risk (measured as volumes hedged by an individual counterparty as a percentage of the Company’s total volumes hedged).

The Company uses an interest rate collar to limit interest rate fluctuations on certain variable rate debt in the Pipeline and Storage segment. Under the interest rate collar the Company makes quarterly payments (or receives payments from) another party when a variable rate falls below an established floor rate (the Company pays the counterparty) or exceeds an established ceiling rate (the Company receives payment from the counterparty). Under the terms of the collar, which extends until 2009, the variable rate is based on LIBOR. The floor rate of the collar is 5.15% and the ceiling rate is 9.375%. At September 30, 2005 the notional amount on the collar was $35.0 million. The Company would have had to pay $0.5 million to terminate the interest rate collar at September 30, 2005.

Note F — Retirement Plan and Other Post-Retirement Benefits

The Company has a tax-qualified, noncontributory, defined-benefit retirement plan (Retirement Plan) that covers approximately 85% of the domestic employees of the Company. The Company provides health care and life insurance benefits for substantially all domestic retired employees under a post-retirement benefit plan (Post-Retirement Plan).

The Company’s policy is to fund the Retirement Plan with at least an amount necessary to satisfy the minimum funding requirements of applicable laws and regulations and not more than the maximum amount deductible for federal income tax purposes. The Company has established Voluntary Employees’ Beneficiary Association (VEBA) trusts for its Post-Retirement Plan. Contributions to the VEBA trusts are tax deductible, subject to limitations contained in the Internal Revenue Code and regulations and are made to fund employees’ post-retirement health care and life insurance benefits, as well as benefits as they are paid to current retirees. In addition, the Company has established 401(h) accounts for its Post-Retirement Plan. They are separate accounts within the Retirement Plan used to pay retiree medical benefits for the associated participants in the Retirement Plan. Contributions are tax-deductible when made and investments accumulate tax-free. Retirement Plan and Post-Retirement Plan assets primarily consist of equity and fixed income investments or units in commingled funds or money market funds.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The expected returns on plan assets of the Retirement Plan and Post-Retirement Plan are applied to the market-related value of plan assets of the respective plans. For the Retirement Plan, the market-related value of assets recognizes the performance of its portfolio over five years and reduces the effects of short-term market fluctuations. The market-related value of Post-Retirement Plan assets is set equal to market value.

Reconciliations of the Benefit Obligations, Plan Assets and Funded Status, as well as the components of Net Periodic Benefit Cost and the Weighted Average Assumptions of the Retirement Plan and Post-Retirement Plan are shown in the tables below. The date used to measure the Benefit Obligations, Plan Assets and Funded Status is June 30, 2005, 2004 and 2003, respectively.


	Retirement Plan									Other Post-Retirement Benefits

	Year Ended September 30									Year Ended September 30

	2005			2004			2003			2005			2004			2003

	(Thousands)
Change in Benefit Obligation
Benefit Obligation at Beginning of Period	$	693,532		$	694,960		$	625,470		$	422,003		$	467,418		$	393,851
Service Cost		13,714			14,598			13,043			6,153			6,027			5,844
Interest Cost		42,079			40,565			40,967			25,783			26,393			26,124
Plan Participants’ Contributions		—			—			—			1,017			627			682
Actuarial (Gain) Loss		115,128			(19,593	)		51,302			110,663			(62,146	)		57,983
Benefits Paid		(39,249	)		(36,998	)		(35,822	)		(19,346	)		(16,316	)		(17,066	)

Benefit Obligation at End of Period	$	825,204		$	693,532		$	694,960		$	546,273		$	422,003		$	467,418

Change in Plan Assets
Fair Value of Assets at Beginning of Period	$	573,366		$	491,333		$	485,927		$	229,484		$	166,494		$	150,293
Actual Return on Plan Assets		56,201			81,946			6,145			20,578			38,960			390
Employer Contribution		26,144			37,085			35,083			39,903			39,720			32,195
Plan Participants’ Contributions		—			—			—			1,017			627			682
Benefits Paid		(39,249	)		(36,998	)		(35,822	)		(19,346	)		(16,316	)		(17,066	)

Fair Value of Assets at End of Period	$	616,462		$	573,366		$	491,333		$	271,636		$	229,485		$	166,494

Reconciliation of Funded Status
Funded Status	$	(208,742	)	$	(120,166	)	$	(203,627	)	$	(274,637	)	$	(192,518	)	$	(300,924	)
Unrecognized Net Actuarial Loss		257,553			159,554			222,250			205,423			108,943			212,242
Unrecognized Transition Obligation		—			—			—			57,017			64,144			71,272
Unrecognized Prior Service Cost		8,142			9,171			10,274			17			20			26

Net Amount Recognized at End of Period	$	56,953		$	48,559		$	28,897		$	(12,180	)	$	(19,411	)	$	(17,384	)

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


			Retirement Plan									Other Post-Retirement Benefits

			Year Ended September 30									Year Ended September 30

			2005			2004			2003			2005			2004			2003

			(Thousands)
Amounts Recognized in the Balance Sheets Consist of:
	Accrued Benefit Liability		$	(117,103	)	$	(43,147	)	$	(120,524	)	$	(26,584	)	$	(27,263	)	$	(23,163	)
	Prepaid Benefit Cost			—			—			—			14,404			7,852			5,779
	Intangible Assets			8,142			9,171			10,274			—			—			—
	Accumulated Other Comprehensive
		Loss (Pre-Tax)		165,914			82,535			139,147			—			—			—

Net Amount Recognized at End of Period			$	56,953		$	48,559		$	28,897		$	(12,180	)	$	(19,411	)	$	(17,384	)

Weighted Average Assumptions Used to Determine Benefit Obligation at September 30
Discount Rate				5.00	%		6.25	%		6.00	%		5.00	%		6.25	%*		6.00	%
Expected Return on Plan Assets				8.25	%		8.25	%		8.25	%		8.25	%		8.25	%		8.25	%
Rate of Compensation Increase				5.00	%		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%
Components of Net Periodic Benefit Cost
Service Cost			$	13,714		$	14,598		$	13,043		$	6,153		$	6,027		$	5,844
Interest Cost				42,079			40,565			40,967			25,783			26,393			26,124
Expected Return on Plan Assets				(49,545	)		(48,281	)		(47,260	)		(18,862	)		(14,898	)		(12,268	)
Amortization of Prior Service Cost				1,029			1,103			1,176			4			4			4
Amortization of Transition Amount				—			—			(3,716	)		7,127			7,127			7,127
Recognition of Actuarial (Gain) or Loss				10,473			9,438			2,231			12,467			17,092			14,866
Net Amortization and Deferral for Regulatory Purposes				1,988			722			3,781			(410	)		(9,731	)		(15,423	)

Net Periodic Benefit Cost			$	19,738		$	18,145		$	10,222		$	32,262		$	32,014		$	26,274

Other Comprehensive (Income) Loss (Pre-Tax) Attributable to Change In Additional Minimum Liability Recognition			$	83,379		$	(56,612	)	$	86,170		$	—		$	—		$	—

Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost at September 30
Discount Rate				6.25	%		6.00	%		6.75	%		6.25	%		6.25	%*		6.75	%
Expected Return on Plan Assets				8.25	%		8.25	%		8.50	%		8.25	%		8.25	%		8.50	%
Rate of Compensation Increase				5.00	%		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%


*	The weighted average discount rate was 6.0% through 12/8/2003. Subsequent to 12/8/2003, the discount rate used was 6.25%.

The Net Periodic Benefit cost in the table above includes the effects of regulation. The Company recovers pension and post-retirement benefit costs in its Utility and Pipeline and Storage segments in accordance with the applicable regulatory commission authorizations. Certain of those commission authorizations established tracking mechanisms which allow the Company to record the difference between the amount of pension and post-retirement benefit costs recoverable in rates and the amounts of such costs as determined under SFAS 87 and SFAS 106 as either a regulatory asset or liability, as appropriate. Currently, approximately two-thirds of the Company’s SFAS 87 expense and substantially all of the Company’s SFAS 106 expense is subject to regulatory tracking mechanisms. Any activity under the tracking mechanisms (including the amortization of pension and post-retirement regulatory assets) is reflected in the Net Amortization and Deferral for Regulatory Purposes line item above.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In accordance with the provisions of SFAS 87, the Company recorded an additional minimum liability at September 30, 2005, 2004 and 2003 representing the excess of the accumulated benefit obligation over the fair value of plan assets plus accrued amounts previously recorded. An intangible asset, as shown in the table above, has offset the additional liability to the extent of previously Unrecognized Prior Service Cost. The amount in excess of Unrecognized Prior Service Cost is recorded net of the related tax benefit as accumulated other comprehensive loss. The pre-tax amount of the accumulated other comprehensive loss is shown in the table above. The projected benefit obligation, accumulated benefit obligation and fair value of assets for the retirement plan were as follows:


	2005		2004		2003

Projected Benefit Obligation	$	825,204	$	693,532	$	694,960
Accumulated Benefit Obligation	$	733,565	$	616,513	$	611,858
Fair Value of Plan Assets	$	616,462	$	573,366	$	491,333

The effect of the discount rate change for the Retirement Plan in 2005, was to increase the Benefit Obligation by $113.0 million. The discount rate change for the Retirement Plan in 2004 caused the Benefit Obligation to decrease by $20.2 million. The effect of the discount rate change in 2003 was to increase the Benefit Obligation of the Retirement Plan by $57.4 million.

The Company made cash contributions totaling $26.1 million to the Retirement Plan during the year ended September 30, 2005. The Company expects that the annual contribution to the Retirement Plan in 2006 will be in the range of $15.0 million to $20.0 million. The following benefit payments, which reflect expected future service, are expected to be paid during the next five years and the five years thereafter: $42.5 million in 2006; $43.7 million in 2007; $45.1 million in 2008; $46.8 million in 2009; $48.6 million in 2010; and $271.2 million in the five years thereafter.

The Retirement Plan covers certain domestic employees hired before July 1, 2003. Employees hired after June 30, 2003 are eligible for a Retirement Savings Account benefit provided under the Company’s defined contribution Tax-Deferred Savings Plans. Costs associated with the Retirement Savings Account benefit have been insignificant through September 30, 2005. Costs associated with the Company’s contributions to the Tax-Deferred Savings Plans were $4.2 million, $4.2 million, and $4.3 million for the years ended September 30, 2005, 2004 and 2003, respectively.

In addition to the Retirement Plan discussed above, the Company also has a Non Qualified benefit plan that covers a group of management employees designated by the Chief Executive Officer of the Company. This plan provides for defined benefit payments upon retirement of the management employee, or to the spouse upon death of the management employee. The net periodic benefit cost associated with this plan was $4.3 million, $13.7 million and $5.1 million in 2005, 2004 and 2003, respectively. The accumulated benefit obligation for this plan was $25.2 million and $18.2 million at September 30, 2005 and 2004, respectively. The projected benefit obligation for the plan was $47.6 million and $35.7 million at September 30, 2005 and 2004, respectively. The actuarial valuations for this plan were determined based on a discount rate of 5.0%, 6.25% and 6.0% as of September 30, 2005, 2004 and 2003, respectively; a rate of compensation increase of 10.0% as of September 30, 2005 and September 30, 2004, and 8.11% as of September 30, 2003; and an expected long-term rate of return on plan assets of 8.25%, at September 30, 2005, 2004 and 2003.

In January 2004, a participant of the Non Qualified benefit plan received a $23 million lump sum payment under a provision of an agreement previously entered into between the Company and the participant. Under GAAP, this payment was considered a partial settlement of the projected benefit obligation of the plan. Accordingly, GAAP required that a pro rata portion of this plan’s unrecognized actuarial loses resulting from experience different from that assumed and from changes in assumption be currently recognized. Therefore, $9.9 million before tax ($6.4 million, after tax) was recognized as a settlement expense (included in Operation and Maintenance Expense) on the income statement.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The effect of the discount rate change in 2005 was to increase the Other Post-Retirement Benefit Obligation by $78.2 million. Effective July 1, 2005, the Medicare Part B reimbursement trend, prescription drug trend and medical trend assumptions were changed. The effect of these assumption changes was to increase the other post-retirement benefit obligation by $21.7 million. Also effective July 1, 2005, the percent of active female participants who are assumed to be married at retirement was changed. The effect of this assumption change was to decrease the other post-retirement benefit obligation by $6.9 million. Other actuarial experience increased the Other Post-Retirement Benefit Obligation in 2005 by $17.9 million.

On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Act) was signed into law. This Act introduces a prescription drug benefit under Medicare (Medicare Part D), as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In accordance with FASB Staff Position FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”, since the Company is assumed to continue to provide a prescription drug benefit to retirees in the point of service and indemnity plans that is at least actuarially equivalent to Medicare Part D, the impact of the Act was reflected as of December 8, 2003. The discount rate was changed from 6.0% to 6.25% per annum as of the remeasurement date, which resulted in a decrease in the benefit obligation of $15.9 million in 2004. The Other Post-Retirement Benefit Obligation decreased by $42.9 million and the Net Periodic Post-Retirement Benefit Cost decreased by $4.2 million as a result of the Act for 2004. Effective July 1, 2004, the Medicare B Reimbursement trend assumption was changed. The effect of this change was to decrease the Other Post-Retirement Benefit Obligation by $3.5 million for 2004.

The effect of the discount rate change in 2003 was to increase the Other Post-Retirement Benefit Obligation by $45.1 million. The prescription drug aging assumptions and related factors were changed in 2003 to better reflect anticipated future experience. The effect of the changed prescription drug assumptions was to decrease the Other Post-Retirement Benefit Obligation by $22.6 million. Other actuarial experience increased the Other Post-Retirement Benefit Obligation in 2003 by $35.4 million.

The estimated gross benefit payments and gross amount of subsidy receipts are as follows:


	Benefit Payments		Subsidy Receipts

First Year	$	20,987,000	$	(604,000	)
Second Year	$	23,383,000	$	(1,398,000	)
Third Year	$	25,438,000	$	(1,620,000	)
Fourth Year	$	27,597,000	$	(1,847,000	)
Fifth Year	$	29,901,000	$	(2,058,000	)
Next Five Years	$	177,401,000	$	(13,634,000	)

The annual rate of increase in the per capita cost of covered medical care benefits for both Pre and Post age 65 participants was assumed to be 11.0% for 2003 and 10.0% for 2004. In 2005, the Company began making separate estimates of the annual rate of increase in the per capita cost of covered medical care benefits for Pre and Post age 65 participants. The rate of increase for Pre age 65 participants was 10% and was assumed to gradually decline to 5.0% by the year 2014. The rate of increase for the Post age 65 participants was 7.5% and was assumed to gradually decline to 5.0% by the year 2014. The annual rate of increase in the per capita cost of covered prescription drug benefits was assumed to be 13.5% for 2003, 12.0% for 2004, 12.5% for 2005, and gradually decline to 5.0% by the year 2014 and remain level thereafter. The annual rate of increase in the per capita Medicare Part B Reimbursement was assumed to be 7.0% for 2003, 9.25% for 2004, and 6.0% for 2005. The annual rate of increase for the Medicare Part B Reimbursement is expected to fluctuate between 0% and 7.5% over the next 10 years and reach 5.0% by 2016.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The health care cost trend rate assumptions used to calculate the per capita cost of covered medical care benefits have a significant effect on the amounts reported. If the health care cost trend rates were increased by 1% in each year, the Other Post-Retirement Benefit Obligation as of October 1, 2005 would be increased by $80.2 million. This 1% change would also have increased the aggregate of the service and interest cost components of net periodic post-retirement benefit cost for 2005 by $5.1 million. If the health care cost trend rates were decreased by 1% in each year, the Other Post-Retirement Benefit Obligation as of October 1, 2005 would be decreased by $65.4 million. This 1% change would also have decreased the aggregate of the service and interest cost components of net periodic post-retirement benefit cost for 2005 by $4.1 million.

The Company made cash contributions totaling $39.9 million to the Other Post-Retirement Benefit Plan during the year ended September 30, 2005. The Company expects that the annual contribution to the Other Post-Retirement Benefit Plan in 2006 will be in the range of $30.0 million to $40.0 million.

The Company’s Retirement Plan weighted average asset allocations at September 30, 2005, 2004 and 2003 by asset category are as follows:


				Percentage of Plan
				Assets at
				September 30
	Target Allocation
Asset Category	2006			2005			2004			2003

Equity Securities		60-70	%		63	%		61	%		53	%
Fixed Income Securities		25-35	%		28	%		28	%		32	%
Other		5-15	%		9	%		11	%		15	%

Total					100	%		100	%		100	%

The Company’s Post-Retirement Plan weighted average asset allocations at September 30, 2005, 2004 and 2003 by asset category are as follows:


				Percentage of Plan
				Assets at
				September 30
	Target Allocation
Asset Category	2006			2005			2004			2003

Equity Securities		85-95	%		92	%		91	%		85	%
Fixed Income Securities		0-10	%		2	%		1	%		1	%
Other		0-10	%		6	%		8	%		14	%

Total					100	%		100	%		100	%

The Company’s assumption regarding the expected long-term rate of return on plan assets is 8.25%. The return assumption reflects the anticipated long-term rate of return on the plan’s current and future assets. The Company utilizes historical investment data, projected capital market conditions, and the plan’s target asset class and investment manager allocations to set the assumption regarding the expected return on plan assets.

The long-term investment objective of the Retirement Plan trust and the Post-Retirement Plan VEBA trusts is to achieve the target total return in accordance with the Company’s risk tolerance. Assets are diversified utilizing a mix of equities, fixed income and other securities (including real estate). Risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial condition.

Investment managers are retained to manage separate pools of assets. Comparative market and peer group performance of individual managers and the total fund are monitored on a regular basis, and reviewed by the Company’s Retirement Committee on at least a quarterly basis.

The discount rate which is used to present value the future benefit payment obligations of the Retirement Plan, the Executive Retirement Plan, and the Other Post-Retirement Benefit Plan is 5.0% as of September 30,

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2005. This rate is equal to the Moody’s Aa Long Term Corporate Bond index, rounded to the nearest 25 basis points. The duration of the securities underlying that index reasonably matches the expected timing of anticipated future benefit payments.

Note G — Commitments and Contingencies


	*Environmental Matters*

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. The Company has estimated its remaining clean-up costs related to the sites described below in paragraphs (i) and (ii) will be $3.7 million. This liability has been recorded on the Consolidated Balance Sheet at September 30, 2005. Other than as discussed below, the Company is currently not aware of any material exposure to environmental liabilities. However, adverse changes in environmental regulations, new information or other factors could impact the Company.


	(i) Former Manufactured Gas Plant Sites

The Company has incurred or is incurring clean-up costs at five former manufactured gas plant sites in New York and Pennsylvania. The Company reached a settlement for environmental obligations at one site during the year, and paid $4.4 million in August 2005 under the terms of the settlement agreement. The Company will continue to be responsible for future ongoing maintenance of the site. The estimated obligation for ongoing maintenance of the site is included in the $3.7 million environmental liability at September 30, 2005. At a second site in New York, the Company entered into a transfer agreement for environmental obligations at the site. Under the terms of the agreement, the Company paid $12.7 million during the year to settle its environmental obligations related to this site. At a third site, remediation is complete and long-term maintenance and monitoring activities are ongoing. A fourth site, which allegedly contains, among other things, manufactured gas plant waste, is in the investigation stage. Remediation has been completed at a fifth site; however, post-remedial construction care and maintenance is ongoing.

With regard to the payments made to settle environmental obligations for the two former manufactured gas plant sites discussed above, the Company expects to recover these clean-up costs from a combination of rate recovery and insurance proceeds.


	(ii) Third Party Waste Disposal Sites

The Company has been identified by the DEC or the United States Environmental Protection Agency as one of a number of companies considered to be PRPs with respect to two waste disposal sites in New York which were operated by unrelated third parties. The PRPs are alleged to have contributed to the materials that may have been collected at such waste disposal sites by the site operators. The ultimate cost to the Company with respect to the remediation of these sites will depend on such factors as the remediation plan selected, the extent of site contamination, the number of additional PRPs at each site and the portion of responsibility, if any, attributed to the Company. The remediation has been completed at one site, with costs subject to an ongoing final reallocation process among five PRPs. At a second waste disposal site, settlement was reached in the amount of $9.3 million to be allocated among five PRPs. The allocation process is currently being determined. Further negotiations remain in process for additional settlements related to this site.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	(iii) Other

The Company received, in 1998 and again in October 1999, notice that the DEC believes the Company is responsible for contamination discovered at an additional former manufactured gas plant site in New York. The Company, however, has not been named as a PRP. The Company responded to these notices that other companies operated that site before its predecessor did, that liability could be imposed upon it only if hazardous substances were disposed at the site during a period when the site was operated by its predecessor, and that it was unaware of any such disposal. The Company has not incurred any clean-up costs at this site nor has it been able to reasonably estimate the probability or extent of potential liability.


	*Other*

The Company, in its Utility segment, Energy Marketing segment, and All Other category, has entered into contractual commitments in the ordinary course of business, including commitments to purchase gas, transportation, and storage service to meet customer gas supply needs. Substantially all of these contracts expire within the next five years. The future gas purchase, transportation and storage contract commitments during the next five years and thereafter are as follows: $1.1 billion in 2006, $0.2 billion in 2007, $0.2 billion in 2008, $0.1 billion in 2009, $0.1 billion in 2010, and $0.1 billion thereafter. In the Utility segment, these costs are subject to state commission review, and are being recovered in customer rates. Management believes that, to the extent any stranded pipeline costs are generated by the unbundling of services in the Utility segment’s service territory, such costs will be recoverable from customers.

The Company has entered into leases for the use of buildings, vehicles, construction tools, meters, computer equipment and other items. These leases are accounted for as operating leases. The future lease commitments during the next five years and thereafter are as follows: $8.5 million in 2006, $7.4 million in 2007, $6.6 million in 2008, $5.6 million in 2009, $4.0 million in 2010, and $20.1 million thereafter.

The Company is involved in litigation arising in the normal course of its business. In addition to the regulatory matters discussed in Note B — Regulatory Matters, the Company is involved in other regulatory matters arising in the normal course of business that involve rate base, cost of service and purchased gas cost issues. While the resolution of such litigation or other regulatory matters could have a material effect on earnings and cash flows in the year of resolution, none of this litigation, and none of these other regulatory matters, are currently expected to have a material adverse effect on the financial condition of the Company.

Note H — Discontinued Operations

On July 18, 2005, the Company completed the sale of its entire 85.16% interest in U.E., a district heating and electric generation business in the Bohemia region of the Czech Republic, to Czech Energy Holdings, a.s. for sales proceeds of approximately $116.3 million. The sale resulted in the recognition of a gain of approximately $25.8 million, net of tax, at September 30, 2005. Current market conditions, including the increasing value of the Czech currency as compared to the U.S. dollar, caused the value of the assets of U.E. to increase, providing an opportunity to sell the U.E. operations at a profit for the Company. As a result of the decision to sell its majority interest in U.E., the Company has presented the Czech Republic operations, which are primarily comprised of U.E., as discontinued operations. U.E. was the major component of the Company’s International segment. With this change in presentation, the Company has discontinued all reporting for an International segment, as explained further in Note I — Business Segment Information.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is selected financial information of the discontinued operations for U.E.:


		Year Ended September 30

		2005			2004			2003

		(Thousands)
Operating Revenues		$	124,840		$	123,425		$	113,898
Operating Expenses			103,155			112,178			102,110

	Operating Income		21,685			11,247			11,788

Other Income			2,048			1,992			2,256
Interest Expense			(558	)		(838	)		(2,479	)

	Income before Income Taxes and Minority Interest		23,175			12,401			11,565

Income Tax Expense			10,331			(1,853	)		4,011
Minority Interest, Net of Taxes			2,645			1,933			785

	Income from Discontinued Operations		10,199			12,321			6,769

Gain on Disposal, Net of Taxes of $1,612			25,774			—			—

Income from Discontinued Operations		$	35,973		$	12,321		$	6,769

Note I — Business Segment Information

The Company has five reportable segments: Utility, Pipeline and Storage, Exploration and Production, Energy Marketing, and Timber. The breakdown of the Company’s operations into reportable segments is based upon a combination of factors including differences in products and services, regulatory environment and geographic factors.

The Utility segment operations are regulated by the NYPSC and the PaPUC and are carried out by Distribution Corporation. Distribution Corporation sells natural gas to retail customers and provides natural gas transportation services in western New York and northwestern Pennsylvania.

The Pipeline and Storage segment operations are regulated. The FERC regulates the operations of Supply Corporation and the NYPSC regulates the operations of Empire, an intrastate pipeline which was acquired on February 6, 2003 (see Note K — Acquisitions). Supply Corporation transports and stores natural gas for utilities (including Distribution Corporation), natural gas marketers (including NFR) and pipeline companies in the northeastern United States markets. Empire transports natural gas from the United States/ Canadian border near Buffalo, New York into Central New York just north of Syracuse, New York. Empire transports gas to major industrial companies, utilities (including Distribution Corporation) and power producers.

The Exploration and Production segment, through Seneca, is engaged in exploration for, and development and purchase of, natural gas and oil reserves in California, in the Appalachian region of the United States, in the Gulf Coast region of Texas, Louisiana and Alabama and in the provinces of Alberta, Saskatchewan and British Columbia in Canada. Seneca’s production is, for the most part, sold to purchasers located in the vicinity of its wells. On September 30, 2003, Seneca sold its southeast Saskatchewan oil and gas properties for a loss of $58.5 million, as shown in the table below for the year ended September 30, 2003. Proved reserves associated with the properties sold were 19.4 million barrels of oil and 0.3 Bcf of natural gas. When the transaction closed, the initial proceeds received were subject to an adjustment based on working capital and the resolution of certain income tax matters. In 2004, those items were resolved with the buyer and, as a result, the Company received an additional $4.6 million of sales proceeds.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Energy Marketing segment is comprised of NFR’s operations. NFR markets natural gas to industrial, commercial, public authority and residential end-users in western and central New York and northwestern Pennsylvania, offering competitively priced energy and energy management services for its customers.

The Timber segment’s operations are carried out by the Northeast division of Seneca and by Highland. This segment has timber holdings (primarily high quality hardwoods) in the northeastern United States and sawmills and kilns in Pennsylvania. On August 1, 2003, the Company sold approximately 70,000 acres of timber property in Pennsylvania and New York. A gain of $168.8 million was recognized on the sale of this timber property, as shown in the table below for the year ended September 30, 2003. During 2004, the Company received final timber cruise information of the properties it sold and, based on that information, determined that property records pertaining to $1.3 million of timber property were not properly shown as having been transferred to the purchaser. As a result, the Company removed those assets from its property records and adjusted the previously recognized gain downward by recognizing a pretax loss of $1.3 million.

The data presented in the tables below reflect the reportable segments and reconciliations to consolidated amounts. The accounting policies of the segments are the same as those described in Note A — Summary of Significant Accounting Policies. Sales of products or services between segments are billed at regulated rates or at market rates, as applicable. The Company evaluates segment performance based on income before discontinued operations, extraordinary items and cumulative effects of changes in accounting (when applicable). When these items are not applicable, the Company evaluates performance based on net income.

As disclosed in Note H — Discontinued Operations, the Company completed the sale of its majority interest in U.E., a district heating and electric generation business in the Czech Republic, on July 18, 2005. As a result of the sale of its majority interest in U.E., the Company has discontinued all reporting for an International segment and previous period segment information has been restated to reflect this change. All Czech Republic operations have been reported as discontinued operations. Any remaining international activity has been included in corporate operations.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Year Ended September 30, 2005

					Exploration						Total					Corporate and
			Pipeline		and		Energy				Reportable					Intersegment			Total
	Utility		and Storage		Production		Marketing		Timber		Segments		All Other			Eliminations			Consolidated

	(Thousands)
Revenue from External Customers	$	1,101,572	$	132,805	$	293,425	$	329,714	$	61,285	$	1,918,801	$	4,748		$	—		$	1,923,549
Intersegment Revenues	$	15,495	$	83,054	$	—	$	—	$	1	$	98,550	$	8,606		$	(107,156	)	$	—
Interest Income	$	4,111	$	76	$	4,661	$	783	$	438	$	10,069	$	19		$	(3,592	)	$	6,496
Interest Expense	$	22,900	$	7,128	$	48,856	$	11	$	2,764	$	81,659	$	1,726		$	(1,072	)	$	82,313
Depreciation, Depletion and Amortization	$	40,159	$	38,050	$	90,912	$	41	$	6,601	$	175,763	$	3,537		$	467		$	179,767
Income Tax Expense	$	23,102	$	39,068	$	28,353	$	3,210	$	2,271	$	96,004	$	(1,425	)	$	(1,601	)	$	92,978
Income from Unconsolidated Subsidiaries	$	—	$	—	$	—	$	—	$	—	$	—	$	3,362		$	—		$	3,362
Significant Non-Cash Item: Impairment of Investment in Partnership	$	—	$	—	$	—	$	—	$	—	$	—	$	(4,158	)(1)	$	—		$	(4,158	)
Segment Profit (Loss): Income (Loss) from Continuing Operations	$	39,197	$	60,454	$	50,659	$	5,077	$	5,032	$	160,419	$	(2,616	)	$	(4,288	)	$	153,515
Expenditures for Additions to Long-Lived Assets from Continuing Operations	$	50,071	$	21,099	$	122,450	$	58	$	18,894	$	212,572	$	463		$	618		$	213,653


	At September 30, 2005

	(Thousands)
Segment Assets	$	1,394,019	$	789,704	$	1,211,081	$	91,999	$	161,648	$	3,648,451	$	72,839	$	1,362	$	3,722,652


(1)	Amount represents the impairment in the value of the Company’s 50% investment in ESNE, a partnership that owns an 80-megawatt, combined cycle, natural gas-fired power plant in the town of North East, Pennsylvania.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		Year Ended September 30, 2004

						Exploration						Total				Corporate and
				Pipeline		and		Energy				Reportable				Intersegment			Total
		Utility		and Storage		Production		Marketing		Timber		Segments		All Other		Eliminations			Consolidated

		(Thousands)
Revenue from External Customers		$	1,137,288	$	122,970	$	293,698	$	284,349	$	55,968	$	1,894,273	$	13,695	$	—		$	1,907,968
Intersegment Revenues		$	15,353	$	86,737	$	—	$	—	$	2	$	102,092	$	—	$	(102,092	)	$	—
Interest Income		$	552	$	217	$	1,831	$	521	$	312	$	3,433	$	15	$	(1,677	)	$	1,771
Interest Expense		$	21,945	$	10,933	$	50,642	$	33	$	2,218	$	85,771	$	919	$	3,062		$	89,752
Depreciation, Depletion and Amortization		$	39,101	$	37,345	$	89,943	$	102	$	6,277	$	172,768	$	1,071	$	450		$	174,289
Income Tax Expense		$	31,393	$	30,968	$	28,899	$	3,964	$	3,320	$	98,544	$	829	$	(4,783	)	$	94,590
Income from Unconsolidated Subsidiaries		$	—	$	—	$	—	$	—	$	—	$	—	$	805	$	—		$	805
Significant Item:
	Loss on Sale of Timber Properties	$	—	$	—	$	—	$	—	$	1,252	$	1,252	$	—	$	—		$	1,252
Significant Item:
	Gain on Sale of Oil and Gas Producing Properties	$	—	$	—	$	4,645	$	—	$	—	$	4,645	$	—	$	—		$	4,645
Segment Profit (Loss): Income (Loss) from Continuing Operations		$	46,718	$	47,726	$	54,344	$	5,535	$	5,637	$	159,960	$	1,530	$	(7,225	)	$	154,265
Expenditures for Additions to Long-Lived Assets from Continuing Operations		$	55,449	$	23,196	$	77,654	$	10	$	2,823	$	159,132	$	200	$	5,511		$	164,843


	At September 30, 2004

	(Thousands)
Segment Assets	$	1,355,964	$	783,145	$	1,078,217	$	68,599	$	140,992	$	3,426,917	$	77,013	$	213,673	(1)	$	3,717,603


(1)	Amount includes $268,119 of assets of the former International segment, the majority of which has been discontinued with the sale of U.E. (See Note H — Discontinued Operations).

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Year Ended September 30, 2003

					Exploration							Total					Corporate and
			Pipeline		and			Energy				Reportable					Intersegment			Total
	Utility		and Storage		Production			Marketing		Timber		Segments		All Other			Eliminations			Consolidated

	(Thousands)
Revenue from External Customers	$	1,145,336	$	106,499	$	305,314		$	304,660	$	56,226	$	1,918,035	$	3,366		$	172		$	1,921,573
Intersegment Revenues	$	17,647	$	94,921	$	—		$	—	$	—	$	112,568	$	—		$	(112,568	)	$	—
Interest Income	$	1,630	$	77	$	1,119		$	692	$	319	$	3,837	$	25		$	(1,658	)	$	2,204
Interest Expense	$	29,122	$	14,000	$	53,326		$	33	$	2,507	$	98,988	$	521		$	3,068		$	102,577
Depreciation, Depletion and Amortization	$	38,186	$	35,940	$	99,292		$	117	$	7,543	$	181,078	$	238		$	13		$	181,329
Income Tax Expense	$	36,857	$	30,863	$	(17,537	)	$	3,350	$	72,692	$	126,225	$	279		$	(2,354	)	$	124,150
Income from Unconsolidated Subsidiaries	$	—	$	—	$	—		$	—	$	—	$	—	$	535		$	—		$	535
Significant Item: Gain on Sale of Timber Properties	$	—	$	—	$	—		$	—	$	168,787	$	168,787	$	—		$	—		$	168,787
Significant Item: Loss on Sale of Oil and Gas Producing Properties	$	—	$	—	$	58,472		$	—	$	—	$	58,472	$	—		$	—		$	58,472
Significant Non-Cash Item: Impairment of Oil and Gas Producing Properties	$	—	$	—	$	42,774		$	—	$	—	$	42,774	$	—		$	—		$	42,774
Segment Profit (Loss): Income (Loss) From Continuing Operations	$	56,808	$	45,230	$	(31,293	)	$	5,868	$	112,450	$	189,063	$	193		$	(8,189	)	$	181,067
Expenditures for Additions to Long-Lived Assets from Continuing Operations	$	49,944	$	199,327	$	75,837		$	164	$	3,493	$	328,765	$	48,293	(1)	$	1,883		$	378,941


	At September 30, 2003

	(Thousands)
Segment Assets	$	1,384,058	$	815,939	$	1,002,718	$	54,993	$	125,684	$	3,383,392	$	78,441	$	263,581	(2)	$	3,725,414


(1)	Amount includes the acquisition of all of the partnership interests in Toro Partners, L.P. and is disclosed in Note K — Acquisitions.

(2)	Amount includes $247,721 of assets of the former International segment, the majority of which has been discontinued with the sale of U.E. (see Note H — Discontinued Operations).


	For the Year Ended September 30

Geographic Information	2005		2004		2003

	(Thousands)
Revenues from External Customers(1):
United States	$	1,860,684	$	1,867,335	$	1,819,152
Canada		62,865		40,633		102,421

	$	1,923,549	$	1,907,968	$	1,921,573

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	At September 30

	2005		2004		2003

	(Thousands)
Long-Lived Assets:
United States	$	2,978,680	$	2,941,779	$	2,958,000
Canada		171,196		143,042		116,655
Assets of Discontinued Operations		—		228,179		219,695

	$	3,149,876	$	3,313,000	$	3,294,350


(1)	Revenue is based upon the country in which the sale originates.

Note J — Investments in Unconsolidated Subsidiaries

The Company’s unconsolidated subsidiaries consist of equity method investments in Seneca Energy, Model City and ESNE. The Company has 50% interests in each of these entities. Seneca Energy and Model City generate and sell electricity using methane gas obtained from landfills owned by outside parties. ESNE generates electricity from an 80-megawatt, combined cycle, natural gas-fired power plant in North East, Pennsylvania. ESNE sells its electricity into the New York power grid.

In September 2005, the Company recorded an impairment of $4.2 million of its equity investment in ESNE. Management believes that there is a decline in the market value of ESNE that is other than temporary in nature. This impairment was recorded in accordance with APB 18.

A summary of the Company’s investments in unconsolidated subsidiaries at September 30, 2005 and 2004 is as follows:


	At September 30

	2005		2004

	(Thousands)
ESNE	$	5,298	$	10,045
Seneca Energy		5,839		5,169
Model City		1,521		1,230

	$	12,658	$	16,444

Note K — Acquisitions

On February 6, 2003, the Company acquired Empire from a subsidiary of Duke Energy Corporation for $189.2 million in cash (including cash acquired) plus $57.8 million of project debt. Empire’s results of operations were incorporated into the Company’s consolidated financial statements for the period subsequent to the completion of the acquisition on February 6, 2003. Empire is a 157-mile, 24-inch pipeline that begins at the United States/ Canadian border at the Niagara River near Buffalo, New York, which is within the Company’s service territory, and terminates in Central New York just north of Syracuse, New York. Empire delivers natural gas supplies to major industrial companies, utilities (including the Company’s Utility segment), and power producers. Details of the acquisition are as follows (all figures in thousands):


Assets Acquired (Including $5.5 million of Goodwill)	$	257,397
Liabilities Assumed		(68,192	)
Cash Acquired at Acquisition		(8,053	)

Cash Paid, Net of Cash Acquired	$	181,152

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On June 3, 2003, the Company acquired for approximately $47.8 million in cash (including cash acquired) all of the partnership interests in Toro, which owns and operates short-distance landfill gas pipeline companies that purchase, transport and resell landfill gas to customers in six states located primarily in the Midwestern United States. Toro’s results of operations were incorporated into the Company’s consolidated financial statements for the period subsequent to the completion of the acquisition on June 3, 2003. Details of the acquisition are as follows (all figures in thousands):


Assets Acquired	$	48,319
Liabilities Assumed		(497	)
Cash Acquired at Acquisition		(160	)

Cash Paid, Net of Cash Acquired	$	47,662

Note L — Intangible Assets

As a result of the Empire and Toro acquisitions discussed in Note K — Acquisitions, the Company acquired certain intangible assets during 2003. In the case of the Empire acquisition, the intangible assets represent the fair value of various long-term transportation contracts with Empire’s customers. In the case of the Toro acquisition, the intangible assets represent the fair value of various long-term gas purchase contracts with the various landfills. These intangible assets are being amortized over the lives of the transportation and gas purchase contracts with no residual value at the end of the amortization period. The weighted-average amortization period for the gross carrying amount of the transportation contracts is 8 years. The weighted-average amortization period for the gross carrying amount of the gas purchase contracts is 20 years. Details of these intangible assets are as follows (in thousands):


		At September 30, 2005							At September 30, 2004

		Gross Carrying		Accumulated			Net Carrying
		Amount		Amortization			Amount		Net Carrying Amount

Intangible Assets Subject to Amortization:
	Long-Term Transportation Contracts	$	8,580	$	(2,851	)	$	5,729	$	6,798
	Long-Term Gas Purchase Contracts		31,864		(3,433	)		28,431		30,025
Intangible Assets Not Subject to Amortization:
	Retirement Plan Intangible Asset (see Note F)		8,142		—			8,142		9,171

		$	48,586	$	(6,284	)	$	42,302	$	45,994

Aggregate Amortization Expense
	For the Year Ended September 30, 2005	$	2,663
	For the Year Ended September 30, 2004	$	2,567
	For the Year Ended September 30, 2003	$	1,054

Amortization expense for the transportation contracts is estimated to be $1.1 million annually for 2006, 2007, and 2008. Amortization is estimated to be $0.5 million and $0.4 million for 2009 and 2010,

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

respectively. Amortization expense for the gas purchase contracts is estimated to be $1.6 million annually for 2006, 2007, 2008, 2009, and 2010.

Note M — Quarterly Financial Data (unaudited)

In the opinion of management, the following quarterly information includes all adjustments necessary for a fair statement of the results of operations for such periods. Per common share amounts are calculated using the weighted average number of shares outstanding during each quarter. The total of all quarters may differ from the per common share amounts shown on the Consolidated Statements of Income. Those per common share amounts are based on the weighted average number of shares outstanding for the entire fiscal year. As a result of the decision to sell its majority interest in U.E., the Company determined it appropriate to present the Czech Republic operations as discontinued operations beginning in June 2005. Prior quarter amounts have been reclassified to reflect this change in presentation. Because of the seasonal nature of the Company’s heating business, there are substantial variations in operations reported on a quarterly basis.


														Earnings from
														Continuing
					Income						Net Income			Operations per				Earnings per
					from			Income from			Available for			Common Share				Common Share
Quarter	Operating		Operating		Continuing			Discontinued			Common
Ended	Revenues		Income		Operations			Operations			Stock			Basic		Diluted		Basic		Diluted

	(Thousands, except per common share amounts)
2005
9/30/2005	$	287,064	$	34,926	$	18,311	(1)	$	30,900	(2)	$	49,211	(1)(2)	$	0.22	$	0.21	$	0.58	$	0.57
6/30/2005	$	400,359	$	63,028	$	26,393		$	(7,237	)(3)	$	19,156	(3)	$	0.32	$	0.31	$	0.23	$	0.23
3/31/2005	$	735,842	$	120,667	$	63,981	(4)	$	6,702		$	70,683	(4)	$	0.77	$	0.75	$	0.85	$	0.83
12/31/2004	$	500,284	$	91,741	$	44,830		$	5,608		$	50,438		$	0.54	$	0.53	$	0.61	$	0.60
2004
9/30/2004	$	267,495	$	38,364	$	13,832		$	(6,078	)	$	7,754		$	0.17	$	0.16	$	0.09	$	0.09
6/30/2004	$	396,884	$	73,682	$	32,821	(5)	$	(258	)	$	32,563	(5)	$	0.40	$	0.39	$	0.40	$	0.39
3/31/2004	$	753,225	$	133,718	$	68,078	(6)	$	8,977		$	77,055	(6)	$	0.83	$	0.82	$	0.94	$	0.93
12/31/2003	$	490,364	$	87,359	$	39,534		$	9,680	(7)	$	49,214	(7)	$	0.48	$	0.48	$	0.60	$	0.60


(1)	Includes a $3.9 million gain associated with insurance proceeds received in prior years for which a contingency was resolved during the quarter, $3.3 million of expense related to certain derivative financial instruments that no longer qualified as effective hedges, $2.7 million of expense related to the impairment of an investment in a partnership, and $1.8 million of expense related to the impairment of a gas-powered turbine.

(2)	Includes a $25.8 million gain related to the sale of U.E. and income of $6.0 million due to the reversal of deferred income taxes related to U.E.

(3)	Includes $6.0 million of previously unrecorded deferred income tax expense related to U.E.

(4)	Includes a $2.6 million gain on a FERC approved sale of base gas.

(5)	Includes expense of $0.8 million related to an adjustment to the gain on sale of timber properties recognized in 2003.

(6)	Includes expense of $6.4 million due to the recognition of a pension settlement loss and income of $4.6 million due to an adjustment to the loss on sale of oil and gas properties recognized in September 2003.

(7)	Includes income of $5.2 million related to tax rate changes in the Czech Republic.

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note N —	Market for Common Stock and Related Shareholder Matters (unaudited)

At September 30, 2005, there were 18,369 holders of Company common stock. The common stock is listed and traded on the New York Stock Exchange. Information related to restrictions on the payment of dividends can be found in Note D — Capitalization and Short-Term Borrowings. The quarterly price ranges (based on intra-day prices) and quarterly dividends declared for the fiscal years ended September 30, 2005 and 2004, are shown below:


	Price Range
					Dividends
Quarter Ended	High		Low		Declared

2005
9/30/2005	$	36.00	$	27.74	$	.29
6/30/2005	$	29.49	$	26.20	$	.29
3/31/2005	$	29.75	$	26.66	$	.28
12/31/2004	$	29.18	$	27.01	$	.28
2004
9/30/2004	$	28.43	$	24.84	$	.28
6/30/2004	$	25.57	$	23.75	$	.28
3/31/2004	$	26.48	$	24.26	$	.27
12/31/2003	$	25.01	$	21.71	$	.27

Note O — Supplementary Information for Oil and Gas Producing Activities

The following supplementary information is presented in accordance with SFAS 69, “Disclosures about Oil and Gas Producing Activities,” and related SEC accounting rules. All monetary amounts are expressed in U.S. dollars.


	*Capitalized Costs Relating to Oil and Gas Producing Activities*


	At September 30

	2005		2004

	(Thousands)
Proved Properties(1)	$	1,650,788	$	1,489,284
Unproved Properties		39,084		27,277

		1,689,872		1,516,561
Less — Accumulated Depreciation, Depletion and Amortization		721,397		609,469

	$	968,475	$	907,092


(1)	Includes asset retirement costs of $30.8 million and $22.2 million at September 30, 2005 and 2004, respectively.

Costs related to unproved properties are excluded from amortization as they represent unevaluated properties that require additional drilling to determine the existence of oil and gas reserves. Following is a summary of such costs excluded from amortization at September 30, 2005:


			Year Costs Incurred
	Total as of
	September 30, 2005		2005		2004		2003		Prior

			(Thousands)
Acquisition Costs	$	39,084	$	18,691	$	5,248	$	6,871	$	8,274

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities*


		Year Ended September 30

		2005			2004			2003

		(Thousands)
United States
Property Acquisition Costs:
	Proved	$	287		$	(8	)	$	(13	)
	Unproved		1,215			3,529			1,920
Exploration Costs			32,456			10,503			17,947
Development Costs			49,016			31,881			23,649
Asset Retirement Costs			8,051			2,292			242

			91,025			48,197			43,745

Canada
Property Acquisition Costs:
	Proved		(1,551	)		29			181
	Unproved		4,668			3,167			6,217
Exploration Costs			22,943			22,624			6,641
Development Costs			12,198			5,500			17,745
Asset Retirement Costs			292			1,218			—

			38,550			32,538			30,784

Total
Property Acquisition Costs:
	Proved		(1,264	)		21			168
	Unproved		5,883			6,696			8,137
Exploration Costs			55,399			33,127			24,588
Development Costs			61,214			37,381			41,394
Asset Retirement Costs			8,343			3,510			242

		$	129,575		$	80,735		$	74,529

For the years ended September 30, 2005, 2004 and 2003, the Company spent $19.2 million, $12.1 million and $1.7 million, respectively, developing proved undeveloped reserves.

100

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Results of Operations for Producing Activities*


		Year Ended September 30

		2005		2004		2003

		(Thousands, except per Mcfe amounts)
United States
Operating Revenues:
	Natural Gas (includes revenues from sales to affiliates of $77, $72 and $69, respectively)	$	151,004	$	151,570	$	148,104
	Oil, Condensate and Other Liquids		160,145		139,301		118,277

Total Operating Revenues(1)			311,149		290,871		266,381
Production/ Lifting Costs			38,442		39,677		39,162
Accretion Expense			2,220		1,756		1,800
Depreciation, Depletion and Amortization ($1.58, $1.41 and $1.29 per Mcfe of production)			67,097		73,396		70,127
Income Tax Expense			74,110		65,337		62,672

Results of Operations for Producing Activities (excluding corporate overheads and interest charges)			129,280		110,705		92,620

101

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		Year Ended September 30

		2005		2004		2003

		(Thousands, except per Mcfe amounts)
Canada
Operating Revenues:
	Natural Gas		49,275		30,359		26,992
	Oil, Condensate and Other Liquids		12,875		10,018		62,908

Total Operating Revenues(1)			62,150		40,377		89,900
Production/ Lifting Costs			12,683		8,176		33,038
Accretion Expense			228		177		802
Depreciation, Depletion and Amortization ($2.36, $1.83 and $1.30 per Mcfe of production)			23,108		14,922		26,165
Impairment of Oil and Gas Producing Properties(2)			—		—		42,774
Income Tax Expense (Benefit)			8,577		5,235		(3,273	)

Results of Operations for Producing Activities (excluding corporate overheads and interest charges)			17,554		11,867		(9,606	)

Total
Operating Revenues:
	Natural Gas (includes revenues from sales to affiliates of $77, $72 and $69, respectively)		200,279		181,929		175,096
	Oil, Condensate and Other Liquids		173,020		149,319		181,185

Total Operating Revenues(1)			373,299		331,248		356,281
Production/ Lifting Costs			51,125		47,853		72,200
Accretion Expense			2,448		1,933		2,602
Depreciation, Depletion and Amortization ($1.72, $1.47 and $1.30 per Mcfe of production)			90,205		88,318		96,292
Impairment of Oil and Gas Producing Properties(2)			—		—		42,774
Income Tax Expense			82,687		70,572		59,399

Results of Operations for Producing Activities (excluding corporate overheads and interest charges)		$	146,834	$	122,572	$	83,014


(1)	Exclusive of hedging gains and losses. See further discussion in Note E — Financial Instruments

(2)	See discussion of impairment in Note A — Summary of Significant Accounting Policies


	*Reserve Quantity Information (unaudited)*

The Company’s proved oil and gas reserves are located in the United States and Canada. The estimated quantities of proved reserves disclosed in the table below are based upon estimates by qualified Company geologists and engineers and are audited by independent petroleum engineers. Such estimates are inherently imprecise and may be subject to substantial revisions as a result of numerous factors including, but not

102

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions.


	Gas MMcf

	U. S.

	Gulf Coast			West Coast			Appalachian			Total						Total
	Region			Region			Region			U.S.			Canada			Company

Proved Developed and Undeveloped Reserves:
September 30, 2002		57,864			73,316			78,274			209,454			48,767			258,221
Extensions and Discoveries		10,538			—			5,844			16,382			11,641			28,023
Revisions of Previous Estimates		(2,278	)		1,213			2,224			1,159			(2,211	)		(1,052	)
Production		(18,441	)		(4,467	)		(5,123	)		(28,031	)		(5,774	)		(33,805	)
Sales of Minerals in Place		—			—			—			—			(270	)		(270	)

September 30, 2003		47,683			70,062			81,219			198,964			52,153			251,117
Extensions and Discoveries		2,632			—			3,784			6,416			15,925			22,341
Revisions of Previous Estimates		(4,984	)		1,831			(1,111	)		(4,264	)		(11,004	)		(15,268	)
Production		(17,596	)		(4,057	)		(5,132	)		(26,785	)		(6,228	)		(33,013	)
Sales of Minerals in Place		(1	)		(392	)		—			(393	)		—			(393	)

September 30, 2004		27,734			67,444			78,760			173,938			50,846			224,784
Extensions and Discoveries		17,165			—			5,461			22,626			4,849			27,475
Revisions of Previous Estimates		6,039			7,067			3,733			16,839			(1,600	)		15,239
Production		(12,468	)		(4,052	)		(4,650	)		(21,170	)		(8,009	)		(29,179	)
Sales of Minerals in Place		—			—			(179	)		(179	)		—			(179	)

September 30, 2005		38,470			70,459			83,125			192,054			46,086			238,140

Proved Developed Reserves:
September 30, 2002		57,274			57,286			78,273			192,833			39,253			232,086
September 30, 2003		45,402			54,180			81,218			180,800			42,745			223,545
September 30, 2004		25,827			53,035			78,760			157,622			46,223			203,845
September 30, 2005		23,108			58,692			83,125			164,925			43,980			208,905

103

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Oil Mbbl

	U.S.

	Gulf Coast			West Coast			Appalachian			Total						Total
	Region			Region			Region			U.S.			Canada			Company

Proved Developed and Undeveloped Reserves:
September 30, 2002		5,117			66,909			94			72,120			27,597			99,717
Extensions and Discoveries		104			—			46			150			729			879
Revisions of Previous Estimates		(365	)		(185	)		8			(542	)		(4,119	)		(4,661	)
Production		(1,473	)		(2,872	)		(10	)		(4,355	)		(2,382	)		(6,737	)
Sales of Minerals in Place		—			—			—			—			(19,434	)		(19,434	)

September 30, 2003		3,383			63,852			138			67,373			2,391			69,764
Extensions and Discoveries		19			—			18			37			181			218
Revisions of Previous Estimates		213			(17	)		11			207			(144	)		63
Production		(1,534	)		(2,650	)		(20	)		(4,204	)		(324	)		(4,528	)
Sales of Minerals in Place		(1	)		(303	)		—			(304	)		—			(304	)

September 30, 2004		2,080			60,882			147			63,109			2,104			65,213
Extensions and Discoveries		99			—			63			162			204			366
Revisions of Previous Estimates		105			(1,253	)		3			(1,145	)		(186	)		(1,331	)
Production		(989	)		(2,544	)		(36	)		(3,569	)		(300	)		(3,869	)
Sales of Minerals in Place		—			—			—			—			(122	)		(122	)

September 30, 2005		1,295			57,085			177			58,557			1,700			60,257

Proved Developed Reserves:
September 30, 2002		5,111			41,735			94			46,940			24,100			71,040
September 30, 2003		2,533			40,079			139			42,751			2,391			45,142
September 30, 2004		2,061			38,631			148			40,840			2,104			42,944
September 30, 2005		1,229			41,701			177			43,107			1,700			44,807

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves (unaudited)

The Company cautions that the following presentation of the standardized measure of discounted future net cash flows is intended to be neither a measure of the fair market value of the Company’s oil and gas properties, nor an estimate of the present value of actual future cash flows to be obtained as a result of their development and production. It is based upon subjective estimates of proved reserves only and attributes no value to categories of reserves other than proved reserves, such as probable or possible reserves, or to unproved acreage. Furthermore, it is based on year-end prices and costs adjusted only for existing contractual changes, and it assumes an arbitrary discount rate of 10%. Thus, it gives no effect to future price and cost changes certain to occur under widely fluctuating political and economic conditions.

104

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The standardized measure is intended instead to provide a means for comparing the value of the Company’s proved reserves at a given time with those of other oil- and gas-producing companies than is provided by a simple comparison of raw proved reserve quantities.


			Year Ended September 30

			2005		2004		2003

			(Thousands)
United States
Future Cash Inflows			$	6,138,522	$	3,728,168	$	2,684,286
	Less:
		Future Production Costs		777,417		676,361		579,321
		Future Development Costs		188,795		124,298		116,639
		Future Income Tax Expense at Applicable Statutory Rate		1,868,548		995,327		613,893

Future Net Cash Flows				3,303,762		1,932,182		1,374,433
	Less:
		10% Annual Discount for Estimated Timing of Cash Flows		1,812,230		996,813		641,185

		Standardized Measure of Discounted Future Net Cash Flows		1,491,532		935,369		733,248

Canada
Future Cash Inflows				601,210		343,026		279,772
	Less:
		Future Production Costs		136,338		111,519		85,817
		Future Development Costs		12,197		13,222		9,787
		Future Income Tax Expense at Applicable Statutory Rate		137,524		60,610		58,436

	Future Net Cash Flows			315,151		157,675		125,732
	Less:
		10% Annual Discount for Estimated Timing of Cash Flows		108,508		46,945		40,575

		Standardized Measure of Discounted Future Net Cash Flows		206,643		110,730		85,157

Total
Future Cash Inflows				6,739,732		4,071,194		2,964,058
	Less:
		Future Production Costs		913,755		787,880		665,138
		Future Development Costs		200,992		137,520		126,426
		Future Income Tax Expense at Applicable Statutory Rate		2,006,072		1,055,937		672,329

	Future Net Cash Flows			3,618,913		2,089,857		1,500,165

105

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		Year Ended September 30

		2005		2004		2003

		(Thousands)
Less:
	10% Annual Discount for Estimated Timing of Cash Flows		1,920,738		1,043,758		681,760

	Standardized Measure of Discounted Future Net Cash Flows	$	1,698,175	$	1,046,099	$	818,405

The principal sources of change in the standardized measure of discounted future net cash flows were as follows:


			Year Ended September 30

			2005			2004			2003

			(Thousands)
United States
Standardized Measure of Discounted Future
	Net Cash Flows at Beginning of Year		$	935,369		$	733,248		$	781,087
		Sales, Net of Production Costs		(272,707	)		(251,194	)		(227,219	)
		Net Changes in Prices, Net of Production Costs		1,093,353			592,326			11,130
		Purchases of Minerals in Place		—			—			—
		Sales of Minerals in Place		(762	)		(5,554	)		—
		Extensions and Discoveries		100,102			16,638			29,266
		Changes in Estimated Future Development Costs		(89,805	)		(40,042	)		(35,062	)
		Previously Estimated Development Costs Incurred		25,038			32,653			36,423
		Net Change in Income Taxes at Applicable Statutory Rate		(362,956	)		(166,055	)		24,796
		Revisions of Previous Quantity Estimates		25,055			(5,107	)		(3,572	)
		Accretion of Discount and Other		38,845			28,456			116,399

Standardized Measure of Discounted Future Net Cash Flows at End of Year				1,491,532			935,369			733,248

106

NATIONAL FUEL GAS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		Year Ended September 30

		2005			2004			2003

		(Thousands)
Canada
Standardized Measure of Discounted Future Net Cash Flows at Beginning of Year			110,730			85,157			245,095
	Sales, Net of Production Costs		(49,467	)		(32,201	)		(56,862	)
	Net Changes in Prices, Net of Production Costs		174,985			29,230			8,167
	Purchases of Minerals in Place		—			—			—
	Sales of Minerals in Place		(3,751	)		—			(120,960	)
	Extensions and Discoveries		31,028			36,986			28,241
	Changes in Estimated Future Development Costs		(11,007	)		(8,491	)		(14,045	)
	Previously Estimated Development Costs Incurred		12,032			5,055			29,657
	Net Change in Income Taxes at Applicable Statutory Rate		(51,541	)		(2,640	)		(6,280	)
	Revisions of Previous Quantity Estimates		(5,990	)		(19,369	)		(41,205	)
	Accretion of Discount and Other		(376	)		17,003			13,349

Standardized Measure of Discounted Future Net Cash Flows at End of Year			206,643			110,730			85,157

Total
Standardized Measure of Discounted Future Net Cash Flows at Beginning of Year			1,046,099			818,405			1,026,182
	Sales, Net of Production Costs		(322,174	)		(283,395	)		(284,081	)
	Net Changes in Prices, Net of Production Costs		1,268,338			621,556			19,297
	Purchases of Minerals in Place		—			—			—
	Sales of Minerals in Place		(4,513	)		(5,554	)		(120,960	)
	Extensions and Discoveries		131,130			53,624			57,507
	Changes in Estimated Future Development Costs		(100,812	)		(48,533	)		(49,107	)
	Previously Estimated Development Costs Incurred		37,070			37,708			66,080
	Net Change in Income Taxes at Applicable Statutory Rate		(414,497	)		(168,695	)		18,516
	Revisions of Previous Quantity Estimates		19,065			(24,476	)		(44,777	)
	Accretion of Discount and Other		38,469			45,459			129,748

Standardized Measure of Discounted Future Net Cash Flows at End of Year		$	1,698,175		$	1,046,099		$	818,405


Note P —	Subsequent Event

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. It is expected that this share repurchase program will be funded with cash provided by operating activities and/or through the use of the Company’s bi-lateral lines of credit. The timing of repurchases will depend on market conditions.

107

Schedule II — Valuation and Qualifying Accounts


			Additions			Additions
	Balance at		Charged to			Charged to				Balance at
	Beginning		Costs and			Other				End of
Description	of Period		Expenses			Accounts(1)		Deductions(2)		Period

	(Thousands)
Year Ended September 30, 2005
Reserve for Doubtful Accounts	$	17,440	$	31,113		$	2,480	$	24,093	$	26,940
Deferred Tax Valuation Allowance	$	2,877	$	—		$	—	$	—	$	2,877

Year Ended September 30, 2004
Reserve for Doubtful Accounts	$	17,943	$	20,328		$	—	$	20,831	$	17,440
Deferred Tax Valuation Allowance	$	6,357	$	(3,480	)	$	—	$	—	$	2,877

Year Ended September 30, 2003
Reserve for Doubtful Accounts	$	17,299	$	17,275		$	—	$	16,631	$	17,943
Deferred Tax Valuation Allowance	$	—	$	6,357		$	—	$	—	$	6,357


(1)	Represents amounts reclassified from regulatory asset and regulatory liability accounts under various rate settlements ($4.5 million). Also includes amounts removed with the sale of U.E. (-$2.02 million).

(2)	Amounts represent net accounts receivable written-off.


Item 9	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

None


Item 9A	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. The Company’s management, including the Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Management’s Report on Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (GAAP). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2005. In making this assessment, management used the framework and criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal

108

Control — Integrated Framework. Based on this assessment, management concluded that the Company maintained effective internal control over financial reporting as of September 30, 2005.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2005 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm that also audited the Company’s consolidated financial statements, and their report appears in Part II, Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


Item 9B	*Other Information*

None

PART III


Item 10	*Directors and Executive Officers of the Registrant*

The information required by this item concerning the directors of the Company is omitted pursuant to Instruction G of Form 10-K since the Company’s definitive Proxy Statement for its February 16, 2006 Annual Meeting of Shareholders will be filed with the SEC not later than 120 days after September 30, 2005. The information concerning directors is set forth in the definitive Proxy Statement under the headings entitled “Nominees for Election as Directors for Three-Year Terms to Expire in 2009,” “Directors Whose Terms Expire in 2008,” “Directors Whose Terms Expire in 2007,” and “Compliance with Section 16(a) of the Securities Exchange Act of 1934” and is incorporated herein by reference. Information concerning the Company’s executive officers can be found in Part I, Item 1, of this report.

The Company has adopted a Code of Business Conduct and Ethics that applies to the Company’s directors, officers and employees and has posted such Code of Business Conduct and Ethics on the Company’s website, www.nationalfuelgas.com , together with certain other corporate governance documents. Copies of the Company’s Code of Business Conduct and Ethics, charters of important committees, and Corporate Governance Guidelines will be made available free of charge upon written request to Investor Relations, National Fuel Gas Company, 6363 Main Street, Williamsville, New York 14221.

The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of its code of ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of the code of ethics definition enumerated in paragraph (b) of Item 406 of the SEC’s Regulation S-K by posting such information on its website, www.nationalfuelgas.com.


Item 11	*Executive Compensation*

The information required by this item is omitted pursuant to Instruction G of Form 10-K since the Company’s definitive Proxy Statement for its February 16, 2006 Annual Meeting of Shareholders will be filed with the SEC not later than 120 days after September 30, 2005. The information concerning executive compensation is set forth in the definitive Proxy Statement under the headings “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” and, excepting the “Report of the Compensation Committee” and the “Corporate Performance Graph,” is incorporated herein by reference.

109


Item 12	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

Equity Compensation Plan Information

The information required by this item is omitted pursuant to Instruction G of Form 10-K since the Company’s definitive Proxy Statement for its February 16, 2006 Annual Meeting of Shareholders will be filed with the SEC not later than 120 days after September 30, 2005. The equity compensation plan information is set forth in the definitive Proxy Statement under the heading “Equity Compensation Plan Information” and is incorporated herein by reference.

Security Ownership and Changes in Control

(a) Security Ownership of Certain Beneficial Owners

The information required by this item is omitted pursuant to Instruction G of Form 10-K since the Company’s definitive Proxy Statement for its February 16, 2006 Annual Meeting of Shareholders will be filed with the SEC not later than 120 days after September 30, 2005. The information concerning security ownership of certain beneficial owners is set forth in the definitive Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.

(b) Security Ownership of Management

The information required by this item is omitted pursuant to Instruction G of Form 10-K since the Company’s definitive Proxy Statement for its February 16, 2006 Annual Meeting of Shareholders will be filed with the SEC not later than 120 days after September 30, 2005. The information concerning security ownership of management is set forth in the definitive Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.

(c) Changes in Control

None


Item 13	*Certain Relationships and Related Transactions*

The information required by this item is omitted pursuant to Instruction G of Form 10-K since the Company’s definitive Proxy Statement for its February 16, 2006 Annual Meeting of Shareholders will be filed with the SEC not later than 120 days after September 30, 2005. The information regarding certain relationships and related transactions is set forth in the definitive Proxy Statement under the heading “Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference.


Item 14	*Principal Accountant Fees and Services*

The information required by this item is omitted pursuant to Instruction G of Form 10-K since the Company’s definitive Proxy Statement for its February 16, 2006 Annual Meeting of Shareholders will be filed with the SEC not later than 120 days after September 30, 2005. The information concerning principal accountant fees and services is set forth in the definitive Proxy Statement under the heading “Audit Fees” and is incorporated herein by reference.

PART IV


Item 15	*Exhibits and Financial Statement Schedules*

(a)1. Financial Statements

Financial statements filed as part of this report are listed in the index included in Item 8 of this Form 10-K, and reference is made thereto.

110

(a)2. Financial Statement Schedules

Financial statement schedules filed as part of this report are listed in the index included in Item 8 of this Form 10-K, and reference is made thereto.

(a)3. Exhibits


Exhibit
Number		Description of Exhibits

	3(i)	Articles of Incorporation:
	•	Restated Certificate of Incorporation of National Fuel Gas Company dated September 21, 1998 (Exhibit 3.1, Form 10-K for fiscal year ended September 30, 1998 in File No. 1-3880)
	•	Certificate of Amendment of Restated Certificate of Incorporation (Exhibit 3(ii), Form 8-K dated March 14, 2005 in File No. 1-3880)
	3(ii)	By-Laws:
	•	National Fuel Gas Company By-Laws as amended on December 9, 2004 (Exhibit 3(ii), Form 8-K dated December 9, 2004 in File No. 1-3880)
	(4)	Instruments Defining the Rights of Security Holders, Including Indentures:
	•	Indenture, dated as of October 15, 1974, between the Company and The Bank of New York (formerly Irving Trust Company) (Exhibit 2(b) in File No. 2-51796)
	•	Third Supplemental Indenture, dated as of December 1, 1982,to Indenture dated as of October 15, 1974, between the Company and The Bank of New York (formerly Irving Trust Company) (Exhibit 4(a)(4) in File No. 33-49401)
	•	Eleventh Supplemental Indenture, dated as of May 1, 1992, to Indenture dated as of October 15, 1974, between the Company and The Bank of New York (formerly Irving Trust Company) (Exhibit 4(b), Form 8-K dated February 14, 1992 in File No. 1-3880)
	•	Twelfth Supplemental Indenture, dated as of June 1, 1992, to Indenture dated as of October 15, 1974, between the Company and The Bank of New York (formerly Irving Trust Company) (Exhibit 4(c), Form 8-K dated June 18, 1992 in File No. 1-3880)
	•	Thirteenth Supplemental Indenture, dated as of March 1,1993, to Indenture dated as of October 15, 1974, between the Company and The Bank of New York (formerly Irving Trust Company) (Exhibit 4(a)(14) in File No. 33-49401)
	•	Fourteenth Supplemental Indenture, dated as of July 1, 1993,to Indenture dated as of October 15, 1974, between the Company and The Bank of New York (formerly Irving Trust Company) (Exhibit 4.1, Form 10-K for fiscal year ended September 30, 1993 in File No. 1-3880)
	•	Fifteenth Supplemental Indenture, dated as of September 1,1996, to Indenture dated as of October 15, 1974, between the Company and The Bank of New York (formerly Irving Trust Company) (Exhibit 4.1, Form 10-K for fiscal year ended September 30, 1996 in File No. 1-3880)
	•	Indenture dated as of October 1, 1999, between the Company and The Bank of New York (Exhibit 4.1, Form 10-K for fiscal year ended September 30, 1999 in File No. 1-3880)
	•	Officers Certificate Establishing Medium-Term Notes, dated October 14, 1999 (Exhibit 4.2, Form 10-K for fiscal year ended September 30, 1999 in File No. 1-3880)
	•	Amended and Restated Rights Agreement, dated as of April 30,1999, between the Company and HSBC Bank USA (Exhibit 10.2, Form 10-Q for the quarterly period ended March 31, 1999 in File No. 1-3880)
	•	Certificate of Adjustment, dated September 7, 2001, to the Amended and Restated Rights Agreement dated as of April 30,1999, between the Company and HSBC Bank USA (Exhibit 4, Form 8-K dated September 7, 2001 in File No. 1-3880)
	•	Officers Certificate establishing 6.50% Notes due 2022, dated September 18, 2002 (Exhibit 4, Form 8-K dated October 3, 2002 in File No. 1-3880)

111


Exhibit
Number			Description of Exhibits

	•		Officers Certificate establishing 5.25% Notes due 2013, dated February 18, 2003 (Exhibit 4, Form 10-Q for the quarterly period ended March 31, 2003 in File No. 1-3880)
	(10)		Material Contracts:
	(ii)		Contracts upon which the Company’s business is substantially dependent:
	10	.1	Credit Agreement, dated as of August 19, 2005, among the Company, the Lenders Party Thereto and JPMorgan Chase Bank, N.A., as Administrative Agent
	(iii)		Compensatory plans for officers:
	•		Form of Employment Continuation and Noncompetition Agreement, dated as of December 11, 1998, among the Company, National Fuel Gas Distribution Corporation and each of Philip C. Ackerman, Anna Marie Cellino, Paula M, Ciprich, Donna L. DeCarolis, James D. Ramsdell, Dennis J. Seeley, David F. Smith and Ronald J. Tanski (Exhibit 10.1, Form 10-Q for the quarterly period ended June 30, 1999 in File No. 1-3880)
	•		Form of Employment Continuation and Noncompetition Agreement, dated as of December 11, 1998, among the Company, National Fuel Gas Supply Corporation and John R. Pustulka (Exhibit 10.2, Form 10-Q for the quarterly period ended June 30, 1999 in File No. 1-3880)
	•		Form of Employment Continuation and Noncompetition Agreement, dated as of December 11, 1998, among the Company, Seneca Resources Corporation and James A. Beck (Exhibit 10.3, Form 10-Q for the quarterly period ended June 30, 1999 in File No. 1-3880)
	•		National Fuel Gas Company 1993 Award and Option Plan, dated February 18, 1993 (Exhibit 10.1, Form 10-Q for the quarterly period ended March 31, 1993 in File No. 1-3880)
	•		Amendment to National Fuel Gas Company 1993 Award and Option Plan, dated October 27, 1995 (Exhibit 10.8, Form 10-K for fiscal year ended September 30, 1995 in File No. 1-3880)
	•		Amendment to National Fuel Gas Company 1993 Award and Option Plan, dated December 11, 1996 (Exhibit 10.8, Form 10-K for fiscal year ended September 30, 1996 in File No. 1-3880)
	•		Amendment to National Fuel Gas Company 1993 Award and Option Plan, dated December 18, 1996 (Exhibit 10, Form 10-Q for the quarterly period ended December 31, 1996 in File No. 1-3880)
	•		National Fuel Gas Company 1993 Award and Option Plan, amended through June 14, 2001 (Exhibit 10.1, Form 10-K for fiscal year ended September 30, 2001 in File No. 1-3880)
	10	.2	National Fuel Gas Company 1993 Award and Option Plan, amended through September 8, 2005
	•		Administrative Rules with Respect to At Risk Awards under the 1993 Award and Option Plan (Exhibit 10.14, Form 10-K for fiscal year ended September 30, 1996 in File No. 1-3880)
	10	.3	National Fuel Gas Company 1997 Award and Option Plan, amended through September 8, 2005
	•		Form of Award Notice under National Fuel Gas Company 1997 Award and Option Plan (Exhibit 10.1, Form 8-K dated March 28, 2005 in File No. 1-3880)
	10	.4	Administrative Rules with Respect to At Risk Awards under the 1997 Award and Option Plan amended and restated as of September 8, 2005
	•		Description of performance goals for Chief Executive Officer under the Company’s Annual At Risk Compensation Incentive Program (Exhibit 10, Form 10-Q for the quarterly period ended December 31, 2004 in File No. 1-3880)
	•		Administrative Rules of the Compensation Committee of the Board of Directors of National Fuel Gas Company, as amended and restated, effective March 9, 2005 (Exhibit 10.2, Form 10-Q for the quarterly period ended March 31, 2005 in File No. 1-3880)
	•		National Fuel Gas Company Deferred Compensation Plan, as amended and restated through May 1, 1994 (Exhibit 10.7, Form 10-K for fiscal year ended September 30, 1994 in File No. 1-3880)
	•		Amendment to National Fuel Gas Company Deferred Compensation Plan, dated September 27, 1995 (Exhibit 10.9, Form 10-K for fiscal year ended September 30, 1995 in File No. 1-3880)
	•		Amendment to National Fuel Gas Company Deferred Compensation Plan, dated September 19, 1996 (Exhibit 10.10, Form 10-K for fiscal year ended September 30, 1996 in File No. 1-3880)

112


Exhibit
Number			Description of Exhibits

	•		National Fuel Gas Company Deferred Compensation Plan, as amended and restated through March 20, 1997 (Exhibit 10.3, Form 10-K for fiscal year ended September 30, 1997 in File No. 1-3880)
	•		Amendment to National Fuel Gas Company Deferred Compensation Plan, dated June 16, 1997 (Exhibit 10.4, Form 10-K for fiscal year ended September 30, 1997 in File No. 1-3880)
	•		Amendment No. 2 to the National Fuel Gas Company Deferred Compensation Plan, dated March 13, 1998 (Exhibit 10.1, Form 10-K for fiscal year ended September 30, 1998 in File No. 1-3880)
	•		Amendment to the National Fuel Gas Company Deferred Compensation Plan, dated February 18, 1999 (Exhibit 10.1, Form 10-Q for the quarterly period ended March 31, 1999 in File No. 1-3880)
	•		Amendment to National Fuel Gas Company Deferred Compensation Plan, dated June 15, 2001 (Exhibit 10.3, Form 10-K for fiscal year ended September 30, 2001 in File No. 1-3880)
	10	.5	Amendment to the National Fuel Gas Company Deferred Compensation Plan, dated October 21, 2005
	10	.6	Form of Letter Regarding Deferred Compensation Plan and Internal Revenue Code Section 409A, dated July 12, 2005
	•		National Fuel Gas Company Tophat Plan, effective March 20, 1997 (Exhibit 10, Form 10-Q for the quarterly period ended June 30, 1997 in File No. 1-3880)
	•		Amendment No. 1 to National Fuel Gas Company Tophat Plan, dated April 6, 1998 (Exhibit 10.2, Form 10-K for fiscal year ended September 30, 1998 in File No. 1-3880)
	•		Amendment No. 2 to National Fuel Gas Company Tophat Plan, dated December 10, 1998 (Exhibit 10.1, Form 10-Q for the quarterly period ended December 31, 1998 in File No. 1-3880)
	10	.7	Form of Letter Regarding Tophat Plan and Internal Revenue Code Section 409A, dated July 12, 20055
	•		Amended Restated Split Dollar Insurance Agreement, effective June 15, 2000, among the Company, Bernard J. Kennedy, and Joseph B. Kennedy, as Trustee of the Trust under the Agreement dated January 9, 1998 (Exhibit 10.1, Form 10-Q for the quarterly period ended June 30, 2000 in File No. 1- 3880)
	•		Contingent Benefit Agreement effective June 15, 2000, between the Company and Bernard J. Kennedy (Exhibit 10.2, Form 10-Q for the quarterly period ended June 30, 2000 in File No. 1-3880
	•		Amended and Restated Split Dollar Insurance and Death Benefit Agreement, dated September 17, 1997 between the Company and Philip C. Ackerman (Exhibit 10.5, Form 10-K for fiscal year ended September 30, 1997 in File No. 1-3880)
	•		Amendment Number 1 to Amended and Restated Split Dollar Insurance and Death Benefit Agreement by and between the Company and Philip C. Ackerman, dated March 23, 1999 (Exhibit 10.3, Form 10-K for fiscal year ended September 30, 1999 in File No. 1-3880)
	•		Amended and Restated Split Dollar Insurance and Death Benefit Agreement, dated September 15, 1997, between the Company and Dennis J. Seeley (Exhibit 10.9, Form 10-K for fiscal year ended September 30, 1999 in File No. 1-3880)
	•		Amendment Number 1 to Amended and Restated Split Dollar Insurance and Death Benefit Agreement by and between the Company and Dennis J. Seeley, dated March 29, 1999 (Exhibit 10.10, Form 10-K for fiscal year ended September 30, 1999 in File No. 1-3880)
	•		Split Dollar Insurance and Death Benefit Agreement dated September 15, 1997, between the Company and Bruce H. Hale (Exhibit 10.11, Form 10-K for fiscal year ended September 30, 1999 in File No. 1-3880)
	•		Amendment Number 1 to Split Dollar Insurance and Death Benefit Agreement by and between the Company and Bruce H. Hale, dated March 29, 1999 (Exhibit 10.12, Form 10-K for fiscal year ended September 30, 1999 in File No. 1-3880)
	•		Split Dollar Insurance and Death Benefit Agreement, dated September 15, 1997, between the Company and David F. Smith (Exhibit 10.13, Form 10-K for fiscal year ended September 30, 1999 in File No. 1-3880)

113


Exhibit
Number			Description of Exhibits

	•		Amendment Number 1 to Split Dollar Insurance and Death Benefit Agreement by and between the Company and David F. Smith, dated March 29, 1999 (Exhibit 10.14, Form 10-K for fiscal year ended September 30, 1999 in File No. 1-3880)
	•		National Fuel Gas Company Parameters for Executive Life Insurance Plan (Exhibit 10.1, Form 10-K for fiscal year ended September 30, 2004 in File No. 1-3880)
	•		National Fuel Gas Company and Participating Subsidiaries Executive Retirement Plan as amended and restated through November 1, 1995 (Exhibit 10.10, Form 10-K for fiscal year ended September 30, 1995 in File No. 1-3880)
	•		Amendments to National Fuel Gas Company and Participating Subsidiaries Executive Retirement Plan, dated September 18, 1997 (Exhibit 10.9, Form 10-K for fiscal year ended September 30, 1997 in File No. 1-3880)
	•		Amendments to National Fuel Gas Company and Participating Subsidiaries Executive Retirement Plan, dated December 10, 1998 (Exhibit 10.2, Form 10-Q for the quarterly period ended December 31, 1998 in File No. 1-3880)
	•		Amendments to National Fuel Gas Company and Participating Subsidiaries Executive Retirement Plan, effective September 16, 1999 (Exhibit 10.15, Form 10-K for fiscal year ended September 30, 1999 in File No. 1-3880)
	•		Amendment to National Fuel Gas Company and Participating Subsidiaries Executive Retirement Plan, effective September 5, 2001 (Exhibit 10.4, Form 10-K/A for fiscal year ended September 30, 2001, in File No. 1-3880)
	•		National Fuel Gas Company and Participating Subsidiaries 1996 Executive Retirement Plan Trust Agreement (II), dated May 10, 1996 (Exhibit 10.13, Form 10-K for fiscal year ended September 30, 1996 in File No. 1-3880)
	•		National Fuel Gas Company Participating Subsidiaries Executive Retirement Plan 2003 Trust Agreement (I), dated September 1, 2003 (Exhibit 10.2, Form 10-K for fiscal year ended September 30, 2004 in File No. 1-3880)
	•		National Fuel Gas Company Performance Incentive Program (Exhibit 10.1, Form 8-K dated June 3, 2005 in File No. 1-3880)
	•		Excerpts of Minutes from the National Fuel Gas Company Board of Directors Meeting of March 20, 1997 regarding the Retainer Policy for Non-Employee Directors (Exhibit 10.11, Form 10-K for fiscal year ended September 30, 1997 in File No. 1-3880)
	•		Retirement Benefit Agreement for David F. Smith, dated September 22, 2003,between the Company and David F. Smith (Exhibit 10.2, Form 10-K for fiscal year ended September 30, 2003 in File No. 1-3880)
	10	.8	Amendment No. 1 to the Retirement Benefit Agreement for David F. Smith, dated September 8, 2005, between the Company and David F. Smith
	•		Description of performance goals for certain executive officers (Exhibit 10.1, Form 10-Q for the quarterly period ended March 31, 2005 in File No. 1-3880)
	•		Retirement and Consulting Agreement, dated September 5, 2001, between the Company and Bernard J. Kennedy (Exhibit 10.4, Form 10-K for fiscal year ended September 30, 2004 in File No. 1-3880)
	•		Retirement Supplement Agreement, dated January 11, 2002, between the Company and Joseph P. Pawlowski (Exhibit 10.6, Form 10-K/A for fiscal year ended September 30, 2001 in File No. 1-3880)
	•		Amendment No. 1 to Retirement Supplement Agreement, dated March 11, 2004, between the Company and Joseph P. Pawlowski (Exhibit 10(iii), Form 10-Q for the quarterly period ended March 31, 2004 in File No. 1-3880)
	10	.9	Retirement Agreement, dated August 1, 2005, between the Company and Bruce H. Hale
	10	.10	Commission Agreement, dated August 1, 2005, between the Company and Bruce H. Hale
	(12	)	Statements regarding Computation of Ratios: Ratio of Earnings to Fixed Charges for the fiscal years ended September 30, 2001 through 2005
	(21	)	Subsidiaries of the Registrant: See Item 1 of Part I of this Annual Report on Form 10-K

114


Exhibit
Number			Description of Exhibits

	(23	)	Consents of Experts:
	23	.1	Consent of Ralph E. Davis Associates, Inc. regarding Seneca Resources Corporation
	23	.2	Consent of Ralph E. Davis Associates, Inc. regarding Seneca Energy Canada, Inc.
	23	.3	Consent of Independent Registered Public Accounting Firm
	(31	)	Rule 13a-15(e)/15d-15(e) Certifications
	31	.1	Written statements of Chief Executive Officer pursuant to Rule 13a-15(e)/15d-15(e) of the Exchange Act.
	31	.2	Written statements of Principal Financial Officer pursuant to Rule 13a-15(e)/15d-15(e) of the Exchange Act.
	(32	)	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	(99	)	Additional Exhibits:
	99	.1	Report of Ralph E. Davis Associates, Inc. regarding Seneca Resources Corporation
	99	.2	Report of Ralph E. Davis Associates, Inc. regarding Seneca Energy Canada, Inc.
	99	.3	Company Maps
	•		The Company agrees to furnish to the SEC upon request the following instruments with respect to long-term debt that the Company has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A):
			Secured Credit Agreement, dated as of June 5, 1997, among the Empire State Pipeline, as borrower, Empire State Pipeline, Inc., the Lenders party thereto, JPMorgan Chase Bank (f/k/a The Chase Manhattan Bank), as administrative agent, and Chase Securities, as arranger.
			First Amendment to Secured Credit Agreement, dated as of May 28, 2002, among Empire State Pipeline, as borrower, Empire State Pipeline, Inc., St. Clair Pipeline Company, Inc., the Lenders party to the Secured Credit Agreement, and JPMorgan Chase Bank, as administrative agent.
			Second Amendment to Secured Credit Agreement, dated as of February 6, 2003, among Empire State Pipeline, as borrower, Empire State Pipeline, Inc., St. Clair Pipeline Company, Inc., the Lenders party to the Secured Credit Agreement, as amended, and JPMorgan Chase Bank, as administrative agent.
	•		Incorporated herein by reference as indicated. All other exhibits are omitted because they are not applicable or the required information is shown elsewhere in this Annual Report on Form 10-K.

115

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	National Fuel Gas Company
	(Registrant)


	By	/s/ P. C. Ackerman



	P. C. Ackerman
	Chairman of the Board, President
	and Chief Executive Officer

Date: December 8, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date


/s/ P. C. Ackerman P. C. Ackerman	Chairman of the Board, President, Chief Executive Officer and Director	December 8, 2005

/s/ R. T. Brady R. T. Brady	Director	December 8, 2005

/s/ R. D. Cash R. D. Cash	Director	December 8, 2005

/s/ R. E. Kidder R. E. Kidder	Director	December 8, 2005

/s/ C. G. Matthews C. G. Matthews	Director	December 8 2005

/s/ G. L. Mazanec G. L. Mazanec	Director	December 8, 2005

/s/ R. G. Reiten R. G. Reiten	Director	December 8, 2005

/s/ J. F. Riordan J. F. Riordan	Director	December 8, 2005

/s/ R. J. Tanski R. J. Tanski	Treasurer and Principal Financial Officer	December 8, 2005

/s/ K. M. Camiolo K. M. Camiolo	Controller and Principal Accounting Officer	December 8, 2005

116

Exhibit 10.1

CREDIT AGREEMENT

dated as of

August 19, 2005

Among

NATIONAL FUEL GAS COMPANY

The Lenders Party Hereto

And

JPMORGAN CHASE BANK, N.A.,
as Administrative Agent

HSBC BANK USA, NATIONAL ASSOCIATION
As Co-Syndication Agent

MANUFACTURERS AND TRADERS TRUST COMPANY,
As Co-Syndication Agent

J.P. MORGAN SECURITIES INC.,
as Sole Bookrunner and Sole Lead Arranger

TABLE OF CONTENTS


ARTICLE I Definitions			1
	SECTION 1.01.	Defined Terms	1
	SECTION 1.02.	Classification of Loans and Borrowings	12
	SECTION 1.03.	Terms Generally	12
	SECTION 1.04.	Accounting Terms; GAAP	12

ARTICLE II The Credits			12
	SECTION 2.01.	Commitments	12
	SECTION 2.02.	Loans and Borrowings	13
	SECTION 2.03.	Requests for Borrowings	13
	SECTION 2.04.	Funding of Borrowings	14
	SECTION 2.05.	Interest Elections	14
	SECTION 2.06.	Termination and Reduction of Commitments	15
	SECTION 2.07.	Repayment of Loans; Evidence of Debt	16
	SECTION 2.08.	Prepayment of Loans	17
	SECTION 2.09.	Fees	17
	SECTION 2.10.	Interest	18
	SECTION 2.11.	Alternate Rate of Interest	18
	SECTION 2.12.	Increased Costs	19
	SECTION 2.13.	Break Funding Payments	20
	SECTION 2.14.	Taxes	20
	SECTION 2.15.	Payments Generally; Pro Rata Treatment; Sharing of Set-offs	21
	SECTION 2.16.	Mitigation Obligations; Replacement of Lenders	23

ARTICLE III Representations and Warranties			24
	SECTION 3.01.	Corporate Existence	24
	SECTION 3.02.	Financial Condition	24
	SECTION 3.03.	Litigation	24
	SECTION 3.04.	No Breach	25
	SECTION 3.05.	Action	25
	SECTION 3.06.	Approvals	25
	SECTION 3.07.	Use of Credit	25
	SECTION 3.08.	ERISA	25
	SECTION 3.09.	Taxes	26
	SECTION 3.10.	Investment Company Act	26
	SECTION 3.11.	Public Utility Holding Company Act	26
	SECTION 3.12.	Environmental Matters	27
	SECTION 3.13.	Subsidiaries, Etc	27
	SECTION 3.14.	True and Complete Disclosure	27

ARTICLE IV Conditions			27
	SECTION 4.01.	Effective Date	27
	SECTION 4.02.	Each Credit Event	29

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ARTICLE V Covenants of the Borrower			29
	SECTION 5.01.	Financial Statements, Etc	29
	SECTION 5.02.	Existence, Etc	31
	SECTION 5.03.	Insurance	32
	SECTION 5.04.	Prohibition of Fundamental Changes	32
	SECTION 5.05.	Limitation on Liens	33
	SECTION 5.06.	Use of Proceeds	34
	SECTION 5.07.	Financial Condition	34

ARTICLE VI Events of Default			34

ARTICLE VII The Administrative Agent			37

ARTICLE VIII Miscellaneous			39
	SECTION 8.01.	Notices	39
	SECTION 8.02.	Waivers; Amendments	40
	SECTION 8.03.	Expenses; Indemnity; Damage Waiver	41
	SECTION 8.04.	Successors and Assigns	42
	SECTION 8.05.	Survival	45
	SECTION 8.06.	Counterparts: Integration; Effectiveness	45
	SECTION 8.07.	Severability	45
	SECTION 8.08.	Right of Setoff	46
	SECTION 8.09.	Governing Law; Jurisdiction; Consent to Service of Process	46
	SECTION 8.10.	WAIVER OF JURY TRIAL	46
	SECTION 8.11.	Headings	47
	SECTION 8.12.	Confidentiality	47

SCHEDULES :

Schedule 2.01 — Commitments
Schedule 3.06 — Governmental Approvals
Schedule 4.01 — Repaid Indebtedness

EXHIBITS :

Exhibit A — Form of Assignment and Assumption

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CREDIT AGREEMENT dated as of August 19, 2005, among NATIONAL FUEL GAS COMPANY, the LENDERS party hereto, and JPMORGAN CHASE BANK, N.A., as Administrative Agent.

The parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Defined Terms . As used in this Agreement, the following terms have the meanings specified below:

“ ABR ”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.

“ Adjusted LIBO Rate ” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

“ Administrative Agent ” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders hereunder.

“ Administrative Questionnaire ” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

“ Affiliate ” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“ Alternate Base Rate ” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.

“ Anti-Terrorism Law ” means the USA Patriot Act or any other law pertaining to the prevention of future acts of terrorism, in each case as such law may be amended from time to time.

“ Applicable Percentage ” means, with respect to any Lender, the percentage of the total Commitments represented by such Lender’s Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.

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“ Applicable Rate ” means, for any day, with respect to any ABR Loan or Eurodollar Loan, or with respect to the facility fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption “ABR Applicable Margin”, “Eurodollar Applicable Margin” or “Facility Fee Rate”, as the case may be, based upon the ratings by S&P, Moody’s and Fitch, respectively, applicable on such date to the Index Debt:


Ratings of Index	ABR	Eurodollar Rate	Facility
Debt	Applicable Margin	Applicable Margin	Fee Rate
Category 1
A/A2/A	0.000%	0.180%	0.0700%
Category 2
A-/A3/A-	0.000%	0.270%	0.0800%
Category 3
BBB+/Baal/BBB+	0.000%	0.350%	0.1000%
Category 4
BBB/Baa2/BBB	0.000%	0.425%	0.1250%
Category 5
BBB-/Baa3/BBB-	0.050%	0.575%	0.1750%
Category 6
<BBB-/Baa3/BBB-	0.500%	0.750%	0.2500%

provided , that through the Multi-Year Facility Maturity Date, for each day the aggregate principal amount of Multi-Year Facility Loans outstanding is greater than 50% of the aggregate Multi-Year Facility Commitments, each of the ABR Applicable Margin and the Eurodollar Applicable Margin set forth above for the Multi-Year Facility Loans shall be increased by 0.100%.

For purposes of the foregoing, with respect to the Index Debt, (i) if all three Rating Agencies issue a rating and if the ratings from two Rating Agencies are at the same level and the rating from the third Rating Agency is at a lower level, the higher rating shall apply; (ii) if the ratings from two Rating Agencies are at the same level and the rating from the third Rating Agency is at a higher level, the lower rating shall apply; (iii) if all three ratings from the Rating Agencies are at different levels, the rating next below the highest of the three shall apply; (iv) if only two Rating Agencies issue a rating, the lower of such ratings shall apply; and (v) if only one Rating Agency issues a rating, such rating shall apply. If the ratings established or deemed to have been established by any Rating Agency shall be changed (other than as a result of a change in the rating system of such Rating Agency), such change shall be effective as of the date on which it is first announced by the applicable Rating Agency, irrespective of when notice of such change shall have been furnished by the Borrower to the Administrative Agent and the Lenders pursuant to Section 5.01(j) or otherwise. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of any Rating Agency shall change, or if the sole remaining Rating Agency providing a rating with respect to the Index

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Debt shall cease to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such Rating Agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation.

“ Approved Fund ” has the meaning assigned to such term in Section 8.04.

“ Assessment Rate ” means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as “well-capitalized” and within supervisory subgroup “B” (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders.

“ Assignment and Assumption ” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 8.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.

“ Bankruptcy Code ” means the Federal Bankruptcy Code of 1978, as amended from time to time.

“ Base CD Rate ” means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate and (b) the Assessment Rate.

“ Board ” means the Board of Governors of the Federal Reserve System of the United States of America.

“ Borrower ” means National Fuel Gas Company, a New Jersey corporation.

“ Borrowing ” means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.

“ Borrowing Request ” means a request by the Borrower for a Borrowing in accordance with Section 2.03.

“ Business Day ” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term “ Business Day ” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

“ Capital Lease Obligations ” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or

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personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“ Change in Law ” means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.12(b), by any lending office of such Lender or by such Lender’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

“ CLO ” has the meaning assigned to such term in Section 8.04.

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

“ Commitment ” means, with respect to each Lender, such Lender’s Multi-Year Facility Commitment.

“ Consolidated Capitalization ” means, at any date, the sum of Consolidated Net Worth and Consolidated Indebtedness.

“ Consolidated Indebtedness ” means, at any date, all Indebtedness of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP.

“ Consolidated Net Worth ” means, at any date, all amounts that would, in conformity with GAAP, be included on a consolidated balance sheet of the Borrower and its Subsidiaries under stockholders’ equity at such time.

“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

“ Credit Exposure ” means, with respect to any Lender at any time, the outstanding principal amount of such Lender’s Loans at such time.

“ Default ” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“ dollars ” or “ $ ” refers to lawful money of the United States of America.

“ Effective Date ” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 8.02).

“ Environmental Laws ” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered

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into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.

“ Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ ERISA Affiliate ” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.

“ Eurodollar ” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.

“ Event of Default ” has the meaning assigned to such term in Article VI.

“ Excluded Taxes ” means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.16(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender’s failure to comply with Section 2.14(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.14(a).

“ Federal Funds Effective Rate ” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received

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by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“ Financial Officer ” means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower.

“ Fitch ” means Fitch, Inc.

“ Foreign Lender ” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“ GAAP ” means generally accepted accounting principles in the United States of America.

“ Governmental Approval ” means any authorization, consent, approval, license, ruling, permit, tariff, rate, certification, exemption, filing, variance, order, judgment, decree, publication, notice to, declaration of or registration by or with any Governmental Authority.

“ Governmental Authority ” means the government of the United States of America or of any other nation, or any political subdivision of any of them, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Guarantee ” of or by any Person (the “ guarantor ”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided , that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“ Indebtedness ” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all

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obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

“ Indemnified Taxes ” means Taxes other than Excluded Taxes.

“ Index Debt ” means senior, unsecured, long-term indebtedness for borrowed money of the Borrower that is not guaranteed by any other Person or subject to any other credit enhancement.

“ Interest Election Request ” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.05.

“ Interest Payment Date ” means (a) with respect to any ABR Loan, the last day of each March, June, September and December and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period.

“ Interest Period ” means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect; provided , that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (b) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

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“ Lenders ” means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.

“ LIBO Rate ” means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the “ LIBO Rate ” with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

“ Lien ” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

“ Loans ” means Multi-Year Facility Loans made by the Lenders to the Borrower pursuant to this Agreement.

“ Material Adverse Effect ” means a material adverse effect on (a) the business, assets, property, results of operations, prospects or financial condition of the Borrower and its Subsidiaries taken as a whole, (b) the validity or enforceability of, or the ability of the Borrower to perform any of its obligations under, this Agreement or (c) the rights of, or remedies or benefits available to, the Administrative Agent and the Lenders under this Agreement.

“ Material Subsidiary ” means, at any time, a Subsidiary of the Borrower whose assets exceed 10% of the consolidated assets of the Borrower and its Subsidiaries.

“ Moody’s ” means Moody’s Investors Service, Inc.

“ Multiemployer Plan ” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“ Multi-Year Facility Availability Period ” means the period from and including the Effective Date to but excluding the earlier of the Multi-Year Facility Maturity Date and the Multi-Year Facility Commitment Termination Date.

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“ Multi-Year Facility Commitment ” means, with respect to each Lender, the commitment of such Lender to make Multi-Year Facility Loans, expressed as an amount representing the maximum aggregate amount of such Lender’s Multi-Year Facility Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.06 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 8.04. The initial amount of each Lender’s Multi-Year Facility Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Multi-Year Facility Commitment, as applicable. The initial aggregate amount of the Lenders’ Multi-Year Facility Commitments is $300,000,000.

“ Multi-Year Facility Commitment Termination Date ” means September 30, 2010.

“ Multi-Year Facility Credit Exposure ” means, with respect to any Lender at any time, the outstanding principal amount of such Lender’s Multi-Year Facility Loans at such time.

“ Multi-Year Facility Loan ” means a Loan made pursuant to Section 2.01.

“ Multi-Year Facility Maturity Date” means September 30, 2010.

“ Other Obligations ” has the meaning set forth in Section 5.05.

“ Other Taxes ” means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement.

“ Participant ” has the meaning set forth in Section 8.04.

“ PBGC ” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

“ Permitted Receivables Financing ” shall mean a transaction or series of transactions pursuant to which a Securitization Subsidiary purchases Receivables Assets or interests therein from the Borrower or any Subsidiary of the Borrower and finances such Receivables Assets or interests therein through the issuance of Indebtedness or equity interests or through the sale of such Receivables Assets or interests therein; provided that (a) the Board of Directors of the Borrower shall have approved such transaction, (b) no portion of the Indebtedness of a Securitization Subsidiary is guaranteed by or is recourse to the Borrower or any Subsidiary (other than recourse for customary representations, warranties, covenants and indemnities, none of which shall relate to the collectibility of such Receivables Assets), and (c) neither the Borrower nor any other Subsidiary has any obligation to maintain or preserve such Securitization Subsidiary’s financial condition.

“ Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“ Plan ” means any defined benefit employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA, Section 412 of the Code or

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Section 302 of ERISA in respect of which the Borrower or any ERISA Affiliate is either the plan sponsor or a contributing employer.

“ Prime Rate ” means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.

“ PUHCA ” has the meaning set forth in Section 3.11.

“ Rating Agency ” means, each of Moody’s, S&P and Fitch.

“ Receivables Assets ” shall mean accounts receivable (including any bills of exchange) and related assets and property from time to time originated, acquired or otherwise owned by the Borrower or any Subsidiary.

“ Register ” has the meaning set forth in Section 8.04.

“ Related Parties ” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

“ Required Lenders ” means, at any time, Lenders having Credit Exposures and unused Commitments representing more than 50% of the sum of the total Credit Exposures and unused Commitments at such time.

“ S&P ” means Standard & Poor’s Rating Services, a division of the McGraw-Hill Companies, Inc.

“ SEC ” means the United States Securities and Exchange Commission or any successor thereto.

“ Securitization Subsidiary ” shall mean a Subsidiary that is established for the limited purpose of acquiring and financing Receivables Assets and interests therein of the Borrower or any Subsidiary and engaging in activities ancillary thereto.

“ Statutory Reserve Rate ” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any

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Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“ subsidiary ” means, with respect to any Person (the “ parent ”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

“ Subsidiary ” means any subsidiary of the Borrower.

“ Taxes ” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“ Three-Month Secondary CD Rate ” means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it.

“ Transactions ” means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof.

“ Type ”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.

“ USA Patriot Act ” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act) Act of 2001, as amended from time to time.

“ Wholly-Owned Subsidiary ” means, for any Person, any Subsidiary of such Person of which all of the equity securities or other ownership interests (other than in the case of a corporation, directors’ qualifying shares) are directly or indirectly owned or Controlled by such Person.

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SECTION 1.02. Classification of Loans and Borrowings . For purposes of this Agreement, Loans may be classified and referred to by Type ( e.g. , a “Eurodollar Loan” or “ABR Loan”). Borrowings also may be classified and referred to by Type ( e.g. , a “Eurodollar Borrowing” or “ABR Borrowing”).

SECTION 1.03. Terms Generally . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.04. Accounting Terms; GAAP . Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

ARTICLE II

The Credits

SECTION 2.01. Commitments . Subject to the terms and conditions set forth herein, each Lender agrees to make Multi-Year Facility Loans to the Borrower from time to time during the Multi-Year Facility Availability Period in an aggregate principal amount that will not result in (i) such Lender’s Multi-Year Facility Credit Exposure exceeding such Lender’s Multi-Year Facility Commitment or (ii) the total Multi-Year Facility Credit Exposures exceeding the total Multi-Year Facility Commitments. Within the foregoing limits and subject to the terms and

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conditions set forth herein, the Borrower may borrow, prepay and reborrow Multi-Year Facility Loans.

SECTION 2.02. Loans and Borrowings . (a) Each Multi-Year Facility Loan shall be made as part of a Borrowing consisting of Multi-Year Facility Loans made by the Lenders ratably in accordance with their respective Multi-Year Facility Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.

(b) Subject to Section 2.11, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.

(c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $5,000,000 and not less than $10,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $5,000,000 and not less than $10,000,000; provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Multi-Year Facility Commitments. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of six Multi-Year Facility Eurodollar Borrowings outstanding.

(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing of Multi-Year Facility Loans if the Interest Period requested with respect thereto would end after the Multi-Year Facility Maturity Date.

SECTION 2.03. Requests for Borrowings . To request a Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:

(i) the aggregate amount of the requested Borrowing;

(ii) the date of such Borrowing, which shall be a Business Day;

(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;

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(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and

(v) the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04.

If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.

SECTION 2.04. Funding of Borrowings . (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request.

(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.

SECTION 2.05. Interest Elections . (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.

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(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower.

(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:

(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.

SECTION 2.06. Termination and Reduction of Commitments . (a) Unless previously terminated, the Multi-Year Facility Commitments shall terminate on the Multi-Year Facility Commitment Termination Date.

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(b) The Borrower may at any time terminate, or from time to time reduce, each of the Multi-Year Facility Commitments; provided that (i) each such reduction shall be in an amount that is an integral multiple of $5,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Multi-Year Facility Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.08, the aggregate Multi-Year Facility Credit Exposures would exceed the total Multi-Year Facility Commitments.

(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Multi-Year Facility Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Multi-Year Facility Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Multi-Year Facility Commitments shall be permanent. Each reduction of the Multi-Year Facility Commitments shall be made ratably among the Lenders in accordance with their respective Multi-Year Facility Commitments.

SECTION 2.07. Repayment of Loans; Evidence of Debt . (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Multi-Year Facility Loan on the Multi-Year Facility Maturity Date.

(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

(e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its

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registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 8.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

SECTION 2.08. Prepayment of Loans . (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section and, with respect to Eurodollar Loans, subject to Section 2.13.

(b) The Borrower shall notify the Administrative Agent by telephone (confirmed by facsimile) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Multi-Year Facility Commitments as contemplated by Section 2.06, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.06. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.10.

SECTION 2.09. Fees . (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee, which shall accrue at the Applicable Rate on the daily amount of the Multi-Year Facility Commitment of such Lender (whether used or unused) during the period from and including the Effective Date to but excluding the Multi-Year Facility Commitment Termination Date; provided that, if such Lender continues to have any Multi-Year Facility Credit Exposure after the Multi-Year Facility Commitment Termination Date, then such facility fee shall continue to accrue on the daily amount of such Lender’s Multi-Year Facility Credit Exposure from and including the Multi-Year Facility Commitment Termination Date to but excluding the date on which such Lender ceases to have any Multi-Year Facility Credit Exposure. Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year and on the Multi-Year Facility Commitment Termination Date, commencing on the first such date to occur after the date hereof; provided that any facility fees accruing after the Multi-Year Facility Commitment Termination Date shall be payable on demand. All such facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(b) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.

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(c) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees, to the Lenders. Fees paid shall not be refundable under any circumstances.

SECTION 2.10. Interest . (a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate.

(b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.

(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.

(d) The Borrower hereby unconditionally promises to pay accrued interest on each Loan in arrears on each Interest Payment Date for such Loan and upon each of the Multi-Year Facility Commitment Termination Date and the Multi-Year Facility Maturity Date; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan prior to the end of the Multi-Year Facility Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.

SECTION 2.11. Alternate Rate of Interest . If prior to the commencement of any Interest Period for a Eurodollar Borrowing:

(a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or

(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not

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adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;

then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or facsimile as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted.

SECTION 2.12. Increased Costs . (a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or

(ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise) by an amount deemed material by such Lender in its sole discretion, then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

(b) If any Lender reasonably determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c) A certificate of a Lender setting forth the amount or amounts (including the basis of the calculation used to determine such amount or amounts) necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

(d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation;

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provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

SECTION 2.13. Break Funding Payments . In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.08(b) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.16, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount reasonably determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts (including the basis of the calculation used to determine such amount or amounts) that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

SECTION 2.14. Taxes . (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

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(c) The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate.

(f) If the Administrative Agent or a Lender determines, in its sole discretion, that it has received a refund of any Indemnified Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.14, it shall promptly pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.14 with respect to the Indemnified Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided , that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This Section shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.

SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of Setoffs . (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees, or of amounts payable under Section 2.12, 2.13 or 2.14, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business

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Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars.

(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

(c) If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds

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Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(b) or 2.15(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.

SECTION 2.16. Mitigation Obligations; Replacement of Lenders . (a) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.12 or 2.14, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, or if any Lender defaults in its obligation to fund Loans hereunder, or if, in connection with any proposed waiver, amendment, or modification of this Agreement, the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is requested is not obtained, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 8.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, but only if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

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ARTICLE III

Representations and Warranties

The Borrower represents and warrants to the Lenders that:

SECTION 3.01. Corporate Existence . Each of the Borrower and its Material Subsidiaries: (a) is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate power, and has all material Governmental Approvals necessary to own its assets and carry on its business as now being conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure to so qualify could have a Material Adverse Effect.

SECTION 3.02. Financial Condition . The Borrower has heretofore furnished to each of the Lenders the consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at September 30, 2004 and the related consolidated statement of income and retained earnings and cash flow of the Borrower and its consolidated Subsidiaries for the fiscal year ended on said date, with the opinion thereon (in the case of said consolidated balance sheet and statements) of PricewaterhouseCoopers, and the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at June 30, 2005 and the related consolidated statement of income, retained earnings and cash flow of the Borrower and its consolidated Subsidiaries for the nine-month period ended on such date. All such financial statements are complete and correct in all material respects and fairly present in all material respects the consolidated financial condition of the Borrower and its consolidated Subsidiaries (subject, in the case of such financial statements as at June 30, 2005, to normal year-end audit adjustments), all in accordance with GAAP and practices applied on a consistent basis. None of the Borrower nor any of its Subsidiaries has on the date hereof any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheets as at said dates. Since September 30, 2004, there has been no material adverse change. As used herein, the term “material adverse change” shall mean any event, development or circumstance that has had or could reasonably be expected to have a material adverse effect on (a) the business, assets, property, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole, or (b) the validity or enforceability of this Agreement or any documentation related to the Loans or the rights and remedies of the Administrative Agent and the Lenders thereunder; provided that “material adverse change” shall not include the effect of any event, development or circumstance disclosed in any document filed pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 after September 30, 2004 and prior to the Effective Date to the extent, and only to the extent, such effect is explicitly disclosed in such filings.

SECTION 3.03. Litigation . Except as set forth in the Borrower’s Annual Report on SEC Form 10-K for the year ended September 30, 2004 or in any document subsequently filed pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending to which the Borrower or any Material Subsidiary is a party, or pending

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or threatened (of which the Borrower has knowledge), in which there is a reasonable possibility of an adverse decision, which could have a Material Adverse Effect.

SECTION 3.04. No Breach . None of the execution and delivery of this Agreement, the consummation of the Transactions or compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent (other than as listed as item 1 on Schedule 3.06, which consent has been obtained and remains in full force and effect) under, the articles of incorporation or by-laws of the Borrower, or any applicable law or regulation, or, to the best knowledge of the Borrower, any order, writ, injunction or decree of any court or governmental or regulatory authority, agency, instrumentality or political subdivision thereof, or any material agreement or instrument to which the Borrower or any of its Subsidiaries is a party or by which any of them or any of their property is bound or to which any of them or any of their property is subject, or constitute a default under any such agreement or instrument.

SECTION 3.05. Action . The Borrower has all necessary corporate power, authority and legal right to execute, deliver and perform its obligations under this Agreement; the execution, delivery and performance by the Borrower of this Agreement have been duly authorized by all necessary corporate action on its part (including, without limitation, any required shareholder approvals); and this Agreement has been duly and validly executed and delivered by the Borrower and constitutes its legal, valid and binding obligation, enforceable against the Borrower in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

SECTION 3.06. Approvals . Except as set forth on Schedule 3.06 hereto (which Governmental Approvals and any renewals thereof, have been made or obtained and are in full force and effect) no Governmental Approval and no authorization, approval or consent of, and no filing or registration with, any securities exchange, is necessary for the execution, delivery or performance by the Borrower of this Agreement or for the legality, validity or enforceability hereof.

SECTION 3.07. Use of Credit . Neither the Borrower nor any of its Subsidiaries shall, directly or indirectly, use any of the proceeds of any extension of credit hereunder for any purpose, whether immediate, incidental, or ultimate, of buying a “margin stock” or of maintaining, reducing or retiring any indebtedness originally incurred to purchase a stock that is currently a “margin stock” and the extension of credit hereunder will not constitute an extension of “purpose credit” that is directly or indirectly secured by “margin stock”, in each case within the meaning of Regulation U of the Board of Governors of the United States Federal Reserve System Board (12 C.F.R. 221, as amended), and will not violate or result in the violation of Regulation U or of Regulation T (12 C.F.R. 220, as amended) or of Regulation X (12 C.F.R. 224, as amended) or any other regulation of such Board.

SECTION 3.08. ERISA . Neither a “reportable event” (as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived)) nor an “accumulated funding deficiency” (within the

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meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the six-year period prior to the date on which this representation is made or deemed made with respect to any Plan and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. Neither the Borrower nor any ERISA Affiliate of the Borrower incurred any liability under Title IV of ERISA which could reasonably be expected to result in a Material Adverse Effect, and no Lien in favor of PBGC or a Plan has arisen, during such six-year period. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accumulated benefit obligations by an amount greater than the lesser of (i) $250,000,000, (ii) 20% of the Consolidated Net Worth, or (iii) 10% of the Consolidated Capitalization. Neither the Borrower nor any ERISA Affiliate of the Borrower has made a filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan. Neither the Borrower nor any ERISA Affiliate has had a complete or partial withdrawal from any Plan that has resulted or could reasonably be expected to result in a material liability under ERISA and neither the Borrower nor any ERISA Affiliate would become subject to any material liability under ERISA if the Borrower or any such ERISA Affiliate were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is insolvent or in reorganization, within the meaning of Title IV of ERISA.

SECTION 3.09. Taxes . Each of the Borrower and each of its Subsidiaries has filed or caused to be filed all Federal, state and other material tax returns that are required to be filed and has paid all Taxes shown to be due and payable on such returns or on any assessments made against it or any of its property and all other Taxes imposed on it or any of its property by any Governmental Authority (other than any Taxes the amount or validity of which is currently being contested in good faith by appropriate proceeding and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as the case may be); no material Tax Lien has been filed and, to the knowledge of the Borrower, no material claim is being asserted with respect to any such Tax. The Borrower has not given or been requested to give a waiver of the statute of limitations relating to the payment of Federal, state, local and foreign Taxes or other impositions except for (i) the extension, to December 15, 2005, of the statute of limitations with respect to New York State’s corporate tax audit of Empire State Pipeline, Empire State Pipeline Company, Inc. (now known as Empire State Pipeline Company, LLC) and St. Clair Pipeline Company, Inc. (now known as St. Clair Pipeline Company, LLC) for various periods prior to the Borrower’s acquisition, through subsidiaries, of Empire State Pipeline, Empire State Pipeline Company, LLC and St. Clair Pipeline Company, LLC and (ii) any extensions that may be granted with respect to tax audits by the tax authorities of the State of New York and the Commonwealth of Pennsylvania ongoing as of the date hereof.

SECTION 3.10. Investment Company Act . Neither the Borrower nor any of its Subsidiaries is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

SECTION 3.11. Public Utility Holding Company Act . The Borrower is a “holding company” registered under the Public Utility Holding Company Act of 1935, as amended

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(“ PUHCA ”). No Loan made in accordance with this Agreement will violate PUHCA or any rule or regulation thereunder.

SECTION 3.12. Environmental Matters . As of the date of this Agreement: (i) each of the Borrower and its Subsidiaries has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being conducted, except to the extent failure to have any such permit, license or authorization would not have a Material Adverse Effect; and (ii) each of such permits, licenses and authorizations is in full force and effect and, to the knowledge of the Borrower after due inquiry, each of the Borrower and its Subsidiaries is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith would not have a Material Adverse Effect.

SECTION 3.13. Subsidiaries, Etc . The Borrower owns, free and clear of Liens, and has the unencumbered right to vote, all outstanding ownership interests in each of its Material Subsidiaries; and all of the issued and outstanding capital stock of each such Material Subsidiary organized as a corporation is validly issued, fully paid and nonassessable.

SECTION 3.14. True and Complete Disclosure . The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation, preparation or delivery of this Agreement or included herein or delivered pursuant hereto, when taken as a whole do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by the Borrower and its Subsidiaries to the Administrative Agent and the Lenders in connection with this Agreement and the transactions contemplated hereby will be true, complete and accurate in every material respect, or (in the case of forward-looking statements) based on reasonable estimates, on the date as of which such information is stated or certified; provided that, in the case of financial projections, no assurance is given that any results forecasted in any such projections will actually be achieved or that actual financial results will not differ materially from the results set forth in such projections.

ARTICLE IV

Conditions

SECTION 4.01. Effective Date . The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 8.02):

(a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include

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facsimile transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.

(b) The Administrative Agent shall have received an opinion, dated as of the Effective Date, and in form and substance satisfactory to the Administrative Agent and its counsel, of each of (i) Nixon Peabody LLP, special New York counsel to the Administrative Agent, (ii) Dewey Ballantine LLP, special New York counsel to the Borrower, (iii) in-house counsel to the Borrower, and (iv) Stryker, Tams & Dill LLP, special New Jersey counsel to the Borrower.

(c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other, legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel.

(d) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all reasonable fees, charges and disbursements of counsel incurred in connection with the credit facilities provided under this Agreement and any related documentation required to be reimbursed or paid by the Borrower hereunder.

(e) The Administrative Agent shall have received satisfactory evidence that all Governmental Approvals (including, without limitation, the Governmental Approvals set forth on Schedule 3.06 hereof) and third-party approvals necessary or, in the discretion of the Administrative Agent, advisable in connection with the Transactions, the repayment of the Indebtedness, if any, of the Borrower indicated on Schedule 4.01 and the continuing operations of the Borrower and its Subsidiaries have been obtained and are in full force and effect and all applicable waiting periods have expired with respect thereto without any action being taken or threatened by any Governmental Authority or a third party which would restrain, prevent or otherwise impose adverse conditions on the Transaction or the repayment of the Indebtedness, if any, of the Borrower indicated on Schedule 4.01.

(f) The Administrative Agent and the Lenders shall have received (i) the financial statements required to be furnished by the Borrower pursuant to Section 3.02 hereof and (ii) satisfactory unaudited interim consolidated financial statements of the Borrower for each quarterly period ended subsequent to September 30, 2004.

(g) The Administrative Agent shall have received satisfactory evidence that the principal of and interest on, and all other amounts owing in respect of, the Indebtedness of the Borrower indicated on Schedule 4.01 that is to be repaid shall have been (or shall be simultaneously) paid in full and that any commitments to extend credit under the agreements or instruments relating to such Indebtedness shall have been canceled or terminated.

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(h) The representations and warranties of the Borrower set forth in this Agreement (including, without limitations, the representations and warranties set forth in Section 3.03 and the last two sentences of Section 3.02) shall, as of the Effective Date, be true and correct in all material respects and no Default shall have occurred and be continuing.

The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 8.02) at or prior to 3:00 p.m., New York City time, on or before September 30, 2005 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

SECTION 4.02. Each Credit Event . The obligation of each Lender to make a Loan on the occasion of any Borrowing, is subject to the satisfaction of the following conditions:

(a) The representations and warranties of the Borrower set forth in this Agreement (including, without limitation, the representations and warranties set forth in Section 3.03 but excluding the representations and warranties set forth in the last two sentences of Section 3.02) shall be true and correct in all material respects on and as of the date of such Borrowing; provided, however, that upon and after the effectiveness of the repeal of PUHCA, the parties agree that the representations in Section 3.11 shall cease to be included in the representations deemed made under this Section 4.02(a) with respect to Borrowings made after such effectiveness; provided, further, that such representations shall again be included from and after the date, if any, that such repeal ceases to be effective or PUHCA is otherwise reinstated.

(b) At the time of and immediately after giving effect to such Borrowing no Default shall have occurred and be continuing.

Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.

ARTICLE V

Covenants of the Borrower

The Borrower covenants and agrees with the Lenders and the Administrative Agent that, so long as any Commitment or Loan is outstanding and until payment in full of all amounts payable by the Borrower hereunder:

SECTION 5.01. Financial Statements, Etc. . The Borrower shall deliver to each of the Lenders:

(a) as soon as available and in any event within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, consolidated statements of income and retained earnings and cash flow of the Borrower and its consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal

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year to the end of such period, and the related consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such period, setting forth in each case in comparative form to the extent required by SEC Form 10-Q the corresponding consolidated figures for the corresponding period in the preceding fiscal year, accompanied by a certificate of a senior Financial Officer of the Borrower, which certificate shall state that said consolidated financial statements fairly present in all material respects the consolidated financial condition and results of operations of the Borrower and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments);

(b) as soon as available and in any event within 100 days after the end of each fiscal year of the Borrower, consolidated statements of income, retained earnings and cash flow of the Borrower and its consolidated Subsidiaries for such fiscal year and the related consolidated balance sheets of the Borrower and its consolidated Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated figures for the preceding fiscal year and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present in all material respects the consolidated financial condition and results of operations of the Borrower and its consolidated Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP;

(c) as soon as available and in any event within 130 days after the end of each fiscal year of the Borrower, consolidating statements of income, retained earnings and cash flow of the Borrower and its consolidated Subsidiaries for such fiscal year and the related consolidating balance sheets of the Borrower and its consolidated Subsidiaries as at the end of such fiscal year, provided that the Borrower is required to include such financial statements in a form U5S to be filed with the SEC.

(d) promptly upon their becoming publicly available (i) copies of all registration statements and regular periodic reports, if any, which the Borrower shall have filed with the SEC under the Securities Act of 1933, the Securities Exchange Act of 1934 or any national securities exchange, (ii) copies of any forms UI or U1A which the Borrower shall have filed with the SEC under PUHCA relating to the Borrower’s or its Subsidiaries’ financing activities and (iii) upon request of the Administrative Agent or any Lender, copies of other forms, statements and reports, if any, which the Borrower shall have filed with the SEC under PUHCA;

(e) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed;

(f) as soon as possible, and in any event within 30 days after the Borrower knows or has reason to believe that one or more of the following events has occurred or exists: (i) the occurrence of a “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (ii) a failure to make any required contribution to a Plan or a Multiemployer Plan; (iii) the creation of any Lien in favor of the PBGC or a Plan

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or a Multiemployer Plan; (iv) any withdrawal from, or the termination, insolvency or reorganization of any Multiemployer Plan, or (v) the institution of proceedings or the taking of any other action by the PBGC or the Borrower, any ERISA Affiliate or any Multiemployer Plan with respect to the withdrawal from, or the termination, reorganization or insolvency of, any Plan or a Multiemployer Plan;

(g) promptly after the Borrower knows or has reason to believe that (i) any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Borrower has taken or proposes to take with respect thereto or (ii) at any time that Loans are outstanding hereunder, there exists a legal or arbitral proceeding, or any proceeding by or before any governmental or regulatory authority or agency (other than any proceeding before the New York State Public Service Commission, or comparable authority or agency of another state, in the ordinary course of Borrower’s business), to which the Borrower or any Material Subsidiary is a party, or pending or threatened (of which the Borrower has knowledge), in which there is a reasonable possibility of an adverse decision, which could reasonably be expected to have a Material Adverse Effect;

(h) promptly prior to the expiration of any material Governmental Approval, a copy of a renewal or extension of such Governmental Approval, in form and substance satisfactory to the Required Lenders;

(i) promptly upon receipt thereof, a copy of each management letter or memorandum commenting on internal accounting controls and/or accounting or financial reporting policies followed by the Borrower and/or any of its Subsidiaries that is submitted to the Borrower by its independent accountants in connection with any annual or interim audit made by them of the books of Borrower or any of its Subsidiaries; and

(j) from time to time, such other information regarding the financial condition, operations, business or prospects of the Borrower (including any change in the ratings established by any Rating Agency with respect to the Index Debt) or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Lender or the Administrative Agent may reasonably request.

The Borrower will furnish to each Lender, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Borrower has taken or proposes to take with respect thereto), and (ii) setting forth the calculations required to demonstrate that, as of the end of the fiscal quarter most recently ended, the Borrower is in compliance with Section 5.07 of this Agreement.

SECTION 5.02. Existence, Etc. . The Borrower will, and will cause each of its Material Subsidiaries to:

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(a) preserve and maintain its legal existence and all of its material (i) rights, (ii) privileges, (iii) licenses and (iv) franchises ( provided that nothing in this Section 5.02 shall prohibit any transaction expressly permitted under Section 5.04 hereof);

(b) comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority if failure to comply with such requirements could have a Material Adverse Effect;

(c) pay and discharge all Taxes imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such Tax the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained;

(d) maintain all of its properties used or useful in its business in good working order and condition, ordinary wear and tear excepted;

(e) keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied; and

(f) permit representatives of any Lender or the Administrative Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or the Administrative Agent (as the case may be).

SECTION 5.03. Insurance . The Borrower will, and will cause each of its Material Subsidiaries to, keep insured by financially sound and reputable insurers all property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations.

SECTION 5.04. Prohibition of Fundamental Changes . The Borrower will not, nor will it permit any of its Material Subsidiaries to, enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution). The Borrower will not amend its articles of incorporation, including, without limitation, by way of reincorporation in another jurisdiction, or its by-laws, in either case in any manner which could have a material adverse effect on the rights of, or remedies or benefits available to, the Administrative Agent and the Lenders under this Agreement. The Borrower will not, nor will it permit any of its Material Subsidiaries to, without the consent of the Required Lenders (such consent not to be unreasonably withheld), convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any material part of its business or property, whether now owned or hereafter acquired. Notwithstanding the foregoing provisions of this Section 5.04:

(a) any Material Subsidiary of the Borrower may be merged or consolidated with or into: (i) the Borrower, if the Borrower shall be the continuing or surviving corporation or (ii) any other Wholly-Owned Subsidiary of the Borrower, provided that the Wholly-Owned Subsidiary shall be the continuing or surviving corporation; and,

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provided, further, that, in each case, after giving effect thereto, no Default would exist hereunder;

(b) any Material Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its property (upon voluntary liquidation or otherwise) to the Borrower or a Wholly-Owned Subsidiary of the Borrower;

(c) the Borrower may merge or consolidate with or into any other Person if the Borrower is the continuing or surviving corporation and after giving effect thereto no Default would exist hereunder; and

(d) the Borrower or any Material Subsidiary may implement a Permitted Receivables Financing and, solely as part of such program, may sell or subject to lien not more than $100,000,000 of its assets in the aggregate.

SECTION 5.05. Limitation on Liens . The Borrower will not pledge, mortgage, hypothecate, or permit any other Lien upon, any property or assets at any time owned by it, without making effective provision whereby the obligations of the Borrower to pay the principal of and interest on the Loans and all other amounts payable hereunder shall be equally and ratably secured with the obligations secured by such Lien and with any other obligations (collectively, the “ Other Obligations ”) similarly entitled by their terms to be equally and ratably secured; provided that this restriction shall not apply to or prevent:

(a) the mortgaging, pledging, or establishing a Lien on, any property to secure Indebtedness of the Borrower as part of the purchase price of such property, or the extension, renewal or refunding of any such mortgage, pledge or Lien, on substantially the same property theretofore subject thereto or on any part thereof;

(b) the acquisition by the Borrower of any property subject to mortgages, pledges or Liens existing thereon at the time of acquisition (whether or not the obligations secured thereby are assumed by the Borrower), and the extension, renewal or refunding of any such mortgage, pledge or Lien, on substantially the same property theretofore subject thereto or on any part thereof;

(c) the pledging of its assets or security for the payment of any Tax demanded from the Borrower by any public body so long as the Borrower in good faith is contesting its liability to pay the same, or as security to be deposited with any State Insurance Department or similar public body in order to entitle the Borrower to maintain self insurance under, or participate under any State insurance fund provided for under any legislation designed to insure employees of the Borrower against injury or occupational diseases or for any other purpose at any time required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license;

(d) the pledging by the Borrower of up to 5% of its total assets (as defined under GAAP) for the purpose of securing a stay or discharge in the course of any legal proceeding to which the Borrower is a party; or

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(e) the transaction described in Section 5.04(d), provided that any Lien relating to the Permitted Receivables Financing referred to therein shall be subject to the limitations in such Section 5.04(d).

but in no event shall the mortgage, pledge or Lien permitted by subdivisions (a) and (b) be in excess of 60% of the total purchase price of the property so acquired.

In case the Borrower shall propose to pledge, mortgage or hypothecate any assets or property at any time owned by it to secure any Other Obligations, other than as permitted by the preceding paragraph of this Section 5.05, it will prior thereto give notice thereof to the Administrative Agent, and will prior to or simultaneously with such pledge, mortgage or hypothecation, by an agreement, indenture or other instrument to which the Administrative Agent is a party (or to the extent legally necessary, with a trustee), in form and substance reasonably satisfactory to the Administrative Agent, effectively secure the obligations of the Borrower to pay the principal of and interest on the Loans and all other amounts payable hereunder equally and ratably with such Other Obligations by pledge, mortgage or hypothecation of such assets or property. Such agreement, indenture or other instrument shall contain such provisions as the Borrower and the Required Lenders shall deem advisable or appropriate or as the Required Lenders shall reasonably deem necessary in connection with such pledge, mortgage or hypothecation.

SECTION 5.06. Use of Proceeds . The Borrower will use the proceeds of the Loans hereunder solely (a) to pay its obligations under (i) its commercial paper program, (ii) other short-term credit facilities and (iii) maturing long-term debt obligations and (b) for the general corporate purposes of the Borrower and its Subsidiaries in the ordinary course of business (in compliance with all applicable legal and regulatory requirements); provided that neither the Administrative Agent nor any Lender shall have any responsibility as to the use of any of such proceeds.

SECTION 5.07. Financial Condition . The Borrower shall not permit the ratio of Consolidated Indebtedness to Consolidated Capitalization as at the last day of any fiscal quarter to exceed 0.65 to 1.0.

ARTICLE VI

Events of Default

If one or more of the following events (herein called “ Events of Default ”) shall occur and be continuing:

(a) The Borrower shall: (i) default in the payment of any principal of any Loan when due (whether at stated maturity or at mandatory or optional prepayment); or (ii) default in the payment of any interest on any Loan, any fee or any other amount payable by it hereunder when due and such default shall have continued unremedied for five or more days; or

(b) The Borrower or any of its Material Subsidiaries shall default in the payment when due of any principal of or interest on any of its other Indebtedness

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aggregating $20,000,000 or more; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity; or

(c) Any representation, warranty or certification made or deemed made herein (or in any modification or supplement hereto) by the Borrower, or any certificate furnished to any Lender or the Administrative Agent pursuant to the provisions hereof, shall prove to have been false or misleading as of the time made or furnished in any material respect; or

(d) The Borrower shall default in the performance of any of its obligations under any of Sections 5.01(g), 5.03, 5.04, 5.05 or 5.07 hereof; or the Borrower shall default in the performance of any of its other obligations in this Agreement and such default shall continue unremedied for a period of 30 days after notice thereof to the Borrower by the Administrative Agent or any Lender (through the Administrative Agent); or

(e) The Borrower or any of its Material Subsidiaries shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or

(f) The Borrower or any of its Material Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate action for the purpose of effecting any of the foregoing; or

(g) A proceeding or case shall be commenced, without the application or consent of the Borrower or any of its Material Subsidiaries, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Borrower or such Subsidiary or of all or any substantial part of its property, or (iii) similar relief in respect of the Borrower or such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Borrower or such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or

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(h) A final judgment or judgments for the payment of money in excess of $5,000,000 in the aggregate (exclusive of judgment amounts fully covered by insurance where the insurer has admitted liability in respect of such judgment) or in excess of $10,000,000 in the aggregate (regardless of insurance coverage) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Borrower or any of its Material Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Borrower or the relevant Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or

(i) One of the following events shall occur: (i) any Person shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan; (ii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any ERISA Affiliate; (iii) a “reportable event” (as defined in Section 4043 of ERISA or the regulations issued thereunder (other than an event for which the 30-day notice period is waived)) shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Plan which “reportable event” or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (iv) any Plan shall terminate for purposes of Title IV of ERISA; (v) the Borrower or any ERISA Affiliate shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the insolvency or reorganization of, a Multiemployer Plan; (vi) the Borrower or any ERISA Affiliate shall make a filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; or (vii) any other event or condition shall occur or exist with respect to a Plan; and, in each case in clauses (i) through (vii) above, such event or condition, together with all other such events or conditions, if any, could, in the sole judgment of Lenders having Credit Exposures and unused Commitments representing at least 66 2/3% of the sum of the total Credit Exposures and unused Commitments at such time reasonably be expected to have a Material Adverse Effect;

THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (f) or (g) of this Article VI with respect to the Borrower, (A) the Administrative Agent may and, upon request of the Required Lenders, shall, by notice to the Borrower, terminate the Commitments and they shall thereupon terminate, and (B) the Administrative Agent may and, upon request of the Required Lenders, shall, by notice to the Borrower, declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder (including, without limitation, any amounts payable under Section 2.13 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower; and (2) in the case of the occurrence of an Event of Default referred to in clause (f) or (g) of this Article VI with respect to

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the Borrower, the Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder (including, without limitation, any amounts payable under Section 2.13 hereof) shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower.

ARTICLE VII

The Administrative Agent

Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto.

The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.

The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 8.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 8.02) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

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The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent’s resignation hereunder, the provisions of this Article and Section 8.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.

Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder.

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Each Lender acknowledges and agrees that neither such Lender, nor any of its Affiliates, participants or assignees, may rely on the Administrative Agent to carry out such Lender’s, Affiliate’s, participant’s or assignee’s customer identification program, or other obligations required or imposed under or pursuant to the USA Patriot Act or the regulations thereunder, including the regulations contained in 31 CFR 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in connection with the Borrower or any of its Subsidiaries, any of their respective Affiliates or agents, this Agreement, the documents delivered pursuant hereto or the transactions hereunder: (a) any identity verification procedures, (b) any record keeping, (c) any comparisons with government lists, (d) any customer notices or (e) any other procedures required under the CIP Regulations or such other laws.

Each Lender or assignee or participant of a Lender that is not organized under the laws of the United States of America or a state thereof (and is not excepted from the certification requirement contained in Section 313 of the USA Patriot Act and the applicable regulations because it is both (a) an affiliate of a depository institution or foreign bank that maintains a physical presence in the United States or foreign country, and (b) subject to supervision by a banking authority regulating such affiliated depository institution or foreign bank) shall deliver to the Administrative Agent the certification, or, if applicable, recertification, certifying that such Lender is not a “shell” and certifying to other matters as required by Section 313 of the USA Patriot Act and the applicable regulations: (i) within ten (10) days after the Effective Date, and (ii) at such other times as are required under the USA Patriot Act.

Any Lender identified herein as a Co-Agent, Syndication Agent, Documentation Agent, Managing Agent, Manager, Lead Arranger, Arranger or any other corresponding title, other than “Administrative Agent,” shall have no right, power, obligation, liability, responsibility or duty under this Agreement or any other Credit Document except those applicable to all Lenders as such. Each Lender acknowledges that it has not relied, and will not rely, on any Lender so identified in deciding to enter into this Agreement or in taking or not taking any action hereunder.

ARTICLE VIII

Miscellaneous

SECTION 8.01. Notices . (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:

(i) if to the Borrower, to it at 6363 Main Street, Williamsville, New York 14221-5887, Attention of Ronald J. Tanski, Treasurer (Facsimile No. (716) 857-7856);

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(ii) if to the Administrative Agent, to JPMorgan Chase Bank, N.A., Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Frank Giacalone (Facsimile No. (212) 552-5650), with a copy to JPMorgan Chase Bank, N.A., 2300 Main Place Tower, Buffalo, New York 14202, Attention of Thomas C. Lillis, Senior Vice President (Facsimile No. (716) 843-4939); and

(iii) if to any other Lender, to it at its address (or facsimile number) set forth in its Administrative Questionnaire.

(b) Notices and other communications (including, without limitation, financial statements and other documents delivered pursuant to Section 5.01 hereof) to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

(c) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

SECTION 8.02. Waivers; Amendments . (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time.

(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Multi-Year Facility Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable

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hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of the Multi-Year Facility Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.15(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, or (v) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent.

SECTION 8.03. Expenses; Indemnity; Damage Waiver . (a) The Borrower shall pay (i) all reasonable fees, charges and disbursements of counsel incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in the course of preparing for the Transactions (including the preparation of this Agreement and any related documentation), (ii) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (iii) all reasonable out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made hereunder, including all such reasonable out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

(b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court or other Governmental Authority of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee.

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(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such.

(d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof.

(e) All amounts due under this Section shall be payable promptly after written demand therefor.

SECTION 8.04. Successors and Assigns . (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) the Borrower may not assign or otherwise transfer, by operation of law or otherwise, any of its rights or obligations hereunder without the prior written consent of each Lender (and any such attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)(i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Multi-Year Facility Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:

(A) the Borrower, provided that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund (as defined below) or, if an Event of Default under clause (f) or (g) of Article VI has occurred and is continuing, any other assignee; and

(B) the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment to an assignee that is a Lender immediately prior to giving effect to such assignment.

(ii) Assignments shall be subject to the following additional conditions:

(A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender’s Multi-Year

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Facility Commitment, the amount of the Multi-Year Facility Commitment, as the case may be, of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default under clause (a), (f) or (g) of Article VI has occurred and is continuing;

(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;

(C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500;

(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and

(E) in the case of an assignment to a CLO (as defined below), the assigning Lender shall retain the sole right to approve any amendment, modification or waiver of any provision of this Agreement, provided that the Assignment and Assumption between such Lender and such CLO may provide that such Lender will not, without the consent of such CLO, agree to any amendment, modification or waiver described in the first proviso to Section 8.02(b) that affects such CLO.

For the purposes of this Section 8.04(b), the terms “Approved Fund” and “CLO” have the following meanings:

“ Approved Fund ” means (a) a CLO and (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

“ CLO ” means any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender.

(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.12, 2.13, 2.14 and 8.03). Any assignment or transfer by a Lender of rights or

- 44 -

obligations under this Agreement that does not comply with this Section 8.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

(iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Multi-Year Facility Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(c)(i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a “ Participant ”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Multi-Year Facility Commitment and the Loans owing to it); provided , that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 8.02(b) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 8.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.15(c) as though it were a Lender.

(ii) A Participant shall not be entitled to receive any greater payment under Section 2.12 or 2.14 than the applicable Lender would have been entitled to receive with

- 45 -

respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.14 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.14(e) as though it were a Lender.

(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

SECTION 8.05. Survival . All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and the Multi-Year Facility Commitments have not expired or terminated. The provisions of Sections 2.12, 2.13, 2.14 and 8.03 and Article VII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans and the termination of the Multi-Year Facility Commitments or of this Agreement or any provision hereof.

SECTION 8.06. Counterparts: Integration; Effectiveness . This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof, including, without limitation, the commitment letter dated July 8, 2005, subject to paragraph 14 thereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 8.07. Severability . Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and

- 46 -

enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

SECTION 8.08. Right of Setoff . If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.

SECTION 8.09. Governing Law; Jurisdiction; Consent to Service of Process . (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York without giving effect to the principles of conflicts of law thereof (other than Section 5-1401 of the New York General Obligations Law).

(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction.

(c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 8.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 8.10. WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR

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INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 8.11. Headings . Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

SECTION 8.12. Confidentiality . Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to a written agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, “Information” means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis (and otherwise not clearly marked as confidential) prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

S-1

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.


NATIONAL FUEL GAS COMPANY
By:	/s/ R. J. Tanski
	Name:	R. J. Tanski
	Title:	Treasurer

S-2

JPMORGAN CHASE BANK, N.A.,
  as Administrative Agent

By:   /s/ Thomas C. Lillis

Name:   Thomas C. Lillis

Title:   Senior Vice President

S-3

JPMORGAN CHASE BANK, N.A.,
  as Lender

By:   /s/ Thomas C. Lillis

Name:   Thomas C. Lillis

Title:   Senior Vice President

S-4

HSBC BANK USA, NATIONAL ASSOCIATION,
  as Lender

By:   /s/ John G. Tierney

Name:   John G. Tierney

Title:   Vice President

S-5

MANUFACTURERS AND TRADERS TRUST COMPANY,
  as Lender

By:   /s/ Susan Freed-Oestreicher

Name:   Susan Freed-Oestreicher

Title:   Vice President

S-6

BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
  as Lender

By:   /s/ James A. Profesta

Name:   James A. Profesta

Title:   Assistant Vice President

S-7

THE NORTHERN TRUST COMPANY,
  as Lender

By:   /s/ Chris McKean

Name:   Chris McKean

Title:   Vice President

S-8

NATIONAL CITY BANK OF PENNSYLVANIA,
  as Lender

By:   /s/ William A. Feldmann

Name:   William A. Feldmann

Title:   Vice President

S-9

PNC BANK, NATIONAL ASSOCIATION,
  as Lender

By:   /s/ James F. Stevenson

Name:   James F. Stevenson

Title:   Vice President

S-10

BANK OF AMERICA, N.A.
  as Lender

By:   /s/ Colleen O’Brien

Name:   Colleen O’Brien

Title:   Vice President

S-11

THE BANK OF NEW YORK,
  as Lender

By:   /s/ John N. Watt

Name:   John N. Watt

Title:   Vice President

SCHEDULE 2.01

COMMITMENTS


	*Multi-Year*
	*Facility*
*Institution*	*Commitment*
JPMorgan Chase Bank, N.A.	$	45,000,000.00

HSBC Bank USA, National Association	$	45,000,000.00

Manufacturers and Traders Trust Company	$	45,000,000.00

Bank of Tokyo-Mitsubishi Trust Company	$	40,000,000.00

The Northern Trust Company	$	25,000,000.00

National City Bank of Pennsylvania	$	25,000,000.00

PNC Bank, National Association	$	25,000,000.00

Bank of America, N.A.	$	25,000,000.00

The Bank of New York	$	25,000,000.00


TOTAL	$	300,000,000.00

SCHEDULE 3.06

GOVERNMENTAL APPROVALS

1		SEC Financing Order (SEC Rel. No. 35-27600), subject to the information in paragraph 2 of this Schedule 3.06.

2		Section 1271 of the Energy Policy Act of 2005 (the “Energy Policy Act”) provides that nothing in Subtitle F of Title XII of the Energy Policy Act, or otherwise in PUHCA, or rules, regulations, or orders thereunder, prohibits a person from engaging in or continuing to engage in activities or transactions in which it is legally engaged or authorized to engage on the date of enactment of the Energy Policy Act, if that person continues to comply with the terms (other than an expiration date or termination date) of any such authorization, whether by rule or by order. Upon the effective date of the repeal of PUHCA, the Governmental Approval set forth above will not be necessary for the performance by the Borrower of this Agreement or for the legality, validity or enforceability thereof.

SCHEDULE 4.01

REPAID INDEBTEDNESS

Indebtedness of the Borrower under the Credit Agreement dated as of September 30, 2002 among the Borrower, JP Morgan Chase Bank, as Administrative Agent, and the Lenders party thereto (as amended).

EXHIBIT A

[ASSIGNMENT AND ASSUMPTION]

Reference is made to the Credit Agreement dated as of August 19, 2005 (as amended and in effect on the date hereof, the “ Credit Agreement ”), among National Gas Fuel Company, the Lenders named therein and JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders. Terms defined in the Credit Agreement are used herein with the same meanings.

The Assignor named below hereby sells and assigns, without recourse, to the Assignee named below, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Assignment Date set forth below, the interests set forth below (the “ Assigned Interest ”) in the Assignor’s rights and obligations under the Credit Agreement, including, without limitation, the interests set forth below in the Multi-Year Facility Commitment of the Assignor on the Assignment Date and Multi-Year Facility Loans owing to the Assignor which are outstanding on the Assignment Date, but excluding accrued interest and fees to and excluding the Assignment Date. The Assignee hereby acknowledges receipt of a copy of the Credit Agreement. From and after the Assignment Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest, relinquish its rights and be released from its obligations under the Credit Agreement.

This Assignment and Assumption is being delivered to the Administrative Agent together with (i) if the Assignee is a Foreign Lender, any documentation required to be delivered by the Assignee pursuant to Section 2.14(e) of the Credit Agreement, duly completed and executed by the Assignee, and (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form supplied by the Administrative Agent, duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee payable to the Administrative Agent pursuant to Section 8.04(b) of the Credit Agreement.

This Assignment and Assumption shall be governed by and construed in accordance with the laws of the State of New York.

Date of Assignment:

Legal Name of Assignor:

Legal Name of Assignee:

Assignee’s Address for Notices:

Effective Date of Assignment
(“ Assignment Date ”):

B-2


		Percentage Assigned
		of Loan/Commitment
		(set forth, to at least 8 decimals, as a
		percentage of the
		Loan and the
		aggregate
	Principal Amount	Commitments of all
Facility	Assigned	Lenders thereunder)
Multi-Year Facility Commitment Assigned:	$		%
Multi-Year Facility Loans

The terms set forth above are hereby agreed to:


		[ Name of Assignor ],
				as Assignor

		By:
				Name:
				Title:

		[Name of Assignee],
				as Assignee

		By:
				Name:
				Title:

The undersigned hereby consent to the within assignment: ¹


National Fuel Gas Company			JPMorgan Chase Bank, N.A.,
			as Administrative Agent

By:		By:
	Name:		Name:
	Title:		Title:


¹		Consents to be included to the extent required by Section 8.04(b) of the Credit Agreement.

Exhibit 10.2

NATIONAL FUEL GAS COMPANY
1993 AWARD AND OPTION PLAN

As Amended October 27, 1995, December 11, 1996, December 18, 1996, June 14, 2001 and
September 8, 2005

Purpose

The purposes of the Plan are to advance the interests of the Company and its stockholders, by providing a long-term incentive compensation program that will be an incentive to the Key Employees of the Company and its Subsidiaries whose contributions are important to the continued success of the Company and its Subsidiaries, and by enhancing their ability to attract and retain in their employ highly qualified persons for the successful conduct of their businesses.

Definitions

2.1 “Acceleration Date” means (i) in the event of a Change in Ownership, the date on which such change occurs, or (ii) with respect to a Participant who is eligible for treatment under paragraph 24 hereof on account of the termination of his employment following a Change in Control, the date on which such termination occurs.

2.2 “Award” means any form of stock option, stock appreciation right, Restricted Stock, performance unit, performance share or other incentive award granted by the Committee to a Participant under the Plan pursuant to such terms and conditions as the Committee may establish. An Award may be granted singly, in combination or in the alternative.

2.3 “Award Notice” means a written notice from the Company to a Participant that sets forth the terms and conditions of an Award in addition to those established by this Plan and by the Committee’s exercise of its administrative powers.

2.4 “Board” means the Board of Directors of the Company.

2.5 “Cause” means (i) the willful and continued failure by a Key Employee to substantially perform his duties with his employer after written warnings specifically identifying the lack of substantial performance are delivered to him by his employer, or (ii) the willful engaging by a Key Employee in illegal conduct which is materially and demonstrably injurious to the Company or a Subsidiary.

2.6 “Change in Control” shall be deemed to have occurred at such time as (i) any “person” within the meaning of Section 14(d) of the Exchange Act, other than the Company, a Subsidiary, or any employee benefit plan or plans sponsored by the Company or any Subsidiary, is or has become the “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of twenty percent (20%) or more of the combined voting power of the outstanding securities of the Company ordinarily having the right to vote at the election of directors, or (ii) approval by the stockholders of the Company of (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of stock of the Company would be converted into cash, securities or other property, other than a consolidation or merger of the Company in which the common stockholders of the Company immediately prior to the consolidation or merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger as immediately before, or (b) any consolidation or merger in which the Company is the

continuing or surviving corporation but in which the common stockholders of the Company immediately prior to the consolidation or merger do not hold at least a majority of the outstanding common stock of the continuing or surviving corporation (except where such holders of Common Stock hold at least a majority of the common stock of the corporation which owns all of the common stock of the Company), or (c) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, or (iii) individuals who constitute the Board on February 17, 1993 (the “Incumbent Board”) have ceased for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to February 17, 1993 whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least three-quarters ( 3/4) of the directors comprising the Incumbent Board (either by specific vote or by approval of the proxy statement of the Company in which such person is named as nominee for director without objection to such nomination) shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board.

2.7 “Change in Control Price” means, in respect of a Change in Control, the highest closing price per share paid for the purchase of Common Stock on the New York Stock Exchange, another national stock exchange or the National Association of Securities Dealers Automated Quotation System during the ninety (90) day period ending on the date the Change in Control occurs, and in respect of a Change in Ownership, the highest closing price per share paid for the purchase of Common Stock on the New York Stock Exchange, another national stock exchange or the National Association of Securities Dealers Automated Quotation System during the ninety (90) day period ending on the date the Change in Ownership occurs.

2.8 “Change in Ownership” means a change which results directly or indirectly in the Company’s Common Stock ceasing to be actively traded on a national securities exchange or the National Association of Securities Dealers Automated Quotation System.

2.9 “Code” means the Internal Revenue Code of 1986, as amended from time to time.

2.10 “Committee” means the Compensation Committee of the Board, or such other committee designated by the Board as authorized to administer the Plan. The Committee shall consist of not less than two (2) members of the Board, each of whom shall be a Disinterested Board Member. A Disinterested Board Member means a member who (a) is not a current employee of the Company or a Subsidiary, (b) is not a former employee of the Company or a Subsidiary who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, (c) has not been an officer of the Company, (d) does not receive remuneration from the Company or a Subsidiary, either directly or indirectly, in any capacity other than as a director and (e) does not possess an interest in any other transaction, and is not engaged in a business relationship, for which disclosure would be required pursuant to Item 404(a) or (b) of Regulation S-K under the Securities Act of 1933, as amended. The term Disinterested Board Member shall be interpreted in such manner as shall be necessary to conform to the requirements of Section 162(m) of the Code and Rule 16b-3 promulgated under the Exchange Act.

2.11 “Common Stock” means the common stock of the Company.

2.12 “Company” means National Fuel Gas Company.

2.13 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

2.14 “Fair Market Value” of a share of Common Stock on any date means the average of the high and low sales prices of a share of Common Stock as reflected in the report of consolidated trading of New York Stock Exchange-listed securities for that date (or, if no such shares were publicly traded on that date, the next preceding date that such shares were so traded)

published in The Wall Street Journal or in any other publication selected by the Committee; provided, however, that if shares of Common Stock shall not have been publicly traded for more than ten (10) days immediately preceding such date, then the Fair Market Value of a share of Common Stock shall be determined by the Committee in such manner as it may deem appropriate.

2.15 “Good Reason” means a good faith determination made by a Participant that there has been any (i) material change by the Company of the Participant’s functions, duties or responsibilities which change could cause the Participant’s position with the Company to become of less dignity, responsibility, importance, prestige or scope, including, without limitation, the assignment to the Participant of duties and responsibilities inconsistent with his positions, (ii) assignment or reassignment by the Company of the Participant without the Participant’s consent, to another place of employment more than 30 miles from the Participant’s current place of employment, or (iii) reduction in the Participant’s total compensation or benefits or any component thereof, provided in each case that the Participant shall specify the event relied upon for such determination by written notice to the Board at any time within six months after the occurrence of such event.

2.16 “Key Employee” means an officer or other key employee of the Company or a Subsidiary as determined by the Committee.

2.17 “Participant” means any individual to whom an Award has been granted by the Committee under this Plan.

2.18 “Plan” means the National Fuel Gas Company 1993 Award and Option Plan.

2.19 “Pre-Split” and “Post-Split” means before and after giving effect to the two-for-one stock split of all shares outstanding at close of business August 24, 2001, to be effective on September 7, 2001.

2.20 “Restricted Stock” means an Award granted pursuant to paragraph 10 hereof.

2.21 “Subsidiary” means a corporation or other business entity in which the Company directly or indirectly has an ownership interest of eighty percent (80%) or more.

2.22 “Unit” means a bookkeeping entry used by the Company to record and account for the grant of the following Awards until such time as the Award is paid, cancelled, forfeited or terminated, as the case may be: Units of Common Stock, performance units, and performance shares which are expressed in terms of Units of Common Stock.

Administration

under this Plan or any other executive compensation or stock option plan of the Company or a Subsidiary. All determinations of the Committee shall be made by a majority of its members, and its determinations shall be final, binding and conclusive. The Committee, in its discretion, may delegate its authority and duties under the Plan to the Chief Executive Officer or to other senior officers of the Company to the extent permitted by Section 16 of the Exchange Act and notwithstanding any other provision of this Plan or an Award Notice, under such conditions as the Committee may establish; provided, however, that only the Committee may select and grant Awards and render other decisions as to the timing, pricing and amount of Awards to Participants who are subject to Section 16 of the Exchange Act. For the avoidance of doubt, neither the Committee nor any delegate thereof shall take any action under the Plan, including without limitation pursuant to this Section 3, which would result in the imposition of an additional tax under section 409A of the Code on the Participant holding an Award granted hereunder.

Eligibility

Any Key Employee is eligible to become a Participant of the Plan.

Shares Available

The maximum number of post-split shares of Common Stock, $1.00 par value, of the Company which shall be available for grant of Awards under the Plan (including incentive stock options) during its term shall not exceed 4,290,900; subject to adjustment as provided in paragraph 17. Awards covering no more than 650,000 post-split shares of Common Stock (subject to adjustment as provided in paragraph 17) may be granted to any Participant in any fiscal year of the Company. The 1,090,900 post-split shares made available by the Plan Amendment approved at the 2001 Special Meeting of Shareholders will be available only for Awards of stock options. Any shares of Common Stock related to Awards which terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such shares, are settled in cash in lieu of Common Stock, or are exchanged with the Committee’s permission for Awards not involving Common Stock, shall be available again for grant under the Plan, provided, however, that if dividends or dividend equivalents pursuant to paragraph 14, or other benefits of share ownership (not including the right to vote the shares) have been received by the Participant in respect of an Award prior to such termination, settlement or exchange, the shares which were the subject of the Award shall not again be available for grant under the Plan. Further, any shares of Common Stock which are used by a Participant for the full or partial payment to the Company of the purchase price of shares of Common Stock upon exercise of a stock option, or for any withholding taxes due as a result of such exercise, shall again be available for Awards under the Plan. Similarly, shares of Common Stock with respect to which an Alternative SAR has been exercised and paid in cash shall again be available for grant under the Plan. Shares to which independent or combination SARs relate shall not count against the 4,290,900 post-split limit set forth in this paragraph 5. The shares of Common Stock available for issuance under the Plan may be authorized and unissued shares or treasury shares. The number of shares of Common Stock issued under this Plan on or before August 24, 2001 was doubled pursuant to the two-for-one stock split effective September 7, 2001. The additional shares issued under this Plan as a result of that stock split count against the 4,290,900 shares of post-split stock available as set forth in this paragraph 5 for grant of Awards under this Plan.

Term

The Plan shall become effective as of February 18, 1993, subject to its approval by the Company’s stockholders at the 1993 Annual Meeting of Stockholders and subject to the approval of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, as amended. No Awards shall be exercisable or payable before these approvals of the Plan have been obtained. Awards shall not be granted pursuant to the Plan after February 17, 2003; provided, however, that incentive stock options shall not be granted pursuant to the Plan after December 9, 2002.

Participation

The Committee shall select Participants, determine the type of Awards to be made, and establish in the related Award Notices the applicable terms and conditions of the Awards in addition to those set forth in this Plan and the administrative rules issued by the Committee.

Stock Options

(a) Grants . Awards may be granted in the form of stock options. These stock options may be incentive stock options within the meaning of Section 422 of the Code or non-qualified stock options (i.e., stock options which are not incentive stock options), or a combination of both.

(b) Terms and Conditions of Options . Unless the Award Notice provides otherwise, an option shall be exercisable in whole or in part. The price at which Common Stock may be purchased upon exercise of a stock option shall be established by the Committee, but such price shall not be less than the Fair Market Value of the Common Stock on the date of the stock option’s grant. An Award Notice evidencing a stock option may, in the discretion of the Committee, provide that a Participant who pays the option price of a stock option by an exchange of shares of Common Stock previously owned by the Participant shall automatically be issued a new stock option to purchase additional shares of Common Stock equal to the number of shares of Common Stock so exchanged. Such new stock option shall have an option price equal to the Fair Market Value of the Common Stock on the date such new stock option is issued and shall be subject to such other terms and conditions as the Committee deems appropriate. Unless the Award Notice provides otherwise, each incentive stock option shall first become exercisable on the first anniversary of its date of grant, and each non-qualified stock option shall first become exercisable on the first anniversary of its date of grant, or, if earlier (i) on the date of the Participant’s death occurring after the date of grant, (ii) six months after the date of grant, if the Participant has voluntarily resigned on or after his 60th birthday, after the date of grant, and before such six months, or (iii) on the date of the Participant’s voluntary resignation on or after his 60th birthday and at least six months after the date of grant. Unless the Award Notice provides otherwise, each non-qualified stock option shall expire on the day after the tenth anniversary of its date of grant, and incentive stock options and non-qualified stock options granted in combination may be exercised separately.

(c) Restrictions Relating to Incentive Stock Options . Stock options issued in the form of incentive stock options shall, in addition to being subject to all applicable terms and conditions established by the Committee, comply with Section 422 of the Code. Accordingly, the aggregate Fair Market Value (determined at the time the option was granted) of the Common Stock with respect to which incentive stock options are exercisable for the first time by a Participant during any calendar year (under this Plan or any other plan of the Company or any of its Subsidiaries) shall not exceed $100,000 (or such other limit as may be required by the Code). Unless the Award Notice provides a shorter period, each incentive stock option shall expire on the tenth anniversary of its date of grant. The number of post-split shares of Common Stock that shall be available for incentive stock options granted under the Plan is 4,290,900.

(d) Exercise of Option . Upon exercise, the option price of a stock option may be paid in cash, shares of Common Stock, shares of Restricted Stock, a combination of the foregoing, or such other consideration as the Committee may deem appropriate. The Committee shall establish appropriate methods for accepting Common Stock, whether restricted or unrestricted, and may impose such conditions as it deems appropriate on the use of such Common Stock to exercise a stock option. The Committee, in its sole discretion, may establish procedures whereby a Participant to the extent permitted by and subject to the requirements of Rule 16b-3 under the Exchange Act, Regulation T issued by the Board of Governors of the Federal Reserve System pursuant to the Exchange Act, federal income tax laws, and other federal, state and local tax and securities laws, can exercise an option or a portion thereof without making a direct payment of the

option price to the Company. If the Committee so elects to establish a cashless exercise program, the Committee shall determine, in its sole discretion and from time to time, such administrative procedures and policies as it deems appropriate. Such procedures and policies shall be binding on any Participant wishing to utilize the cashless exercise program.

Stock Appreciation Rights

(a) Grants and Valuation . Awards may be granted in the form of stock appreciation rights (“SARs”) until June 15, 2001. SARs may be granted singly (“Independent SARs”), in combination with all or a portion of a related stock option under the Plan (“Combination SARs”), or in the alternative (“Alternative SARs”). Combination or Alternative SARs may be granted either at the time of the grant of related stock options or at any time thereafter during the term of the stock options. Combination SARs shall be subject to paragraph 9(b) hereof. Alternative SARs shall be subject to paragraph 9(c) hereof. Independent SARs shall be subject to paragraph 9(d) hereof. Unless this Plan or the Award Notice provides otherwise, SARs shall entitle the recipient to receive a payment equal to the appreciation in the Fair Market Value of a stated number of shares of Common Stock from the award date to the date of exercise. In the case of SARs granted in combination with, or in the alternative to, stock options granted prior to the grant of such SARs, the appreciation in value is from the option price of such related stock option to the Fair Market Value on the date of exercise. Unless this Plan or the Award Notice provides otherwise, SARs granted in conjunction with stock options shall be Combination SARs, and all SARs shall be exercisable between one year and ten years and one day after the date of their award.

(b) Terms and Conditions of Combination SARs . Both the stock options granted in conjunction with Combination SARs and the Combination SARs may be exercised. Combination SARs shall be exercisable only to the extent the related stock option is exercisable, and the base from which the value of the Combination SARs is measured at its exercise shall be the option price of the related stock option. Combination SARs may be exercised either together with the related stock option or separately. If a Participant exercises a Combination SAR or related stock option, but not both, the other shall remain outstanding and shall remain exercisable during the entire exercise period.

(c) Terms and Conditions of Alternative SARs . Either the stock options granted in the alternative to Alternative SARs or the Alternative SARs may be exercised, but not both. Alternative SARs shall be exercisable only to the extent that the related stock option is exercisable, and the base from which the value of the Alternative SARs is measured at its exercise shall be the option price of the related stock option. If related stock options are exercised as to some or all of the shares covered by the Award, the related Alternative SARs shall be cancelled automatically to the extent of the number of shares covered by the stock option exercise. Upon exercise of Alternative SARs as to some or all of the shares covered by the Award, the related stock option shall be cancelled automatically to the extent of the number of shares covered by such exercise, and such shares shall again be eligible for grant in accordance with paragraph 5 hereof.

(d) Terms and Conditions of Independent SARs . Independent SARs shall be exercisable in whole or in such installments and at such time as may be determined by the Committee. The base price from which the value of an Independent SAR is measured shall also be determined by the Committee; provided, however, that such price shall not be less than the Fair Market Value of the Common Stock on the date of the grant of the Independent SAR.

(e) Deemed Exercise . The Committee may provide that an SAR shall be deemed to be exercised at the close of business on the scheduled expiration date of such SAR, if at such time the SAR by its terms remains exercisable and, if so exercised, would result in a payment to the holder of such SAR.

(f) Conversion of SARs to Non-Qualified Stock Options . Each unexercised SAR shall be convertible to a non-qualified option to purchase one share of Common Stock, at the option of the Committee and with the consent of the Participant to whom that SAR was awarded (or his successor or assignee). Notwithstanding paragraph 8(b), such an option will have the same exercise price and expiration date as did the converted SAR, and will have the same other terms and conditions as the other non-qualified stock options issued to the same Participant and on the same day as the converted SAR. A share issued upon exercise of such an option will count against the 4,290,900 post-split shares available under paragraph 5. For purposes of the limit set forth in paragraph 5 that Awards covering no more than 650,000 post-split shares of Common Stock may be granted to a Participant in a fiscal year, the conversion of a SAR into an option in accordance with this paragraph 9(f) will not count as an Award granted in the fiscal year in which the conversion takes place.

10.

Restricted Stock

(a) Grants . Awards may be granted in the form of Restricted Stock. Shares of Restricted Stock shall be awarded in such amounts and at such times during the term of the Plan as the Committee shall determine.

(b) Award Restrictions . Restricted Stock shall be subject to such terms and conditions as the Committee deems appropriate, including restrictions on transferability and continued employment. No more than 50,000 restricted pre-split shares may be issued in a single fiscal year. The Committee may modify or accelerate the delivery of shares of Restricted Stock under such circumstances as it deems appropriate.

(c) Rights as Stockholders . During the period in which any shares of Restricted Stock are subject to the restrictions imposed under paragraph 10(b), the Committee may, in its discretion, grant to the Participant to whom shares of Restricted Stock have been awarded all or any of the rights of a stockholder with respect to such shares, including, but not by way of limitation, the right to vote such shares and to receive dividends.

(d) Evidence of Award . Any shares of Restricted Stock granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates.

11.

Performance Units

(a) Grants . Awards may be granted in the form of performance units. Performance units shall refer to the Units valued by reference to designated criteria established by the Committee, other than Units which are expressed in terms of Common Stock.

(b) Performance or Service Criteria . Performance units shall be contingent on the attainment during a performance period of certain performance and/or service objectives. The length of the performance period, the performance or service objectives to be achieved, and the extent to which such objectives have been attained shall be conclusively determined by the Committee in the exercise of its absolute discretion. Performance and service objectives may be revised by the Committee during the performance period, in order to take into consideration any unforeseen events or changes in circumstances.

12.

Performance Shares

(a) Grants . Awards may be granted in the form of performance shares. Performance shares shall refer to shares of Common Stock or Units which are expressed in terms of Common Stock, including shares of phantom stock.

(b) Performance or Service Criteria . Performance shares shall be contingent upon the attainment during a performance period of certain performance or service objectives.

The length of the performance period, the performance or service objectives to be achieved, and the extent to which such objectives have been attained shall be conclusively determined by the Committee in the exercise of its absolute discretion. Performance and service objectives may be revised by the Committee during the performance period, in order to take into consideration any unforeseen events or changes in circumstances.

13.

Payment of Awards

At the discretion of the Committee, payment of Awards may be made in cash, Common Stock, a combination of cash and Common Stock, or any other form of property as the Committee shall determine.

14.

Dividends and Dividend Equivalents

If an Award is granted in the form of Restricted Stock, stock options, or performance shares, or in the form of any other stock-based grant, the Committee may, at any time up to the time of payment, include as part of an Award an entitlement to receive dividends or dividend equivalents, subject to such terms and conditions as the Committee may establish. Dividends and dividend equivalents shall be paid in such form and manner (i.e., lump sum or installments), and at such time as the Committee shall determine. All dividends or dividend equivalents which are not paid currently may, at the Committee’s discretion, accrue interest, be reinvested into additional shares of Common Stock or, in the case of dividends or dividend equivalents credited in connection with performance shares, be credited as additional performance shares and paid to the Participant if and when, and to the extent that, payment is made pursuant to such Award.

15.

Termination of Employment

(a) General Rule . Subject to paragraph 19, if a Participant’s employment with the Company or a Subsidiary terminates for a reason other than death, disability, retirement, or any approved reason, all unexercised, unearned or unpaid. Awards shall be cancelled or forfeited as the case may be, unless otherwise provided in this paragraph or in the Participant’s Award Notice. The Committee shall have the authority to promulgate rules and regulations to (i) determine what events constitute disability, retirement, or termination for an approved reason for purposes of the Plan, and (ii) determine the treatment of a Participant under the Plan in the event of his death, disability, retirement, or termination for an approved reason.

(b) Incentive Stock Options . Unless the Award Notice provides otherwise, any incentive stock option which has not theretofore expired, shall terminate upon termination of the Participant’s employment with the Company whether by death or otherwise, and no shares of Common Stock may thereafter be purchased pursuant to such incentive stock option, except that:

(i) Upon termination of employment (other than by death), a Participant may, within three months after the date of termination of employment, purchase all or part of any shares of Common Stock which the Participant was entitled to purchase under such incentive stock option on the date of termination of employment.

(ii) Upon the death of any Participant while employed with the Company or within the three-month period referred to in paragraph 15(b)(i) above, the Participant’s estate or the person to whom the Participant’s rights under the incentive stock option are transferred by will or the laws of descent and distribution may, within one year after the date of the Participant’s death, purchase all or part of any shares of Common Stock which the Participant was entitled to purchase under such incentive stock option on the date of death.

Notwithstanding anything in this paragraph 15(b) to the contrary, the Committee may at any time within the three-month period after the date of termination of a

Participant’s employment, with the consent of the Participant, the Participant’s estate or the person to whom the Participant’s rights under the incentive stock options are transferred by will or the laws of descent and distribution, extend the period for exercise of the Participant’s incentive stock options to any date not later than the date on which such incentive stock options would have otherwise expired absent such termination of employment. Nothing in this paragraph 15(b) shall authorize the exercise of an incentive stock option after the expiration of the exercise period therein provided, nor later than ten years after the date of grant.

(c) Non-Qualified Stock Options . Unless the Award Notice provides otherwise, any non-qualified stock option which has not theretofore expired shall terminate upon termination of the Participant’s employment with the Company, and no shares of Common Stock may thereafter be purchased pursuant to such non-qualified stock option, except that:

(i) Upon termination of employment for any reason other than death, discharge by the Company for cause, or voluntary resignation of the Participant prior to age 60, a Participant may, within five years after the date of termination of employment, exercise all or part of the non-qualified stock option which the Participant was entitled to exercise on the date of termination of employment or subsequently becomes eligible to exercise pursuant to paragraph 8(b) above.

(ii) Upon the death of a Participant while employed with the Company or within the period referred to in paragraph 15(c)(i) above, the Participant’s estate or the person to whom the Participant’s rights under the non-qualified stock option are transferred by will or the laws of descent and distribution may, within five years after the date of the Participant’s death while employed, or within the period referred to in paragraph 15(c)(i) above, exercise all or part of the non-qualified stock option which the Participant was entitled to exercise on the date of death.

Nothing in this paragraph 15(c) shall authorize the exercise of a non-qualified stock option later than the exercise period set forth in the Award Notice.

16.

Nonassignability

No Award under the Plan shall be subject in any manner to alienation, anticipation, sale, transfer (except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order), assignment, pledge or encumbrance, except that all awards of nonqualified stock options or SAR’s shall be transferable without consideration, subject to all the terms and conditions to which such nonqualified stock options or SARs are otherwise subject, to (i) members of a Participant’s immediate family as defined in Rule 16a-1 promulgated under the Exchange Act, or any successor rule or regulation, (ii) trusts for the exclusive benefit of the Participant or such immediate family members or (iii) entities which are wholly-owned by the Participant or such immediate family members, provided that (x) there may be no consideration for any such transfer, and (y) subsequent transfers of transferred options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, and except as provided in the next sentence, the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment under Section 15(c) hereof shall continue to be applied with reference to the original Participant and following the termination of employment of the original Participant, the options shall be exercisable by the transferee only to the extent, and for the periods specified in Section 15(c), that the original Participant could have exercised such option. Except as expressly permitted by this paragraph, an Award shall be exercisable during the Participant’s lifetime only by him.

17.

Adjustment of Shares Available

(a) Changes in Stock . In the event of changes in the Common Stock by reason of a Common Stock dividend or stock split-up or combination, appropriate adjustment shall be made

by the Committee in the aggregate number of shares available under the Plan and the number of shares, SARs, performance shares, Common Stock units and other stock-based interests subject to outstanding Awards, without, in the case of stock options, change in the aggregate purchase price to be paid therefor. Such proper adjustment as may be deemed equitable may be made by the Committee in its discretion to give effect to any other change affecting the Common Stock.

(b) Changes in Capitalization . In case of a merger or consolidation of the Company with another corporation, a reorganization of the Company, a reclassification of the Common Stock of the Company, a spin-off of a significant asset, or other changes in the capitalization of the Company, appropriate provision shall be made for the protection and continuation of any outstanding Awards by either (i) the substitution, on an equitable basis, of appropriate stock or other securities or other consideration to which holders of Common Stock of the Company will be entitled pursuant to such transaction or succession of transactions, or (ii) by appropriate adjustment in the number of shares issuable pursuant to the Plan, the number of shares covered by outstanding Awards, the option price of outstanding stock options, the exercise price of outstanding SARs, the performance or service criteria or performance period of outstanding performance units, and the performance or service criteria or performance period of outstanding performance shares, as deemed appropriate by the Committee.

18.

Withholding Taxes

The Company shall be entitled to deduct from any payment under the Plan, regardless of the form of such payment, the amount of all applicable income and employment taxes required by law to be withheld with respect to such payment or may require the participant to pay to it such tax prior to and as a condition of the making of such payment. A Participant may pay the amount of taxes required by law to be withheld from an Award by requesting that the Company withhold from any payment of Common Stock due as a result of such Award, or by delivering to the Company, shares of Common Stock having a Fair Market Value less than or equal to the amount of such required withholding taxes.

19.

Noncompetition Provision

Notwithstanding anything contained in this Plan to the contrary, unless the Award Notice specifies otherwise, a Participant shall forfeit all unexercised, unearned, and/or unpaid Awards, including Awards earned but not yet paid, all unpaid dividends and dividend equivalents, and all interest, if any, accrued on the foregoing if, (i) in the opinion of the Committee, the Participant, without the written consent of the Company, engages directly or indirectly in any manner or capacity as principal, agent, partner, officer, director, employee, or otherwise, in any business or activity competitive with the business conducted by the Company or any Subsidiary; or (ii) the Participant performs any act or engages in any activity which in the opinion of the Committee is inimical to the best interests of the Company.

20.

Amendments to Awards

The Committee may at any time unilaterally amend any unexercised, unearned, or unpaid Award, including Awards earned but not yet paid, to the extent it deems appropriate; provided, however, that any such amendment which is adverse to the Participant shall require the Participant’s consent. Notwithstanding the foregoing, the Committee may not amend an Award in any manner that would result in the imposition of an additional tax under section 409A of the Code on the Participant holding such Award.

21.

Regulatory Approvals and Listings

governmental agency which the Company shall, in its sole discretion, determine to be necessary or advisable, (b) the admission of such shares to listing on the stock exchange on which the Common Stock may be listed, and (c) the completion of any registration or other qualification of said shares under any state or federal law or ruling of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable.

22.

No Right to Continued Employment or Grants

Participation in the Plan shall not give any Key Employee any right to remain in the employ of the Company or any Subsidiary. The Company or, in the case of employment with a Subsidiary, the Subsidiary, reserves the right to terminate any Key Employee at any time. Further, the adoption of this Plan shall not be deemed to give any person any right to be selected as a Participant or to be granted an Award.

23.

Amendment

The Board may suspend or terminate the Plan at any time. In addition, the Board may, from time to time, amend the Plan in any manner, provided, however, that any such amendment may be subject to stockholder approval (i) at the discretion of the Board and (ii) to the extent that shareholder approval may be required by law, including, but not limited to, the requirements of Rule 16b-3 under the Exchange Act, or any successor rule or regulation. Notwithstanding the foregoing, the Board may not amend the Plan in any manner that would result in the imposition of an additional tax under section 409A of the Code on any Participant.

24.

Change in Control and Change in Ownership

(a) Background . All Participants shall be eligible for the treatment afforded by this paragraph 24 if there is a Change in Ownership or if their employment terminates within two years following a Change in Control, unless the termination is due to (i) death; (ii) disability entitling the Participant to benefits under his employer’s long-term disability plan; (iii) Cause; (iv) resignation by the Participant other than for Good Reason; or (v) retirement entitling the Participant to benefits under his employer’s retirement plan.

(b) Vesting and Lapse of Restrictions . If a Participant is eligible for treatment under this paragraph 24, (i) all of the terms and conditions in effect on any unexercised, unearned, or unpaid Awards shall immediately lapse as of the Acceleration Date; (ii) no other terms or conditions shall be imposed upon any Awards on or after such date, and in no event shall any Award be forfeited on or after such date; and (iii) all of his unexercised, unvested, unearned and/or unpaid Awards or any other outstanding Awards shall automatically become one hundred percent (100%) vested immediately upon such date.

(c) Dividends and Dividend Equivalents . If a Participant is eligible for treatment under this paragraph 24, all unpaid dividends and dividend equivalents and all interest accrued thereon, if any, shall be treated and paid under this paragraph 24 in the identical manner and time as the Award under which such dividends or dividend equivalents have been credited. For example, if upon a Change in Ownership, an Award under this paragraph 24 is to be paid in a prorated fashion, all unpaid dividends and dividend equivalents with respect to such Award shall be paid according to the same formula used to determine the amount of such prorated Award.

(d) Treatment of Performance Units and Performance Shares . If a Participant holding either performance units or performance shares is eligible for treatment under this paragraph 24, the provisions of this paragraph (d) shall determine the manner in which such performance units and/or performance shares shall be paid to him. For purposes of making such payment, each “current performance period” (defined to mean a performance period or term of a performance unit or performance share which period or term has commenced but not yet ended), shall be treated as terminating upon the Acceleration Date, and for each such “current performance

period” and each “completed performance period” (defined to mean a performance period or term of a performance unit or performance share which has ended but for which the Committee has not, on the Acceleration Date, made a determination as to whether and to what degree the performance or service objectives for such period have been attained), it shall be assumed that the performance or service objectives have been attained at a level of one hundred percent (100%) or the equivalent thereof. If the Participant is participating in one or more “current performance periods,” he shall be considered to have earned and, therefore, to be entitled to receive, a prorated portion of the Awards previously granted to him for each such performance period. Such prorated portion shall be determined by multiplying the number of performance shares or performance units, as the case may be, granted to the Participant by a fraction, the numerator of which is the total number of whole and partial years (with each partial year being treated as a whole year) that have elapsed since the beginning of the performance period, and the denominator of which is the total number of years in such performance period. A Participant in one or more “completed performance periods” shall be considered to have earned and, therefore, be entitled to receive all the performance shares and performance units previously granted to him during each performance period.

(e) Valuation of Awards . If a Participant is eligible for treatment under this paragraph 24, his Awards (including those earned as a result of the application of paragraph 24(d) above) shall be valued and cashed out on the basis of the Change in Control Price.

(f) Payment of Awards . If a Participant is eligible for treatment under this paragraph 24, whether or not he is still employed by the Company or a Subsidiary, he shall be paid, in a single lump sum cash payment, as soon as practicable but in no event later than 90 days after the Acceleration Date, for all outstanding Units of Common Stock, Independent and Combination SARs, stock options (including incentive stock options), performance units (including those earned as a result of the application of paragraph 24(d) above), and performance shares (including those earned as a result of paragraph 24(d) above), and all other outstanding Awards, including those granted by the Committee pursuant to its authority under paragraph 3(h) hereof.

(g) Miscellaneous . Upon a Change in Control or a Change in Ownership, (i) the provisions of paragraphs 15, 19, and 20 hereof shall become null and void and of no force and effect insofar as they apply to a Participant who has been terminated under the conditions described in (a) above; and (ii) no action shall be taken which would affect the rights of any Participant or the operation of the Plan with respect to any Award to which the Participant may have become entitled hereunder on or prior to the date of the Change in Control or Change in Ownership or to which he may become entitled as a result of such Change in Control or Change in Ownership.

(h) Legal Fees . The Company shall pay all legal fees and related expenses incurred by a Participant in seeking to obtain or enforce any payment, benefit or right he may be entitled to under the Plan after a Change in Control or Change in Ownership; provided, however, the Participant shall be required to repay any such amounts to the Company to the extent a court of competent jurisdiction issues a final and non-appealable order setting forth the determination that the position taken by the Participant was frivolous or advanced in bad faith.

25.

No Right, Title or Interest in Company Assets

No Participant shall have any rights as a stockholder as a result of participation in the Plan until the date of issuance of a stock certificate in his name, and, in the case of Restricted Stock, stock options, performance shares or any other stock-based grant, such rights are granted to the Participant under paragraph 10(c) hereof. To the extent any person acquires a right to receive payments from the Company under this Plan, such rights shall be no greater than the rights of an unsecured creditor of the Company.

Exhibit 10.3

NATIONAL FUEL GAS COMPANY
1997 AWARD AND OPTION PLAN

As Amended December 9, 1999, February 17, 2000, and June 14, 2001 and September 8, 2005

1. Purpose

The purpose of the Plan is to advance the interests of the Company and its stockholders, by providing a long-term incentive compensation program that will be an incentive to the Core Employees of the Company and its Subsidiaries whose contributions are important to the continued success of the Company and its Subsidiaries, and by enhancing their ability to attract and retain in their employ highly qualified persons for the successful conduct of their businesses.

2. Definitions

2.1 “Acceleration Date” means (i) in the event of a Change in Ownership, the date on which such change occurs, or (ii) with respect to a Participant who is eligible for treatment under paragraph 22 hereof on account of the termination of his employment following a Change in Control, the date on which such termination occurs.

2.2 “Award” means any form of stock option, stock appreciation right, Restricted Stock, or other incentive award granted by the Committee to a Participant under the Plan pursuant to such terms and conditions as the Committee may establish. An Award may be granted singly, in combination or in the alternative.

2.4 “Board” means the Board of Directors of the Company.

2.5 “Cause” means (i) the willful and continued failure by a Core Employee to substantially perform his duties with his employer after written warnings specifically identifying the lack of substantial performance are delivered to him by his employer, or (ii) the willful engaging by a Core Employee in illegal conduct which is materially and demonstrably injurious to the Company or a Subsidiary.

series of related transactions) of all or substantially all the assets of the Company, or (iii) individuals who constitute the Board on January 1, 1997 (the “Incumbent Board”) have ceased for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to January 1, 1997 whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least three-quarters ( 3/4) of the directors comprising the Incumbent Board (either by specific vote or by approval of the proxy statement of the Company in which such person is named as nominee for director without objection to such nomination) shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board.

2.9 “Code” means the Internal Revenue Code of 1986, as amended from time to time.

2.10 “Committee” means the Compensation Committee of the Board, or such other committee designated by the Board, authorized to administer the Plan. The Committee shall consist of not less than two (2) members of the Board, each of whom shall be a Disinterested Board Member. A “Disinterested Board Member” means a member who (a) is not a current employee of the Company or a Subsidiary, (b) is not a former employee of the Company or a Subsidiary who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, (c) has not been an officer of the Company (d) does not receive remuneration from the Company or a Subsidiary, either directly or indirectly, in any capacity other than as a director and (e) does not possess an interest in any other transaction, and is not engaged in a business relationship, for which disclosure would be required pursuant to Item 404(a) or (b) of Regulation S-K under the Securities Act of 1933, as amended. The term Disinterested Board Member shall be interpreted in such manner as shall be necessary to conform to the requirements of Section 162(m) of the Code and Rule 16b-3 promulgated under the Exchange Act.

2.11 “Common Stock” means the common stock of the Company.

2.12 “Company” means National Fuel Gas Company.

2.13 “Core Employee” means an officer or other core management employee of the company or a Subsidiary as determined by the Committee. Every Key Management Employee is also a Core Employee.

2.14 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

2.15 “Fair Market Value” of a share of Common Stock on any date means the average of the high and low sales prices of a share of Common Stock as reflected in the report of consolidated trading of New York Stock Exchange-listed securities for that date (or, if no such shares were publicly traded on that date, the next preceding date that such shares were so traded) published in The Wall Street Journal or in any other publication selected by the Committee; provided, however, that if shares of Common Stock shall not have been publicly traded for more than ten (10) days immediately preceding such date, then the Fair Market Value of a share of Common Stock shall be determined by the Committee in such manner as it may deem appropriate.

2.16 “Good Reason” means a good faith determination made by a Participant that there has been any (i) material change by the Company of the Participant’s functions, duties or responsibilities which change

could cause the Participant’s position with the Company to become of less dignity, responsibility, importance, prestige or scope, including, without limitation, the assignment to the Participant of duties and responsibilities inconsistent with his positions, (ii) assignment or reassignment by the Company of the Participant without the Participant’s consent, to another place of employment more than 30 miles from the Participant’s current place of employment, or (iii) reduction in the Participant’s total compensation or benefits or any component thereof, provided in each case that the Participant shall specify the event relied upon for such determination by written notice to the Board at any time within six months after the occurrence of such event.

2.17 “Key Management Employee” means a management employee of the Company or a Subsidiary (i) who has significant policymaking responsibilities, and (ii) whose current base salary at the time an Award is issued is among the highest two percent (2%) of the current base salaries of all the employees of the Company or any Subsidiary, all as determined by the Committee.

2.18 “Participant” means any individual to whom an Award has been granted by the Committee under this Plan.

2.19 “Plan” means the National Fuel Gas Company 1997 Award and Option Plan.

2.20 “Pre-Split” and “Post-Split” means before and after giving effect to the two-for-one stock split of all shares outstanding at close of business August 24, 2001, to be effective on September 7, 2001.

2.21 “Restricted Stock” means an Award granted pursuant to paragraph 10 hereof.

2.22 “Subsidiary” means a corporation or other business entity in which the Company directly or indirectly has an ownership interest of eighty percent (80%) or more.

3. Administration

The Plan shall be administered by the Committee. The Committee shall have the authority to: (a) interpret the Plan; (b) establish such rules and regulations as it deems necessary for the proper administration of the Plan; (c) select Key Management Employees and Core Employees to receive Awards under the Plan; (d) determine the form of an Award, whether a stock option, stock appreciation right, Restricted Stock, or other incentive award established by the Committee in accordance with (h) below, the number of shares subject to the Award, all the terms and conditions of an Award, including the time and conditions of exercise or vesting; (e) determine whether Awards would be granted singly, in combination or in the alternative; (f) grant waivers of Plan terms and conditions, provided that any such waiver granted to an executive officer of the Company shall not be inconsistent with Section 16 of the Exchange Act and the rules promulgated thereunder; (g) accelerate the vesting, exercise, or payment of any Award when any such action would be in the best interest of the Company; and (h) take any and all other action it deems advisable for the proper administration of the Plan. The Committee shall also have the authority to grant Awards in replacement of Awards previously granted under this Plan or any other executive compensation or stock option plan of the Company or a Subsidiary. All determinations of the Committee shall be made by a majority of its members, and its determinations shall be final, binding and conclusive. The Committee, in its discretion, may delegate its authority and duties under the Plan to the Chief Executive Officer or to other senior officers of the Company to the extent permitted by Section 16 of the Exchange Act and notwithstanding any other provision of this Plan or an Award Notice, under such conditions as the Committee may establish; provided, however, that only the Committee may select and grant Awards and render other decisions as to the timing, pricing and amount of Awards to Participants who are subject to Section 16 of the Exchange Act. For the avoidance of doubt, neither the Committee nor any delegate thereof shall take any action under the Plan, including without limitation pursuant to this Section 3, which would result in the imposition of an additional tax under section 409A of the Code on the Participant holding an Award granted hereunder.

4. Eligibility

Any Core Employee is eligible to become a Participant of the Plan who receives Stock Options only. A Key Management Employee is also eligible to become a Participant of the Plan who receives other awards under the Plan.

5. Shares Available

(a) The maximum number of post-split shares of Common Stock, $1.00 par value, of the Company which shall be available for grant of Awards under the Plan (including incentive stock options) during its term shall not exceed 12,509,100, subject to adjustment as provided in paragraph 15. Awards covering no more than 600,000 post-split shares of Common Stock of the Company may be granted to any Participant in any fiscal year subject to adjustment as provided in paragraph 15. Of the 1,900,000 pre-split shares which were made available by the Plan amendment approved at the 2000 Annual Meeting of Stockholders, 1,200,000 of such shares will be available only for awards of stock options. Of the 4,909,100 post-split shares which were made available by the Plan amendment approved at the 2001 Special Meeting of Stockholders, 4,000,000 of such shares will be available only for awards of stock options.

(b) Any shares of Common Stock related to Awards which terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such shares, are settled in cash in lieu of Common Stock, or are exchanged with the Committee’s permission for Awards not involving Common Stock, shall be available again for grant under the Plan, provided, however, that if dividends or dividend equivalents pursuant to paragraph 12, or other benefits of share ownership (not including the right to vote the shares) have been received by the Participant in respect of an Award prior to such termination, settlement or exchange, the shares which were the subject of the Award shall not again be available for grant under the Plan. Further, any shares of Common Stock which are used by a Participant for the full or partial payment to the Company of the purchase price of shares of Common Stock upon exercise of a stock option, or for any withholding taxes due as a result of such exercise, shall again be available for Awards under the Plan. Similarly, shares of Common Stock with respect to which an Alternative SAR has been exercised and paid in cash shall again be available for grant under the Plan. Shares to which independent or combination SARs relate shall not count against the 12,509,100 post-split share limit set forth in this paragraph 5.

(c) The shares of Common Stock available for issuance under the Plan may be authorized and unissued shares or treasury shares. The number of shares of Common Stock issued under this Plan on or before August 24, 2001 was doubled pursuant to the two-for-one stock split effective September 7, 2001. The additional shares issued under this Plan as a result of that stock split count against the 12,509,100 shares of post-split stock available as set forth in paragraph 5(a) for grant of Awards under this Plan.

6. Term

The Plan shall become effective as of December 13, 1996 subject to its approval by the Company’s stockholders at the 1997 Annual Meeting of Stockholders and subject to the approval of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, as amended. No Awards shall be exercisable or payable before these approvals of the Plan have been obtained and all Awards made prior to approval of the Plan by the Company’s stockholders and approval of the Plan by the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, as amended, are contingent upon such approval. Awards shall not be granted pursuant to the Plan after December 12, 2006.

7. Participation

8. Stock Options

(a) Grants. Awards may be granted in the form of stock options. These stock options may be incentive stock options within the meaning of Section 422 of the Code or non-qualified stock options (i.e., stock options which are not incentive stock options), or a combination of both.

(b) Terms and Conditions of Options. Unless the Award Notice provides otherwise, an option shall be exercisable in whole or in part. The price at which Common Stock may be purchased upon exercise of a stock option shall be established by the Committee, but such price shall not be less than the Fair Market Value of the Common Stock on the date of the stock option’s grant. The Committee shall not have the authority to decrease such price after the date of the stock option’s grant, except for adjustments appropriate to reflect a Common Stock dividend, stock split, reverse stock-split or other combination pursuant to Section 15(a). An Award Notice evidencing a stock option may, in the discretion of the Committee, provide that a Participant who pays the option price of a stock option by an exchange of shares of Common Stock previously owned by the Participant shall automatically be issued a new stock option to purchase additional shares of Common Stock equal to the number of shares of Common Stock so exchanged. Such new stock option shall have an option price equal to the Fair Market Value of the Common Stock on the date such new stock option is issued and shall be subject to such other terms and conditions as the Committee deems appropriate. Unless the Award Notice provides otherwise, each incentive stock option shall first become exercisable on the first anniversary of its date of grant, and each non-qualified stock option shall first become exercisable on the first anniversary of its date of grant, or, if earlier (i) on the date of the Participant’s death occurring after the date of grant, (ii) six months after the date of grant, if the Participant has voluntarily resigned on or after his 60th birthday, after the date of grant, and before such six months, or (iii) on the date of the Participant’s voluntary resignation on or after his 60th birthday and at least six months after the date of grant. Unless the Award Notice provides otherwise, each non-qualified stock option shall expire on the day after the tenth anniversary of its date of grant, and incentive stock options and non-qualified stock options granted in combination may be exercised separately.

(c) Restrictions Relating to Incentive Stock Options. Stock options issued in the form of incentive stock options shall, in addition to being subject to all applicable terms and conditions established by the Committee, comply with Section 422 of the Code. Accordingly, the aggregate Fair Market Value (determined at the time the option was granted) of the Common Stock with respect to which incentive stock options are exercisable for the first time by a Participant during any calendar year (under this Plan or any other plan of the Company or any of its Subsidiaries) shall not exceed $100,000 (or such other limit as may be required by the Code). Unless the Award Notice provides a shorter period, each incentive stock option shall expire on the tenth anniversary of its date of grant. The number of post-split shares of Common Stock that shall be available for incentive stock options granted under the Plan is 12,509,100.

(d) Exercise of Option. Upon exercise, the option price of a stock option may be paid in cash, shares of Common Stock, shares of Restricted Stock, a combination of the foregoing, or such other consideration as the Committee may deem appropriate. The Committee shall establish appropriate methods for accepting Common Stock, whether restricted or unrestricted, and may impose such conditions as it deems appropriate on the use of such Common Stock to exercise a stock option. The Committee, in its sole discretion, may establish procedures whereby a Participant to the extent permitted by and subject to the requirements of Rule 16b-3 under the Exchange Act, Regulation T issued by the Board of Governors of the Federal Reserve System pursuant to the Exchange Act, federal income tax laws, and other federal, state and local tax and securities laws, can exercise an option or a portion thereof without making a direct payment of the option price to the Company. If the Committee so elects to establish a cashless exercise program, the Committee shall determine, in its sole discretion and from time to time, such administrative procedures and policies as it

deems appropriate. Such procedures and policies shall be binding on any Participant wishing to utilize the cashless exercise program.

9. Stock Appreciation Rights

(a) Grants and Valuation. Awards may be granted in the form of stock appreciation rights (“SARs”) until June 15, 2001. SARs may be granted singly (“Independent SARs”), in combination with all or a portion of a related stock option under the Plan (“Combination SARs”), or in the alternative (“Alternative SARs”). Combination or Alternative SARs may be granted either at the time of the grant of related stock options or at any time thereafter during the term of the stock options. Combination SARs shall be subject to paragraph 9(b) hereof. Alternative SARs shall be subject to paragraph 9(c) hereof. Independent SARs shall be subject to paragraph 9(d) hereof. Unless this Plan or the Award Notice provides otherwise, SARs shall entitle the recipient to receive a payment equal to the appreciation in the Fair Market Value of a stated number of shares of Common Stock from the award date to the date of exercise. Once a SAR has been issued, the Committee shall not reprice the SAR by changing the initial Fair Market Value from which the payment is calculated except for adjustments appropriate to reflect a Common Stock dividend, stock split, reverse stock-split or other combination pursuant to Section 15(a). In the case of SARs granted in combination with, or in the alternative to, stock options, the appreciation in value is from the option price of such related stock option to the Fair Market Value on the date of exercise of such SARs. Unless this Plan or the Award Notice provides otherwise, SARs granted in conjunction with stock options shall be Combination SARs, and all SARs shall be exercisable between one year and ten years and one day after the date of their award.

(b) Terms and Conditions of Combination SARs. Both the stock options granted in conjunction with Combination SARs and the Combination SARs may be exercised. Combination SARs shall be exercisable only to the extent the related stock option is exercisable, and the base from which the value of the Combination SARs is measured at its exercise shall be the option price of the related stock option. Combination SARs may be exercised either together with the related stock option or separately. If a Participant exercises a Combination SAR or related stock option, but not both, the other shall remain outstanding and shall remain exercisable during the entire exercise period.

(c) Terms and Conditions of Alternative SARs. Either the stock options granted in the alternative to Alternative SARs or the Alternative SARs may be exercised, but not both. Alternative SARs shall be exercisable only to the extent that the related stock option is exercisable, and the base from which the value of the Alternative SARs is measured at its exercise shall be the option price of the related stock option. If related stock options are exercised as to some or all of the shares covered by the Award, the related Alternative SARs shall be cancelled automatically to the extent of the number of shares covered by the stock option exercise. Upon exercise of Alternative SARs as to some or all of the shares covered by the Award, the related stock option shall be cancelled automatically to the extent of the number of shares covered by such exercise, and such shares shall again be eligible for grant in accordance with paragraph 5 hereof.

(d) Terms and Conditions of Independent SARs. Independent SARs shall be exercisable in whole or in such installments and at such time as may be determined by the Committee. The base price from which the value of an Independent SAR is measured shall also be determined by the Committee; provided, however, that such price shall not be less than the Fair Market Value of the Common Stock on the date of the grant of the Independent SAR.

(e) Deemed Exercise. The Committee may provide that a SAR shall be deemed to be exercised at the close of business on the scheduled expiration date of such SAR, if at such time the SAR by its terms remains exercisable and, if so exercised, would result in a payment to the holder of such SAR.

will count against the 12,509,100 post-split shares available under paragraph 5(a). For purposes of the limit set forth in paragraph 5(a) that Awards covering no more than 600,000 post-split shares of Common Stock may be granted to a Participant in a fiscal year, the conversion of a SAR into an option in accordance with this paragraph 9(f) will not count as an Award granted in the fiscal year in which the conversion takes place.

10. Restricted Stock

(a) Grants. Awards may be granted in the form of Restricted Stock. Shares of Restricted Stock shall be awarded in such amounts and at such times during the term of the Plan as the Committee shall determine.

(b) Award Restrictions. Restricted Stock shall be subject to such terms and conditions as the Committee deems appropriate, including restrictions on transferability and continued employment. No more than 50,000 pre-split restricted shares may be issued in a single fiscal year. The Committee may modify or accelerate the delivery of shares of Restricted Stock under such circumstances as it deems appropriate.

(c) Rights as Stockholders. During the period in which any shares of Restricted Stock are subject to the restrictions imposed under paragraph 10(b), the Committee may, in its discretion, grant to the Participant to whom shares of Restricted Stock have been awarded all or any of the rights of a stockholder with respect to such shares, including, but not by way of limitation, the right to vote such shares and to receive dividends.

(d) Evidence of Award. Any shares of Restricted Stock granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates.

11. Payment of Awards

At the discretion of the Committee, payment of Awards may be made in cash, Common Stock, a combination of cash and Common Stock, or any other form of property as the Committee shall determine.

12. Dividends and Dividend Equivalents

If an Award is granted in the form of Restricted Stock or stock options the Committee may, at any time up to the time of payment, include as part of an Award an entitlement to receive dividends or dividend equivalents, subject to such terms and conditions as the Committee may establish. Dividends and dividend equivalents shall be paid in such form and manner (i.e., lump sum or installments), and at such time as the Committee shall determine. All dividends or dividend equivalents which are not paid currently may, at the Committee’s discretion, accrue interest, be reinvested into additional shares of Common Stock.

13. Termination of Employment

(a) General Rule. Subject to paragraph 17, if a Participant’s employment with the Company or a Subsidiary terminates for a reason other than death, disability, retirement, or any approved reason, all unexercised, unearned or unpaid Awards shall be cancelled or forfeited as the case may be, unless otherwise provided in this paragraph or in the Participant’s Award Notice. The Committee shall have the authority to promulgate rules and regulations to (i) determine what events constitute disability, retirement, or termination for an approved reason for purposes of the Plan, and (ii) determine the treatment of a Participant under the Plan in the event of his death, disability, retirement, or termination for an approved reason.

(b) Incentive Stock Options. Unless the Award Notice provides otherwise, any incentive stock option which has not theretofore expired, shall terminate upon termination of the Participant’s employment with the Company whether by death or otherwise, and no shares of Common Stock may thereafter be purchased pursuant to such incentive stock option, except that:

(i) Upon termination of employment (other than by death), a Participant may, within three months after the date of termination of employment, purchase all or part of any shares of Common

Stock which the Participant was entitled to purchase under such incentive stock option on the date of termination of employment.

(ii) Upon the death of any Participant while employed with the Company or within the three-month period referred to in paragraph 13(b)(i) above, the Participant’s estate or the person to whom the Participant’s rights under the incentive stock option are transferred by will or the laws of descent and distribution may, within one year after the date of the Participant’s death, purchase all or part of any shares of Common Stock which the Participant was entitled to purchase under such incentive stock option on the date of death.

Notwithstanding anything in this paragraph 13(b) to the contrary, the Committee may at any time within the three-month period after the date of termination of a Participant’s employment, with the consent of the Participant, the Participant’s estate or the person to whom the Participant’s rights under the incentive stock options are transferred by will or the laws of descent and distribution, extend the period for exercise of the Participant’s incentive stock options to any date not later than the date on which such incentive stock options would have otherwise expired absent such termination of employment. Nothing in this paragraph 13(b) shall authorize the exercise of an incentive stock option after the expiration of the exercise period therein provided, nor later than ten years after the date of grant.

(c) Non-Qualified Stock Options. Unless the Award Notice provides otherwise, any nonqualified stock option which has not theretofore expired shall terminate upon termination of the Participant’s employment with the Company, and no shares of Common Stock may thereafter be purchased pursuant to such non-qualified stock option, except that:

(i) Upon termination of employment for any reason other than death, discharge by the Company for cause, or voluntary resignation of the Participant prior to age 60, a Participant may, within five years after the date of termination of employment, or any such greater period of time as the Committee, in its sole discretion, deems appropriate, exercise all or part of the non-qualified stock option which the Participant was entitled to exercise on the date of termination of employment or subsequently becomes eligible to exercise pursuant to paragraph 8(b) above.

(ii) Upon the death of a Participant while employed with the Company or within the period referred to in paragraph 13(c)(i) above, the Participant’s estate or the person to whom the Participant’s rights under the non-qualified stock option are transferred by will or the laws of descent and distribution may, within five years after the date of the Participant’s death while employed, or within the period referred to in paragraph 13(c)(i) above, exercise all or part of the non-qualified stock option which the Participant was entitled to exercise on the date of death.

Nothing in this paragraph 13(c) shall authorize the exercise of a non-qualified stock option later than the exercise period set forth in the Award Notice.

14. Nonassignability

No Award under the Plan shall be subject in any manner to alienation, anticipation, sale, transfer (except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order), assignment, pledge, or encumbrance, except that, unless the Committee specifies otherwise, all awards of non-qualified stock options or SARs shall be transferable without consideration, subject to all the terms and conditions to which such non-qualified stock options or SARs are otherwise subject, to (i) members of a Participant’s immediate family as defined in Rule 16a-1 promulgated under the Exchange Act, or any successor rule or regulation, (ii) trusts for the exclusive benefit of the Participant or such immediate family members or (iii) entities which are wholly-owned by the Participant or such immediate family members, provided that (x) there may be no consideration for any such transfer, and (y) subsequent transfers of transferred options shall be prohibited except those by will or the laws of descent and distribution. Following transfer, any such options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, and except as provided in the next sentence, the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment of Section 13(c) hereof shall

continue to be applied with reference to the original Participant and following the termination of employment of the original Participant, the options shall be exercisable by the transferee only to the extent, and for the periods specified in Section 13 (c), that the original Participant could have exercised such option. Except as expressly permitted by this paragraph, an Award shall be exercisable during the Participant’s lifetime only by him.

15. Adjustment of Shares Available

(a) Changes in Stock. In the event of changes in the Common Stock by reason of a Common Stock dividend, stock split, reverse stock-split or other combination, appropriate adjustment shall be made by the Committee in the aggregate number of shares available under the Plan, the number of shares with respect to which Awards may be granted to any Participant in any fiscal year, and the number of shares or SARs, subject to outstanding Awards, without, in the case of stock options, causing a change in the aggregate purchase price to be paid therefor. Such proper adjustment as may be deemed equitable may be made by the Committee in its discretion to give effect to any other change affecting the Common Stock.

(b) Changes in Capitalization. In case of a merger or consolidation of the Company with another corporation, a reorganization of the Company, a reclassification of the Common Stock of the Company, a spinoff of a significant asset, or other changes in the capitalization of the Company, appropriate provision shall be made for the protection and continuation of any outstanding Awards by either (i) the substitution, on an equitable basis, of appropriate stock or other securities or other consideration to which holders of Common Stock of the Company will be entitled pursuant to such transaction or succession of transactions, or (ii) by appropriate adjustment in the number of shares issuable pursuant to the Plan, the number of shares covered by outstanding Awards, the option price of outstanding stock options, and the exercise price of outstanding SARs, in each case as deemed appropriate by the Committee.

16. Withholding Taxes

The Company shall be entitled to deduct from any payment under the Plan, regardless of the form of such payment, the amount of all applicable income and employment taxes required by law to be withheld with respect to such payment or may require the participant to pay to it such tax prior to and as a condition of the making of such payment. Subject to the administrative guidelines established by the Committee, a Participant may pay the amount of taxes required by law to be withheld from an Award, in whole or in part, by requesting that the Company withhold from any payment of Common Stock due as a result of such Award, or by delivering to the Company, shares of Common Stock having a Fair Market Value less than or equal to the amount of such required withholding taxes.

17. Noncompetition Provision

18. Amendments to Awards

19. Regulatory Approvals and Listings

Notwithstanding anything contained in this Plan to the contrary, the Company shall have no obligation to issue or deliver certificates of Common Stock evidencing Awards resulting in the payment of Common Stock prior to (a) the obtaining of any approval from any governmental agency which the Company shall, in its sole discretion, determine to be necessary or advisable, (b) the admission of such shares to listing on the stock exchange on which the Common Stock may be listed, and (c) the completion of any registration or other qualification of said shares under any state or federal law or ruling of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable.

20. No Right to Continued Employment or Grants

Participation in the Plan shall not give any Participant any right to remain in the employ of the Company or any Subsidiary. The Company or, in the case of employment with a Subsidiary, the Subsidiary, reserves the right to terminate any Participant at any time. Further, the adoption of this Plan shall not be deemed to give any person any right to be selected as a Participant or to be granted an Award.

21. Amendment

The Board may suspend or terminate the Plan at any time. In addition, the Board may, from time to time, amend the Plan in any manner, provided however, that any such amendment may be subject to stockholder approval (i) at the discretion of the Board and (ii) to the extent that shareholder approval may be required by law, including, but not limited to, the requirements of Rule 16b-3 under the Exchange Act, or any successor rule or regulation. Notwithstanding the foregoing, the Board may not amend the Plan in any manner that would result in the imposition of an additional tax under section 409A of the Code on any Participant.

22. Change in Control and Change in Ownership

(a) Background. All Participants shall be eligible for the treatment afforded by this paragraph 22 if there is a Change in Ownership or if their employment terminates within two years following a Change in Control, unless the termination is due to (i) death; (ii) disability entitling the Participant to benefits under his employer’s long-term disability plan; (iii) Cause; (iv) resignation by the Participant other than for Good Reason; or (v) retirement entitling the Participant to benefits under his employer’s retirement plan.

(b) Vesting and Lapse of Restrictions. If a Participant is eligible for treatment under this paragraph 22, (i) all of the terms and conditions in effect on any unexercised, unearned, or unpaid Awards shall immediately lapse as of the Acceleration Date; (ii) no other terms or conditions shall be imposed upon any Awards on or after such date, and in no event shall any Award be forfeited on or after such date; and (iii) all of his unexercised, unvested, unearned and/or unpaid Awards or any other outstanding Awards shall automatically become one hundred percent (100%) vested immediately upon such date.

(c) Dividends and Dividend Equivalents. If a Participant is eligible for treatment under this paragraph 22, all unpaid dividends and dividend equivalents and all interest accrued thereon, if any, shall be treated and paid under this paragraph 22 in the identical manner and time as the Award under which such dividends or dividend equivalents have been credited. For example, if upon a Change in Ownership, an Award under this paragraph 22 is to be paid in a prorated fashion, all unpaid dividends and dividend equivalents with respect to such Award shall be paid according to the same formula used to determine the amount of such prorated Award.

(d) Valuation of Awards. If a Participant is eligible for treatment under this paragraph 22, his Awards shall be valued and cashed out on the basis of the Change in Control Price.

(e) Payment of Awards. If a Participant is eligible for treatment under this paragraph 22, whether or not he is still employed by the Company or a Subsidiary, he shall be paid, in a single lump sum cash payment, as soon as practicable but in no event later than 90 days after the Acceleration Date, for all outstanding

Independent and Combination SARs and stock options (including incentive stock options), and any other outstanding Awards.

(f) Miscellaneous. Upon a Change in Control or a Change in Ownership, (i) the provisions of paragraphs 13, 17 and 18 hereof shall become null and void and of no force and effect insofar as they apply to a Participant who has been terminated under the conditions described in (a) above; and (ii) no action shall be taken which would affect the rights of any Participant or the operation of the Plan with respect to any Award to which the Participant may have become entitled hereunder on or prior to the date of the Change in Control or Change in Ownership or to which he may become entitled as a result of such Change in Control or Change in Ownership.

(h) Legal Fees. The Company shall pay all legal fees and related expenses incurred by a Participant in seeking to obtain or enforce any payment, benefit or right he may be entitled to under the Plan after a Change in Control or Change in Ownership; provided, however, the Participant shall be required to repay any such amounts to the Company to the extent a court of competent jurisdiction issues a final and non-appealable order setting forth the determination that the position taken by the Participant was frivolous or advanced in bad faith.

23. No Right, Title or Interest in Company Assets

No Participant shall have any rights as a stockholder as a result of participation in the Plan until the date of issuance of a stock certificate in his name, and, in the case of Restricted Stock, stock options, or SARs, such rights are granted to the Participant under paragraph 10(c) hereof. To the extent any person acquires a right to receive payments from the Company under this Plan, such rights shall be no greater than the rights of an unsecured creditor of the Company.

Exhibit 10.4

ADMINISTRATIVE RULES WITH RESPECT TO
AT RISK AWARDS UNDER THE 1997 AWARD AND OPTION PLAN
(AMENDED AND RESTATED AS OF DECEMBER 13, 2001 and SEPTEMBER 8, 2005)

DEFINITIONS

As used with respect to At Risk Awards, the following terms shall have the following meanings:

(a) “At Risk Award” means an award granted by the Committee to a Participant under the 1997 Plan, and entitling the Participant to a cash payment based upon the extent to which specified Performance Goals are attained for a specified Performance Period, pursuant to such terms and conditions as the Committee may establish in an Award Notice. No Eligible Employee may receive more than one At Risk Award under the 1997 Plan in any fiscal year. In no event will the maximum value of any At Risk Award to any Eligible Employee in any fiscal year exceed the lower of (i) twice that employee’s base salary for that fiscal year, or (ii) two million dollars. An At Risk Award may be granted singly, in combination or in the alternative with other Awards granted under the 1997 Plan or other Company benefit plans.

(b) “Committee” means the Compensation Committee of the Board, or such other committee designated by the Board as authorized to administer the 1997 Plan with respect to At Risk Awards. The Committee shall consist of not less than two members, each of whom shall be “outside directors” as defined by Section 162(m) of the Code and the rules, regulations and interpretations promulgated thereunder, as amended from time to time.

(c) “Eligible Employee” means those employees of the Company or its Subsidiaries who are expected to constitute “covered employees” within the meaning of Section 162(m) of the Code for the applicable fiscal year(s), and any other Key Management Employee to whom an At Risk Award has been granted by the Committee.

(d) “Performance Period” means the period established by the Committee in the Award Notice, for measurement of the extent to which a Performance Goal has been satisfied.

(e) “Performance Goal” means the performance objectives of earnings per share, Subsidiary net income and customer service/other goals, established by the Committee for each Eligible Employee who receives an At Risk Award.

(f) “1997 Plan” means the National Fuel Gas Company 1997 Award and Option Plan as approved by the stockholders at the 1997 Annual Meeting of Stockholders, as amended from time to time.

ADMINISTRATION

Within the limits of the 1997 Plan, with respect to At Risk Awards the Committee is given full authority to (a) make reasonable, good faith interpretations of the Plan and of Section 162(m) of the Code, to the extent not addressed by regulation, proposed regulation or publicly available interpretation of the Internal Revenue Service; (b) determine who shall be Eligible Employees and select Eligible Employees to receive At Risk Awards; (c) determine all the other terms and conditions of an At Risk Award, including the time or times of making At Risk Awards to Eligible Employees, the Performance Period, Performance Goals, and levels of At Risk Awards to be earned in relation to levels of achievement of the Performance Goals, and such other measures as may be necessary or desirable to achieve the purposes of the 1997 Plan; (d) determine whether At Risk Awards are to be granted singly, in combination or in the alternative with other Awards under the 1997 Plan or awards under other Company benefit plans; (e) grant waivers of 1997 Plan terms and conditions, provided that any such waiver shall not be inconsistent with Section 162(m) of the Code and the rules, regulations and interpretations promulgated thereunder, as amended from time to time; and (f) accelerate the vesting, exercise or payment of any At Risk Award or the Performance Period of an At Risk Award as long as (1) any such action would not cause compensation paid or payable under such At Risk Award to cease to be deductible by the Company for federal income tax purposes and (2) any such action would not result in the imposition of an additional tax under Section 409A of the Code on an Eligible Employee holding an At Risk Award. The Committee shall also have the authority to grant At Risk Awards in replacement of Awards previously granted under the 1997 Plan or awards under any other executive compensation or stock option plan of the Company or a Subsidiary.

All determinations of the Committee shall be made by a majority of its members, and its determinations shall be final, binding and conclusive. The Committee, in its discretion, may delegate its authority and duties under the 1997 Plan with respect to At Risk Awards to the Company’s Chief Executive Officer or to other senior officers of the Company, but only to the extent, if any, permitted by Section 162(m) of the Code and notwithstanding any other provision of the 1997 Plan or an Award Notice, under such conditions as the Committee may establish. For the avoidance of doubt, neither the Committee nor any delegate thereof shall take any action under these Administrative Rules, including, without limitation under Section 2 hereof, with respect to an At Risk Award which would result in the imposition of an additional tax under Section 409A of the Code on any Eligible Employee.

GRANT OF AT RISK AWARDS

At Risk Awards may be made for each of the fiscal years of the Company commencing with the 2000 fiscal year; provided, however, that At Risk Awards for a fiscal year may only be made within the time allowed under Section 162(m) of the Code and the rules, regulations and interpretations promulgated thereunder, as amended from time to time, applicable to such fiscal year.

PAYMENT OF AT RISK AWARDS

Each At Risk Award granted to an Eligible Employee shall entitle such Eligible Employee to receive a cash payment based upon the extent to which such Eligible Employee’s Performance Goals for a particular Performance Period are attained, as specified by the Committee in the Award Notice and certified in writing by the Committee that such Eligible Employee’s Performance Goals have been attained. Payment of earned At Risk Awards shall be made in cash promptly after such certification, and in any event no later than the day that is 2 ¹ / 2 months following the end of the Eligible Employee’s taxable year in which the applicable Performance Period ends.

TERMINATION OF EMPLOYMENT, RETIREMENT, OR DEATH OF PARTICIPANT

(a) General Rule. Subject to Section 13 of the 1997 Plan, if an Eligible Employee’s employment with the Company or a Subsidiary terminates for a reason other than death, disability, retirement, or any approved reason, all unearned or unpaid At Risk Awards shall be canceled or forfeited as the case may be, unless otherwise provided in this Section or in the Eligible Employee’s Award
Notice.

(b) In the event of the disability, retirement or termination for an approved reason of an Eligible Employee during a Performance Period, his participation shall be deemed to continue to the end of the Performance Period, and he shall be paid a percentage of the amount earned, if any, according to the terms of the At Risk Award, proportionate to his period of active service during that Performance Period.

(c) In the event of the death of an Eligible Employee during a Performance Period, the Eligible Employee’s designated beneficiary (or if none, then the Eligible Employee’s estate) shall be paid an amount proportionate to the period of active service during the Performance Period, based upon the maximum amount which could have been earned under the At Risk Award.

AMENDMENTS TO AT RISK AWARDS

The Committee may, at any time, unilaterally amend any unearned or unpaid At Risk Award, including At Risk Awards earned but not yet paid, to the extent it deems appropriate; provided, however, that any such amendment which is adverse to the Eligible Employee shall require the Eligible Employee’s consent; and provided further, however, that the Committee shall have no authority to make any amendment which would cause compensation paid or payable under the At Risk Award to cease to be deductible by the Company for federal income tax purposes. Notwithstanding the foregoing, the Committee may not amend an At Risk Award in any manner that would result in the imposition of an additional tax under section 409A of the Code on the Eligible Employee holding such At Risk Award.

AMENDMENT TO RULES

Subject to the stockholder approval requirements of Section 162(m) of the Code, the Committee may, from time to time, amend these Administrative Rules with respect to At Risk Awards in any manner. Notwithstanding the foregoing, the Board may not amend these Administrative Rules in any manner that would result in the imposition of an additional tax under section 409A of the Code on any Eligible Employee.

CHANGE IN CONTROL AND CHANGE IN OWNERSHIP

If an Eligible Employee holding an At Risk Award is eligible for treatment under Section 22 of the 1997 Plan, the provisions of this paragraph shall determine the manner in which such At Risk Award shall be paid to him. For purposes of making such payment, each “current performance period” (defined to mean a Performance Period which period has commenced but not yet ended), shall be treated as terminating upon the Acceleration Date, and for each such “current performance period” and each “completed performance period” (defined to mean a Performance Period which has ended but for which the Committee has not, on the Acceleration Date, made a determination as to whether and to what degree the Performance Goals for such period have been attained), it shall be assumed that the Performance Goals have been attained at a level of 100% or the equivalent thereof. If the Eligible Employee is participating in one or more “current performance periods,” he shall be considered to have earned and, therefore, to be entitled to receive, a prorated portion of the At Risk Awards previously granted to him for each such Performance Period. Such prorated portion shall be determined by multiplying 100% of the At Risk Award granted to the Eligible Employee by a fraction, the numerator of which is the total number of whole and partial years (with each partial year being treated as a whole year) that have elapsed since the beginning of the Performance Period, and the denominator of which is the total number of years in such Performance Period. An Eligible Employee in one or more “completed performance periods” shall be considered to have earned and, therefore, be entitled to receive 100% of the At Risk Awards previously granted to him during each Performance Period. Notwithstanding Section 22(e) of the 1997 Plan to the contrary, any payment in respect of an At Risk Award payable to an Eligible Employee as a result of the application of this Section 8 of these Administrative Rules shall be paid as soon as practicable but in no event later than the day that is 2 ¹ / 2 months following the end of the Eligible Employee’s taxable year in which the Acceleration Date occurs.

SAVINGS PROVISION

These Administrative Rules with respect to At Risk Awards are intended to comply with all the applicable conditions of Section 162(m) of the Code, so that compensation paid or payable hereunder shall constitute qualified “performance-based compensation” thereunder. To the extent any provision of these Administrative Rules with respect to At Risk Awards or any action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law.

10.

EFFECTIVE DATE

Upon approval by the stockholders of the Company as required by Section 162(m) of the Code, these Administrative Rules with respect to At Risk Awards shall become effective as of December 8, 1999.

Exhibit 10.5

AMENDMENT TO THE
NATIONAL FUEL GAS COMPANY
DEFERRED COMPENSATION PLAN

WHEREAS, National Fuel Gas Company (the “ Company ”) previously adopted the National Fuel Gas Company Deferred Compensation Plan (the “ Plan ”) for the benefit of key employees of the Company and its subsidiaries (the “ Participants ”); and

WHEREAS, pursuant to Article 10 of the Plan, the Company reserved the right to amend the Plan in whole or in part at any time, and desires to amend the Plan in order to provide for the immediate distribution of any portion of a Participant’s Accumulation Account (as defined in the Plan) balance that, as of December 31, 2004, was not “earned and vested” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”).

NOW, THEREFORE, the Plan is hereby amended as follows:

1. Notwithstanding any provision of the Plan contrary, prior to December 31, 2005, the Company shall distribute in full any portion of the balance of a Participant’s accumulation Account that, as of December 31, 2004, was not “earned and vested” within the meaning of Section 409A.

2. In all other respects, the Plan shall remain unchanged.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by the signature of its duly authorized officer as of this 21 day of October , 2005.


		NATIONAL FUEL GAS COMPANY

		By:		/s/ A. M. Cellino

		Name:		A. M. Cellino

		Title:		Secretary

Exhibit 10.6

July 12, 2005

[Name]
[Location]

RE: Deferred Compensation Plan and IRC Section 409A

As you may be aware, recent changes were made to the tax code that significantly impacted the design and operation of non-qualified deferred compensation plans, with a very broad definition of what qualifies as a “non-qualified deferred compensation plan.” These changes can have a draconian tax impact on the individual if the plans are not operated in compliance with the new rules, codified at Internal Revenue Code Section 409A.

The Company’s Executive Retirement Plan, Deferred Compensation Plan and Tophat Plan are all non-qualified deferred compensation plans which must be brought into compliance with Section 409A. Accordingly, before the end of 2005, we must take certain actions to achieve compliance with Section 409A.

One such action, approved by the Board of Directors on June 3, 2005, is the vesting and payout of any unvested Accumulation Accounts in the Deferred Compensation Plan. The Accumulation Account was the “extra” interest applied to deferrals under Cycles I, II, II-A and III of the Deferred Compensation Plan. This account vests at age 55.

You have an unvested Accumulation Account balance that, as of July 31, 2005 will have a value of $[Amount] . On or about July 31, 2005, this balance will be vested and you will be receiving a payout of this balance, less taxes and withholdings.

As we have been experiencing over the last few years, many legislative and regulatory changes have significantly impacted how we operate our business and the benefits provided to all levels of employees. This is yet another example of these changes.

If you have any questions about the new tax law or this payment, please contact Paula Ciprich or Sarah Mugel.


		Very truly yours,

		/s/ Philip C. Ackerman

Exhibit 10.7

July 12, 2005

[Name]
[Location]

RE: Tophat Plan and IRC Section 409A

One such action, approved by the Board of Directors on June 3, 2005, is the payout of the TDSP-related tophat benefits provided under the Tophat Plan for those participants who previously elected to receive such benefits at the termination of their employment. You are one of these participants. Thus, on or about August 31, 2005 you will be receiving a payment representing the value of your TDSP-related tophat benefit as of July 31, 2005, less applicable taxes and withholdings. The value of this account on March 31, 2005 was $[Balance] . As of 2006, these benefits will be paid out annually by March 15 of the next calendar year.

If you have any questions about the new tax law or this payment, please contact Paula Ciprich or Sarah Mugel.


		Very truly yours,

		/s/ Philip C. Ackerman

Exhibit 10.8

AMENDMENT NO. 1
TO THE
RETIREMENT BENEFIT AGREEMENT
FOR
DAVID F. SMITH

This Amendment No. 1 (the “ Amendment ”) is made as of September 8, 2005, by and between National Fuel Gas Company, a New Jersey corporation (“ National ”), National Fuel Gas Distribution Corporation, a New York corporation (“ Distribution ” and, together with National and each of National’s wholly owned subsidiaries, the “ Company ”), and David F. Smith (the “ Executive ”).

WHEREAS, the Company and Executive are parties to the Retirement Benefit Agreement For David F. Smith, dated as of September 22, 2003 (the “ Retirement Agreement ”); and

WHEREAS, the Company and Executive desire to amend the Retirement Agreement in order to ensure compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the guidance promulgated thereunder, by providing that any amounts that could become payable to the Executive pursuant to the terms and conditions of the Retirement Agreement shall in no event be paid to him prior to the six month anniversary of his termination of employment.

NOW, THEREFORE, in consideration of the mutual covenants contained therein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I
AMENDMENTS

Section 1.1 . Amendment to Section 2(b)(ii) . Section 2(b)(ii) of the Retirement Agreement is hereby deleted in its entirety and amended to read as follows:

“(ii) Payment of Additional Retirement Benefit . If the Executive has not attained age 55 at the time of termination of employment, the additional benefit under this Agreement will be payable (1) under Section 2(b)(ii)(A) through August 1, 2008, and (2) under Section 2(b)(ii)(B) commencing on September 1, 2008. If the Executive has attained age 55 at the time of termination of employment, the additional benefit under this Agreement will be payable solely under Section 2(b)(ii)(B) commencing on the later of the first day of the first month following the six month anniversary of such termination and September 1, 2008:

(A) Payments Prior to Age 55 . An amount equal to 1/12 of the Contractual Benefit Base will be paid to the Executive on the first day of each month commencing on or after the six month anniversary of his termination of employment and ending on (and including) August 1, 2008. In addition, any amounts that would have otherwise been payable to the Executive under this Section 2(b)(ii)(A) had the payments hereunder

commenced on the first day of the first month following the Executive’s termination of employment shall be paid to the Executive in a single lump sum on the first day of the first month commencing on or after the six month anniversary of the Executive’s termination of employment (without regard to whether such date falls after August 1, 2008). If the Executive dies before receiving all of the payments provided for under the preceding two sentences, and his Wife survives him, then without regard to whether his death falls prior to the six month anniversary of his termination of employment, his Wife shall receive ( x ) commencing on the first day of the first month following the Executive’s death, any remaining monthly payments and ( y ) as soon as practicable following the Executive’s death, any lump sum payment described in the preceding sentence; provided that the Executive’s Wife shall only be entitled to receive a pro-rata portion of such lump sum amount, if any, based on the total number of days that had elapsed between the Executive’s termination of employment and the date of his death.

(B) Payments After Age 55 . The monthly benefit amount will be equal to 1/12 of the Contractual Benefit Base less the sum of (I) the Retirement Plan Benefit, (II) the ERP Tophat Benefit and (III) the ERP Supplemental Benefit (all expressed as a single life annuity for the Executive (the “Monthly Benefit”)) beginning on the later of the first day of the first month following the six month anniversary of the Executive’s termination of employment and September 1, 2008, and will be payable as follows:

(i) If the Executive is not married to his Wife on the date benefit payments begin under this Section 2(b)(ii)(B), an amount equal to the Monthly Benefit will be paid to the Executive commencing on the later of the first day of the first month following the six month anniversary of the Executive’s termination of employment and September 1, 2008, and continuing each month through the month that contains his date of death.

(ii) If the Executive is married to his Wife on the date benefits begin under this Section 2(b)(ii)(B), the Monthly Benefit will be paid in the form of a joint and 50% survivor annuity, with the 50% survivor benefit payable to his Wife, if she survives him. The amount to be paid each month will be such that it is actuarially equivalent, using the actuarial equivalence factors then used under the Retirement Plan, to the benefit that would be payable to the Executive if he was unmarried. For the avoidance of doubt, if the Executive dies after termination of employment but prior to the date that benefits first become payable under this Section 2(b)(II)(B)(ii), and Executive was married to his Wife at the time of his death, the Executive’s Wife shall be entitled to receive on the later of the date of the Executive’s death and September 1, 2008 ( x ) the 50% survivor benefit described above and ( y ) a pro-rata portion of the lump sum amount that the Executive would have become entitled to receive pursuant to Section 2(b)(II)(B)(iii) below, if any, based on the total number of days that had elapsed between the Executive’s termination of employment and the date of his death.

(iii) In addition to any other amounts payable to the Executive under Section 2(b)(ii)(B) hereof, any amounts that would have otherwise been

payable to the Executive under Section 2(b)(ii)(B) had the payments hereunder commenced on the later of September 1, 2008 or the first day of the month following Executive’s termination of employment shall be paid to the Executive in a single lump sum on the day that the first Monthly Benefit is actually payable to him under Section 2(b)(ii)(B).

(C) End of Payments . For the avoidance of doubt, no payments will be made under this Agreement after the death of the later to die of the Executive and his Wife.”

Section 1.2 Amendment to Section 11 . Section 11 of the Retirement Agreement is hereby amended by adding the following sentence to the end thereof:

“For the avoidance of doubt, all amounts payable hereunder are intended to comply with Section 409A of the Code and no party hereto shall take any action under this Agreement which would result in the imposition of an additional tax under Section 409A of the Code on the Executive.”

ARTICLE II
ADDITIONAL PROVISIONS

Section 2.1 Entire Agreement . This Amendment, together with the Retirement Agreement, constitutes the entire agreement between the parties hereto with respect thereto. Except as expressly amended hereby, the Retirement Agreement shall remain in full force and effect.

Section 2.2 Counterparts . This Amendment may be executed in one or more counterparts that, together, shall constitute one and the same Amendment.

Signature Page Follows

IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Retirement Agreement as of the first date written above.


		NATIONAL FUEL GAS COMPANY

		By:		/s/ P. C. Ackerman

		Name:		P. C. Ackerman
		Title:		Chairman of the Board,
				President & Chief Executive
				Officer

		NATIONAL FUEL GAS DISTRIBUTION CORPORATION

		By:		/s/ P. C. Ackerman

		Name:		P. C. Ackerman
		Title:		Chairman of the Board

		EXECUTIVE

		/s/ David F. Smith

		DAVID F. SMITH

Exhibit 10.9

RETIREMENT AGREEMENT

THIS RETIREMENT AGREEMENT (the “Agreement”) is made by and among Horizon Energy Development, Inc., a New York corporation having offices at 6363 Main Street, Williamsville, New York 14221 (“Horizon”), National Fuel Gas Company, a New Jersey corporation having offices at 6363 Main Street, Williamsville, New York 14221 (“National Fuel”) and Mr. Bruce H. Hale, 247 Brantwood Road, Snyder, New York, 14226 (“Mr. Hale”) as of August 1, 2005.

WHEREAS , National Fuel, Horizon and Mr. Hale (each a “party,” collectively, the “parties”) mutually agree that each party shall receive certain consideration, on the terms set out in this Agreement;

NOW THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:

1.		As used within this Agreement, the terms “Company,” “we,” “our” or “us“ collectively refer to National Fuel Gas Company and its subsidiary and affiliated companies, other related entities, and successors or assigns. As used within this Agreement, the terms “Mr. Hale,” “employee,” “you” or “your” refers to Bruce H. Hale.

2.		You have voluntarily decided to apply for retirement, effective August 1, 2005.

Consistent with your decision to retire, you hereby resign, effective August 1, 2005, any and all positions as an officer, director, employee or equivalent of any Company entity. Your separation from employment is by mutual agreement between you and the Company. Your employment with the Company will terminate on July 31, 2005.

The Company agrees to pay you, minus all applicable taxes and withholdings, your regular pay and benefits up to and including July 31, 2005.

(a)

You are entitled to certain accrued pension benefits, effective August 1, 2005, as provided under the terms of the National Fuel Gas Company Retirement Plan (the “Retirement Plan”), payable upon such dates and in such amounts determined in accordance with the terms and conditions of the Retirement Plan. Notwithstanding the foregoing, the benefit for the month of August 2005, only, may be paid at any time during the month of August 2005 and is dependent on your timely providing the Retirement Plan Administrator with a benefit option choice under the Retirement Plan.

(b)

You are entitled to certain supplemental pension benefits, effective August 1, 2005, as provided under the terms of the National Fuel Gas Company Executive Retirement Plan (the “ERP”) payable upon such dates and in such amounts

determined in accordance with the terms and conditions of the ERP, provided, that any amounts that would otherwise have been payable to you under the ERP in January 2006 shall be paid to you in full in December 2005. Notwithstanding the foregoing, the benefit for the month of August 2005, only, may be paid at any time during the month of August 2005 and is dependent on your timely providing the ERP Plan Administrator with a benefit option choice under the ERP.

Your Split Dollar Agreement and the related Collateral Assignment, and any and all rights you may have under National Fuel ERISA benefit plans not mentioned in this Agreement, including but not limited to the National Fuel Gas Company Deferred Compensation Plan and the National Fuel Gas Company Tophat Plan, shall remain in effect in accordance with their terms, as the same may be amended to comply with the requirements of Section 409A of the Internal Revenue Code and are not affected by this Agreement The Company hereby consents to any automatic borrowing by you of money from the insurance policy underlying that Split Dollar Agreement that would be applied directly to the payment of any premiums on that policy when and if the dividends on that policy are insufficient to fund the entire premium while you are not in breach of this Agreement. The Company shall not borrow money from such insurance policy.

(a)

Beginning August 1, 2005, you will be entitled to retiree health coverage in the same manner and form as is available to any supervisory employee who retires in 2005, which is any and all family medical coverage offered under (i) the Company’s Traditional Indemnity Plan for non-bargaining unit retirees, and (ii) the Prescription Drug Plan. The Company will withhold the retiree medical contribution of $71 per month from your monthly benefit under the Retirement Plan, beginning August 1, 2005, which contribution rate will remain in effect for the duration of your coverage.

	(b)		Commencing August 1, 2005, you may elect COBRA continuation coverage for a period of 18 months under the Company Dental Plan, at your expense. Assuming you elect COBRA continuation coverage beginning August 1, 2005, in the event of your death prior to the expiration of the 18-month COBRA continuation period, your spouse will be entitled to continue such coverage under COBRA at her election, at her cost based on the COBRA continuation rate in effect from time to time and for the duration provided under COBRA.

	(c)		Commencing August 1, 2005, you may elect COBRA continuation coverage for a period of 18 months under the Company’s Executive Medical Plan at your expense. Assuming you elect COBRA continuation coverage, beginning August 1, 2005, in the event of your death prior to the expiration of the 18-month COBRA continuation period, your spouse will be entitled to continue such coverage under COBRA at her election, at her cost based on the COBRA continuation rate in effect from time to time and for the duration provided under COBRA.

National Fuel will pay you a supplemental annual pension benefit equivalent to one hundred twenty thousand dollars ($120,000) expressed as a single life annuity, minus any and all applicable taxes and withholding. You have been offered the choices of forms of payment of this benefit from among the benefit option choices available to retirees under the Retirement Plan, and you hereby elect the Period Certain and Life Annuity form of payment for this benefit, which yields a pre-tax annual benefit of one hundred twelve thousand eight hundred dollars ($112,800). This amount, minus any and all applicable taxes and withholding, will be paid in equal monthly installments beginning August 2005 and continuing in the same manner and for the same duration as if it were payable under the Retirement Plan, for your life but for at least fifteen (15) years to your designated beneficiary, and otherwise as provided in the Retirement Plan. Notwithstanding the foregoing, the benefit for the month of August 2005, only, may be paid at any time during the month of August, 2005, and any payment scheduled to be made to you pursuant to this paragraph 8 that would otherwise have been payable to you in January 2006 shall be paid to you in full in December 2005. The Company will make such payment by a check mailed to your then-current home address or via direct deposit to an account so designated, in writing, by you .

The Company agrees to pay you by check mailed to your then-current home address or via direct deposit to an account so designated, in writing, by you, an additional supplemental pension payment in a lump sum of six hundred fifty thousand dollars ($650,000), less any and all applicable taxes and withholding. Said lump sum payment shall be made on or about October 15, 2005. In the event of your death prior to October 15, 2005 , this payment will be payable to your Estate when due. For the avoidance of doubt, no portion of this payment is intended to constitute any bonus for the fiscal year ending September 30, 2005, and none has been included in the calculation of your pension benefits provided in paragraph 5 of this Agreement.

10.

In consideration for the promises set forth in paragraphs 8 and 9 of this Agreement, you hereby knowingly and voluntarily release, unconditionally waive and forever discharge the Company and National Fuel Gas Supply Corporation, their successors and assigns, heirs, executors and administrators, of and from all, and all manner of action and actions, cause and causes of actions, suits, debts, dues, sums of money, accounts, reckoning, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, in law or in equity, based on the Employment Continuation and Noncompetition Agreement, dated December 11, 1998 and entered into among Mr. Hale, National Fuel Gas Supply Corporation and National Fuel.

11.

In further consideration for the promises set forth in paragraphs 8 and 9 of this Agreement, you hereby knowingly and voluntarily release and unconditionally waive any and all demands, claims and causes of action, of whatever kind or nature, which you ever had, now have or which you, your successors, assigns, heirs, executors or administrators can, shall or may have for any reason as of the date you execute this Agreement against the Company or any of the Company’s predecessors, successors, assigns, executors,

administrators, directors, officers, employees and agents (collectively “Releasees”) regarding your employment and its termination, including, but not limited to:

	(a)		all demands, claims and causes of action for wages, benefits (including benefits under the ERP), bonuses, severance pay, perquisites, or back wages, benefits or bonuses other than those set forth in this Agreement or in any benefit plan, program or policy of the Company not specifically referred to in this Agreement;

	(b)		all demands, claims and causes of action under state or federal civil rights and anti-discrimination laws, regulations or orders, including Executive Order 11246, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990 and the New York Human Rights Law;

	(c)		all demands, claims and causes of action that your employment or its termination violated any alleged contractual relationship with the Company or was in any way unreasonable, wrongful, or in violation of any Company policy; and

	(d)		all demands, claims and causes of action for mental, physical or emotional distress or harm, or defamation relating in any way to your employment or its termination.

12.

In conjunction with the provisions of paragraph 11 herein, the Company and you specifically acknowledge and agree that:

	(a)		you do not waive any claim which may arise after the execution of this Agreement;

	(b)		you do not waive any claim with respect to performance by the Company of its obligations under this Agreement.

	(c)		you do not waive any right of indemnification by or contribution from the Company which arises under the provisions of paragraph 18 of this Agreement, under the Company’s by-laws or under the corporate laws of New York or New Jersey regarding the relationship between a corporation and its officers;.

	(d)		but for this Agreement, you would not be entitled to the benefits set forth in paragraphs 8 and 9 of this Agreement;

	(e)		the Company has advised you to review the Agreement, and specifically the release contained in paragraph 11 herein, with your attorney prior to signing this Agreement;

	(f)		you were given this Agreement on July 27, 2005, and you understand you may review this Agreement for up to twenty-one (21) days before being required to execute this Agreement. You and the Company agree that the time period for you

			to consider this Agreement before signing it will not be restarted if any changes, material or non-material, are made to the Agreement after the date you first received it. You and the Company also agree that, other than the accrued pension benefits provided under the Retirement Plan and the ERP, no benefits provided under this Agreement shall be payable unless and until the time periods referenced herein and in paragraph (e) hereof expire and this Agreement becomes effective.

	(g)		you may terminate this Agreement at any time within seven (7) days after your execution of this Agreement. This Agreement shall not become effective until the time to terminate it has expired.

13.

As a part of the consideration for the compensation provided in this Agreement and for the other covenants made by National Fuel in this Agreement, you agree to the following confidentiality provisions:

	(a)		You agree that the contents of this Agreement are confidential and will not be disclosed to any third party, other than your attorney, your wife, tax advisor, financial advisor(s), the Internal Revenue Service, the New York State Tax Department or the tax authority of any state or locality in which you are, or may be, subject to income tax, unless you are compelled to do so by a court having jurisdiction over such matter (in which case you will notify the Company as soon as possible of the activity and cooperate with the Company in seeking relief from such compulsion) or as may be necessary in connection with the enforcement of this Agreement. Notwithstanding the previous sentence, you may disclose the provisions of this paragraph 13 and paragraphs 14 and 16 hereof to any prospective employer or any other person or entity for whom you propose to provide services.

	(b)		Notwithstanding anything to the contrary contained in this Agreement, or any other express or implied agreement, arrangement or understanding, the parties and their respective affiliates, employees, representatives and other agents may disclose to any and all persons the tax structure and any of the tax aspects of the transaction(s) contemplated by this Agreement, which are necessary to describe or support any United States federal income tax benefits that may result therefrom or any materials necessary to comply with United States federal or state securities laws. For the purposes of this provision, “tax structure” is limited to facts relevant to the U.S. federal income tax treatment of the transaction(s) and does not include information relating to the identity of the parties, their affiliates, agents or advisors.

	(c)		You hereby represent that you have returned to the Company any and all corporate documents, records or copies of the same, information or property in your possession of which you are aware, except those relating to either your own employment, such as payroll stubs and benefits statements, or your shareholdings in the Company. You agree to return to the Company any and all such

			documents, records, copies, information and property which are or become subject to your control in the future. The Company acknowledges receipt from you of corporate documents and information you left behind on the Company’s premises. Your performance of the obligations set forth in this paragraph 13(c) is a condition precedent to your receipt of any benefits under paragraphs 8 and 9 of this Agreement; however, upon a change of control of the Company (within the meaning of Section 409A of the U.S. Internal Revenue Code as in effect on the date of this Agreement), your performance of this condition shall no longer be such a condition precedent, and any subsequent breach by you of this paragraph 13(c) would render you subject only to the same remedies the Company would have for any other material breach of this Agreement.

	(d)		You shall hold in a fiduciary capacity for the benefit of National Fuel any and all of the Company’s trade secrets and confidential and proprietary information in your possession. You shall not, without the prior written consent of National Fuel, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter (in which case you will notify the Company as soon as possible of the activity and cooperate with the Company in seeking relief from such compulsion), at any time, utilize or communicate or divulge to anyone other than the Company and those designated by it, any of the Company’s trade secrets and confidential and proprietary information.

	(e)		The prohibition against your use of the Company’s trade secrets and confidential and proprietary information, other than for the benefit of National Fuel, includes but is not limited to the exploitation of any products or services that embody or are derived from the Company’s trade secrets or confidential and proprietary information.

	(f)		You agree to comply with (i) any and all applicable laws and regulations regarding your actions and omissions while in possession of any material nonpublic information about the Company which you may have at any time; and (ii) any and all confidentiality agreements that the Company entered into with third parties, of which you were made aware during your employment by the Company, under which the Company promised that its Representatives (including you) would keep confidential certain information described in those confidentiality agreements.

	(g)		You represent, warrant and agree that you have no proprietary or ownership rights or title to any of the Company’s trade secrets or confidential and proprietary information and no legal right to use, disclose, disseminate, or publish any of the Company’s trade secrets or confidential and proprietary information in any locality. You acknowledge that if you were to work for or advise any entity in connection with a potential acquisition of or merger with the Company, you would in the course of that work inevitably use or disclose some of the Company’s trade secrets or confidential and proprietary information.

(h)

The Company’s “trade secrets” and “confidential and proprietary information” include, but are not limited to, any and all memoranda, software, data bases, computer programs, interface systems, pricing and client information, records and “writings” as hereinafter defined pertaining to the Company’s methods or practices of doing business and marketing its services and products, whether or not developed or prepared by you during the term of your employment with the Company. As used in the preceding sentence, the term “writings” shall mean and include all works, expressed in words, numbers or other verbal or numerical symbols, regardless of the physical manner in which they are embodied, including, but not limited, to books, articles, manuscripts, memoranda, computer programs, computer software systems, maps, charts, diagrams, technical drawings, manuals, video and audio tape recordings, and photographs. Notwithstanding the foregoing, the Company’s trade secrets and confidential and proprietary information shall mean only such information or material not generally known to the public (other than by act of you or your representatives in breach of this Agreement).

14.

In order to protect and safeguard the Company’s trade secrets and confidential information, you agree that, during the period beginning August 1, 2005 and ending July 31, 2008:

	(a)		you will not, directly or indirectly and without the prior written consent of National Fuel, engage in or be interested in (as owner, partner, shareholder, employee, director, agent, consultant or otherwise), any business which is a “competitor” of the Company, as hereafter defined, except as otherwise permitted under paragraph 14(c) below;

	(b)		for purposes of this Agreement, a “competitor” of the Company is any corporation, sole proprietorship, partnership, joint venture, syndicate, trust or any other form of organization or parent, subsidiary or division of any of the foregoing, which, during such period or the immediately preceding fiscal year of such entity, was engaged in (i) the transportation, distribution, purchase, brokering, marketing, or trading of natural gas, electricity or other energy products or services which are competitive to the Company’s products or services, or in any energy related project that is competitive to the Company’s products, services or projects, provided that such entity was engaged in such competitive business within 50 miles of the geographic area in which the Company is engaged in business, or (ii) the development of cogeneration facilities in Italy or Bulgaria;

	(c)		the terms of this paragraph 14 shall not apply to:

(i)

your present or future investments in the securities of companies listed on a national securities exchange or traded on the over-the-counter market to the extent such investments do not exceed 2% of the total outstanding shares of such company,

(ii)

your engagement in or interest in any business with the prior written consent of National Fuel.

(d)

The parties acknowledge and agree that the foregoing restrictions contain reasonable limitations as to the time, geographical area, and scope of activity to be restrained and these restrictions do not impose any greater restraint than is necessary to protect the goodwill and other legitimate business interests of the Company.

15.

In consideration for your promises set forth in this Agreement, the Company agrees that:

	(a)		any inquiries by prospective employers or third parties will be handled as per Company policy; that is, the dates of your employment and job title will be the only information released by the Company;

	(b)		the contents of this Agreement are confidential; the Company shall not disclose the contents of this Agreement to anyone other than the directors, officers, employees and agents of the Company or its affiliates who need to know except as required, in the opinion of counsel, to comply with applicable law, regulation or order;

	(c)		the Company hereby knowingly and voluntarily releases and unconditionally waives any and all demands, claims and causes of action against you, of whatever kind or nature, which the Company ever had, now has or which it or its successors can, shall or may have for any reason as of the date you execute this Agreement, except for claims for fraud or other intentional misconduct discovered by the Company’s officers after the execution of this Agreement; the Company does not release or waive any claim which may arise after the execution of this Agreement; and

	(d)		the Company shall not publicly or privately disparage you, either personally or professionally; the parties agree that nothing in this paragraph shall be construed to prevent any officer of the Company or any subsidiary or affiliate from discussing your performance internally in the ordinary course of business.

16.

In further consideration for the promises set forth in this Agreement, you agree that:

	(a)		you will not publicly or privately disparage the Company, or any of its subsidiaries, affiliates, directors, officers or employees including any aspect of their respective business, products, employees, management or Board of Directors, in any manner, including but not limited to in any way which could materially adversely affect the business of the Company or such subsidiaries or affiliates; and

	(b)		you will not, directly or indirectly, take any action with the intended purpose of interfering with, damaging or disrupting the assets or business operations or

affairs of the Company or its subsidiaries or affiliates; without limiting the foregoing in any way, it shall be conclusively presumed that you have breached this subparagraph 16(b) if, without the prior written consent of National Fuel or other than at National Fuel’s written request, you

	(i)		voluntarily participate in any of the following, collectively referred to as a “Proceeding”: any rate case, claim, litigation, arbitration, mediation or administrative proceeding affecting the revenue, expenses, assets or liabilities of the Company other than any claim, litigation, arbitration, mediation or administrative proceeding that does not relate to a rate matter;

	(ii)		voluntarily render any assistance in the preparation or development of any position in a Proceeding; or

	(iii)		submit any shareholder proposal, motion or resolution to the Company to be discussed or voted upon by the Company’s shareholders. You hereby grant the Secretary of National Fuel an irrevocable power of attorney to withdraw for all purposes any such shareholder proposal.

	(c)		you will not, directly or indirectly and without the prior written consent of National Fuel , work for, consult with, advise or represent (as employee, agent, consultant or otherwise), any business which is a “customer” of the Company, as hereafter defined, with respect to any matter or activity which would tend to reduce the quantity or price of services or commodities provided by the Company to that business;

	(d)		for purposes of this Agreement, a “customer” of the Company is any corporation, sole proprietorship, partnership, joint venture, syndicate, trust or any other form of organization or parent, subsidiary or division of any of the foregoing, which, during such period or the immediately preceding fiscal year of such entity, purchased commodities, goods or services from the Company; and

	(e)		you will not induce or otherwise entice, directly or indirectly, any employee or officer of the Company to leave the Company, nor shall you attempt to hire any of the Company’s employees or officers.

17.

You waive any and all rights to employment at the Company, agree not to knowingly apply for, solicit, seek or otherwise attempt to obtain employment with the Company, and further agree that the Company is not or will not be at any time under any obligation to employ you. You further agree that if you should apply for employment at the Company, the Company will have no obligation to process your employment application or to hire you and that the failure to process your employment application or to hire you shall not constitute a violation of any federal, state or local law, regulation or order. Nothing in this Agreement shall preclude you, however, from soliciting, seeking or otherwise attempting to obtain consulting work with the Company as an independent contractor, or

from actually performing consulting services for the Company if retained by the Company, it being understood that the Company is not and will not be under any obligation to engage you as a consultant.

18.

National Fuel shall indemnify you to the fullest extent permitted and in the manner provided by the laws of the State of New Jersey including, without limitation, the indemnification permitted by N.J.S. 14A:3-5(8), against all liabilities (including amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties) and expenses (including, without limitation, attorneys’ fees and disbursements) imposed upon or incurred by you in connection with any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding (“Proceeding”) in which you may become involved by reason of your being or having been a director or officer of the Company, or of serving or having served at the request of the Company as a director, officer, trustee, employee or agent of, or in any other capacity with, another foreign or domestic corporation, or any partnership, joint venture, sole proprietorship, employee benefit plan, trust or other enterprise, whether or not for profit. During the pendency of any such proceeding, the Company shall, to the fullest extent permitted by law, promptly advance expenses (including, without limitation, attorneys’ fees and disbursements) that are incurred, from time to time, in connection therewith by you, subject to the receipt by the Company of an undertaking of you as required by law. Unless otherwise required by applicable law at that time, this undertaking shall be in the form of a writing signed by you promising to immediately repay the advanced amounts if it shall ultimately be determined that you are not entitled to indemnification under this section or under applicable law at that time. The indemnification provided by this paragraph 18 shall extend to your estate or personal representative.

19.

This Agreement is made subject to approval and ratification by the Board of Directors of National Fuel, to whom it will be presented and favorably recommended by management at the next meeting of that Board, scheduled for September 8, 2005. If this Agreement is not so approved and ratified, then the parties will negotiate in good faith to restore the parties as nearly as possible to the positions in which they would have been if this Agreement had never been executed, or to reach some other mutually agreeable arrangement.

20.

The parties agree that the legal invalidity of any provision of this Agreement shall not make this Agreement void or unenforceable, and that in such case this Agreement shall be construed so as to preserve as much as possible of the parties’ respective interests which motivated them to execute this Agreement. It is also agreed that this Agreement shall be construed and enforced in accordance with the laws of the State of New York. The parties acknowledge that they have mutually negotiated all provisions of this Agreement with the assistance of counsel. The provisions of this Agreement shall be interpreted and construed in accordance with their fair meanings, and not strictly for or against either party, regardless of which party may have drafted this Agreement or any specific provisions.

21.

This Agreement constitutes the final, complete and exclusive agreement between Horizon and you regarding your employment and its termination. You do not rely upon any oral promises in signing this Agreement, and the only promises you rely on are those set forth in writing herein. This Agreement may be modified or amended only by a written instrument signed by Horizon and you.

22.

This Agreement is personal to Mr. Hale and without the prior written consent of National Fuel shall not be assignable by him other than by will or the laws of descent and distribution. During his life Mr. Hale may also make inter vivos transfers of some or all of his rights under this Agreement to members of his family or entities established for their benefit, but Mr. Hale shall remain fully responsible for performance of all his obligations under this Agreement, and the quantity and nature of all obligations of the Company and Horizon under this Agreement shall be interpreted as though such transfer had not occurred. This Agreement shall inure to the benefit of and be enforceable by Mr. Hale’s legal representatives.

23.

This Agreement shall inure to the benefit of and be binding upon National Fuel and its successors.

IN WITNESS WHEREOF , each party has executed this Agreement as of the date indicated below.

NATIONAL FUEL GAS COMPANY


By:	/s/ P. C. Ackerman	Date: 8/12/05

	P. C. Ackerman
	President

HORZON ENERGY DEVELOPMENT, INC.

By:	/s/ P. C. Ackerman	Date: 8/12/05

	P. C. Ackerman
	President

BRUCE H. HALE

	/s/ Bruce H. Hale	Date: 8/12/05

Exhibit 10.10

COMMISSION AGREEMENT

This Commission Agreement (“Agreement”) is entered into this___ 26th ___day of August, 2005, but shall be effective as of August 1, 2005 subject to paragraph 15. This Agreement is made by and between Bruce H. Hale, an individual residing at 247 Brantwood Road, Snyder, New York 124226 (hereinafter “Agent” or “Mr. Hale”), and Horizon Energy Development, Inc., a New York corporation with U.S. offices at 6363 Main Street, Williamsville, New York 14221 (“Horizon”).

WHEREAS, Mr. Hale has been employed by National Fuel Gas Company and/or its various subsidiaries (including Horizon) from 1971 through July 31, 2005, and among other things, has worked on and provided advice and expertise on matters relating to international investments and overseas project development, specifically in the Czech Republic, Italy and Bulgaria; for purposes of this Agreement, “National Fuel” shall refer, collectively, to National Fuel Gas Company, and all of its affiliates and/or direct and indirect subsidiaries, including but not limited to Horizon;

WHEREAS, Horizon owns, indirectly, interests in the following two projects (collectively the “Projects”):

	(a)		The development of a new combined cycle gas turbine electric generating facility, with a nominal capacity of 400 Mwe, to be located on a site in the area of Montenero di Bisaccia, Regione Molise, Italy, and developed through Montenero Energia S.r.l. which Horizon established with ACEA spa, an Italian electric utility, (the “Italian Project”); and

	(b)		The development of new combined cycle gas turbine cogeneration facilities with a nominal capacity of 160 Mwe to be located on sites adjacent to the existing Sofia and Sofia East cogeneration plants in Sofia, Bulgaria, and developed through Sofia Energy EAD, a Bulgarian joint stock company, which Horizon established with Toplofikacia Sofia EAD , (the “Bulgarian Project”);

WHEREAS, Horizon desires to sell its interests in the Projects for cash, and desires to retain Agent to facilitate that sale, subject to the terms and conditions of this Agreement;

WHEREAS, during the course of Mr. Hale’s employment with National Fuel, Mr. Hale had access to and became acquainted with National Fuel’s trade secrets and confidential and proprietary information and materials, including but not limited to investment plans and strategies;

WHEREAS, during the course of Mr. Hale’s employment with National Fuel, Mr. Hale was aware that the confidentiality of National Fuel’s trade secrets and

confidential and proprietary information was required to be maintained by National Fuel’s employees;

WHEREAS, during the course of Mr. Hale’s employment with National Fuel, Mr. Hale was aware that National Fuel’s international energy investment plans, oil and gas exploration and development activities, and other business strategies were subject to restricted use and disclosure;

WHEREAS, during the course of Mr. Hale’s employment with National Fuel, National Fuel took steps to protect its trade secrets and confidential and proprietary information;

WHEREAS, Mr. Hale recognizes that National Fuel’s business and goodwill are dependent upon National Fuel’s trade secrets and confidential and proprietary information;

WHEREAS, National Fuel will sustain great loss and damage if Mr. Hale discloses, utilizes or causes to be disclosed or utilized National Fuel’s trade secrets and/or confidential and proprietary information to third parties or for Mr. Hale’s own benefit;

WHEREAS, in the absence of this Agreement, National Fuel would not otherwise continue to disclose such confidential and proprietary information to Mr. Hale, or permit access to the same by Mr. Hale.

NOW THEREFORE, in consideration of the premises, mutual covenants, conditions, and terms to be kept and performed, the parties hereto agree as follows:

1. APPOINTMENT OF AGENT. Horizon hereby appoints Mr. Hale as Horizon’s agent to engage in negotiations for, and otherwise facilitate, the sale of Horizon’s interest in the Italian Project and the Bulgarian Project for cash. Mr. Hale shall not have the authority to sign binding documents or make binding promises on behalf of Horizon or any affiliate of Horizon, except to the extent provided in separate written instructions or authorizations signed by an officer of Horizon.

2. TERM OF AGREEMENT . This Agreement shall become effective on August 1, 2005, and continue for a period of one (1) year (the “initial period” or “initial term”), subject to the rights of earlier termination set forth below, and subject to Mr. Hale’s right to receive a commission as set forth below. This Agreement shall be renewable at the option of the parties for successive 1 year periods, provided that the parties have executed an agreement regarding the terms of such renewal at least 30 days prior to the end of the initial period or any successive period. Horizon shall not refuse to extend this Agreement upon the same terms if active negotiations are underway at the end of the initial term or any subsequent term. Agent shall have the option, upon thirty (30) days’ written notice, to terminate this Agreement at any time, for whatever reason. In the event that Agent fails to perform any of the terms and conditions of this Agreement, Horizon shall have the option to give notice and immediately terminate this Agreement.

Upon termination by either party before the end of the initial term or any subsequent term, Agent shall be entitled to reimbursement of reasonable expenses incurred through the date of termination, provided the expenses are not in dispute at the time of termination. Upon termination of this Agreement or upon Agent’s business failure, bankruptcy, receivership, etc., Agent will immediately forward to Horizon all records furnished by Horizon under the terms of this Agreement.

3. SCOPE OF WORK. Agent shall perform his obligations under this Agreement for Horizon as an independent contractor with the fiduciary duties of loyalty and diligence to negotiate the best sale prices and terms practicable for the Projects. Horizon will use its best efforts to assure that Agent has access to information and the opportunity to discuss information and issues with certain members of management (within the confidentiality provisions set forth herein), in order that Agent may carry out his obligations hereunder. Agent shall provide reports to the individual within the corporate structure of National Fuel and its affiliated companies who may be designated from time to time. As of the effective date of this Agreement, Agent shall provide reports to Philip C. Ackerman, President of National Fuel Gas Company. Before making any written or oral representation to third parties on behalf of Horizon or any of its affiliated companies, Agent warrants and agrees that he will receive specific, prior approval from an authorized officer of Horizon or National Fuel Gas Company.

4. COMMISSION . Horizon shall pay Agent a commission (the “Commission”) upon the terms provided in this Agreement. Agent’s right to receive the Commission is expressly conditioned on, and the Commission shall be earned by and paid to Agent if and only if, the sale of the Projects, or either of them, is consummated prior to the expiration of this Agreement, or thereafter as provided in Section 6 below, at a price and upon terms and conditions acceptable to Horizon in its sole and absolute discretion. The Commission shall be paid only as and when the sale of the Projects is consummated and sales proceeds are actually received by Horizon. For example, if the Projects are sold under agreements which provide for the payment of some money at the closing, adjusted by a working capital adjustment three months after the closing, and additional money two years after the closing if a Project is in operation at that time, part of the Commission would be calculated and paid at the closing based on the amount actually received by Horizon at the closing, adjusted three months later in proportion to the working capital adjustment, and an additional portion of the Commission would be calculated and paid two years after the closing based on the actual receipt of that money as described in Section 4 below. A partial Commission may be earned and paid upon the sale of one of the Projects as set forth below. The Commission shall constitute the total and maximum compensation which shall be earned by and paid to Agent for his services (other reimbursement of certain expenses as set forth in Section 7 below). If no sale of a Project is consummated, Agent shall be entitled to a portion of earnest money, non-refundable or other deposit retained by Horizon in connection with any sale transaction that is not consummated, calculated in the same manner as set forth in Section 5 below.

5 CALCULATION OF COMMISSION. The Commission shall be calculated on a sliding scale based on the Total Net Sale Proceeds from the sale of the Projects, as defined below:

(a)

The Total Net Sale Proceeds from the sale of the Projects shall be equal to the gross sales proceeds actually received, converted into U.S. dollars as of the date funds are received by Horizon, less:

	(i)		all expenses of sale, including, but not limited to, attorney fees, consultant fees and government fees, other than expenses for which Agent is entitled to reimbursement pursuant to Section 6 below;

	(ii)		all foreign or domestic income taxes, excise taxes, and other taxes which Horizon or its affiliates are required to pay related to the sale of the Projects; and

	(iii)		the “Post 8/1/05 Net Project Development Costs” defined as follows: for purposes of this Agreement, the Post 8/1/05 Net Project Development Costs consist of all expenses related to the Italian Project and the Bulgarian Project first accrued by Horizon or its affiliates in connection with the Projects on or after August 1, 2005 after reduction by the amount of any such expenses for which Horizon or its affiliates are reimbursed by any unaffiliated party.

(b)

the Commission will be calculated as follows:

	(i)		one percent (1%) of the Total Net Sales Proceeds up to Total Net Sales Proceeds of one million dollars ($1,000,000); plus

	(ii)		two percent (2%) of the Total Net Sales Proceeds greater than one million dollars ($1,000,000) up to Total Net Sales Proceeds of two million dollars ($2,000,000); plus

	(iii)		three percent (3%) of the Total Net Sales Proceeds greater than two million dollars ($2,000,000) up to Total Net Sales Proceeds of three million dollars ($3,000,000); plus

	(iv)		an additional similarly increasing percentage of the Total Net Sales Proceeds from each successive increment of one million dollars ($1,000,000) of Total Net Sales Proceeds up to a maximum of 50 percent of the Total Net Sales Proceeds greater than forty-nine million dollars ($49,000,000) up to the Total Net Sales Proceeds of fifty million dollars ($50,000,000); plus

	(v)		if any proceeds from the sale of one of the Projects are received by Horizon more than three months after the closing of the sale of a Project,

			such as pursuant to an “earn-out” or similar provision, those sale proceeds shall be discounted by a prorated annual percentage rate of eight percent (8%) per year, and then added to the Net Sales Proceeds as of the Closing, and the Commission shall then be increased by applying the above formula to the Net Sales Proceeds as so increased; less

	(vi)		one-half (1/2) of the total expenses for which Horizon has reimbursed Agent pursuant to Section 6 below.

(c)

If the sale of one of the Projects is consummated before the sale of the other Project, then a portion of the Commission shall be paid based on the formula set out in paragraphs 5(a) and 5(b) above, provided that the Net Sales Proceeds from that project exceed the Accumulated Net Project Development Costs related to both projects. Upon the closing of the sale of the other Project, the remainder of the Commission shall be calculated and paid as though both closings had occurred at the same time (except as otherwise provided in paragraph 5(b)(v) above).

6. SUBSEQUENT SALE . If Horizon declines to extend this Agreement when Agent is willing to extend on the same terms beyond the initial term or beyond any subsequent term, and one or both of the sales of the Projects are consummated within one hundred eighty (180) days after termination of this Agreement to any buyer with whom Agent has had negotiations prior to such termination, then Horizon will pay the Commission on such sale or sales. If Agent terminates this Agreement or declines to extend it when Horizon is willing to extend on the same terms, then Horizon will owe Agent no Commission on any sale consummated after termination of this Agreement.

7. BUSINESS AND TRAVEL EXPENSES. Horizon shall reimburse Agent’s normal reasonable travel, lodging, long distance communication, computer connection, and out of pocket expenses incurred in connection with performance of services hereunder, subject to the reduction of the Commission by an amount equal to one-half (1/2) of Agent’s expenses as set forth in paragraph 5(b)(vi) above. When renting any vehicle for the purpose of performing services under this Agreement, Assignee will purchase the available liability insurance, which is hereby deemed to be a normal reasonable travel expense.

8. NO CHANGE IN PENSION BENEFITS. The providing of services by Agent hereunder shall neither decrease, nor increase, the calculation or payment of pension or other retirement benefits normally payable to Mr. Hale as a result of his retirement as of August 1, 2005.

9. TAXES.

(a)

Agent shall be responsible for the payment of any and all local, state and federal taxes, or other fees, imposed on the amounts made payable to Agent as a result of the services rendered hereunder.

	(b)		Agent shall be responsible for the withholding and/or payment of any and all applicable local, state and federal employment, payroll and/or income taxes associated with any and all of Agent’s employees, provided that Agent shall not use any employees on any of the work to be performed under this Agreement without the prior written consent of Horizon. Agent agrees to indemnify and hold harmless National Fuel for or from any failure, on the part of Agent, to withhold or remit such applicable taxes.

	(c)		Upon request by Horizon, Agent shall provide documented proof that the above-referenced taxes were paid, as required.

10. INDEPENDENT CONTRACTOR. It is understood and agreed that, in performing all work hereunder, Agent shall be an independent contractor, responsible for accomplishing the results contracted for under this Agreement, and, as such, shall control the detail, manner and means of providing consulting services pursuant to this Agreement. Accordingly, Agent shall not be required to work any particular schedule, but shall use his best efforts to meet Horizon’s deadlines. Further, Agent shall not, within reason, be required to work at any particular location. However, Horizon shall provide reasonable and sufficient temporary office space and clerical and office services support when Consultant’s presence is required at any of National Fuel’s offices in North America. Neither party shall in any way represent that it is an employer or employee of the other party. In certain circumstances, as specifically authorized by Horizon, Agent may act as an agent of a National Fuel entity. As an independent contractor, Agent is not authorized to make any contract, agreement, warranty or representation on behalf of Horizon or National Fuel, unless specifically authorized in writing by a Horizon officer to do so.

11. PROHIBITION AGAINST SUBCONTRACTING . Agent shall not subcontract out any of the work to be performed by him under this Agreement without the prior written consent of Horizon.

12. INDEMNITY.

(a)

Agent will indemnify and hold National Fuel harmless from and against any and all loss, damage, injury, suits, penalties, costs, liabilities and expenses (including, but not limited to, legal expenses) arising out of any claim for loss of or damage to property, including property of National Fuel or Agent, liability to, injury to, or death of any person, including Agent, or an employee of National Fuel or Agent, caused by the grossly negligent, reckless or intentionally tortious acts of Agent, or his officers, employees, subcontractors or other agents, including but not limited to failure to comply with federal, state and local laws, ordinances and regulations, both foreign and domestic, applicable to services to be performed hereunder and all other applicable local, state and federal laws, ordinances and regulations, both foreign and domestic. For purposes of this paragraph only, “National Fuel” shall

include National Fuel Gas Company and all of its direct and indirect subsidiaries, along with any officer or employee of these entities.

(b)

Horizon will indemnify and hold Agent harmless from and against any and all loss, damage, injury, suits, penalties, costs, liabilities and expenses (including, but not limited to, legal expenses) arising out of any claim related to the services performed under this Agreement for loss of or damage to property, including property of National Fuel or Agent, liability to, injury to, or death of any person, including Agent, or an employee of National Fuel or Agent, unless caused by the grossly negligent, reckless or intentionally tortious acts of Agent, or his officers, employees, subcontractors or other agents, including but not limited to failure to comply with federal, state and local laws, ordinances and regulations, both foreign and domestic, applicable to services to be performed hereunder and all other applicable local, state and federal laws, ordinances and regulations, both foreign and domestic.

13. INSURANCE. Horizon shall carry statutory workers’ compensation insurance coverage, commercial general liability insurance coverage, international commercial insurance coverage and executive risk insurance coverage in an amount not less than $1,000,000. Horizon shall have Agent named as additional insured (with the exception of the workers’ compensation policy) under the above insurance policies in connection with any claims arising out of the services provided under this Agreement. Each insurance policy provided by Horizon shall contain a waiver of the right of subrogation, and the coverage will be provided (except as otherwise described in the immediately following sentence) on a primary non-contributing basis and the limits will be exhausted before any other insurance is to apply. The coverage provided by Horizon will, however, be on a secondary non-contributing basis excess of any other applicable primary auto insurance policies carried by Agent or his Assignee (as defined in paragraph 21) and the limits of any such primary auto insurance will be exhausted before the coverage provided by Horizon hereunder is to apply. Horizon shall maintain this insurance at all times during performance of this Agreement, provided however, that in the event Horizon elects to not renew its international commercial insurance coverage upon its expiration on June 6, 2006, Agent would no longer be covered under such policy and nothing herein shall obligate Horizon to continue to renew or replace such policy.

14. CONFIDENTIALITY.

(a)

In performing his obligations under this Agreement, Agent and his employees, officers, members and agents, if any, shall maintain all information gathered, developed or communicated to Agent by National Fuel or any of their directors, officers, employees or agents, in connection with the work performed hereunder in a confidential manner, whether or not identified as a trade secret or as proprietary and confidential by National Fuel. Agent agrees that Agent and his employees, officers, members and agents, if any, will not duplicate, distribute, disclose, or otherwise provide such information, or National Fuel’s trade secrets or proprietary and confidential information to anyone without prior written

authorization of a Horizon officer. The obligations created by this paragraph shall remain in effect indefinitely and shall survive the termination of this Agreement.

(b)

National Fuel’s “trade secrets” and “confidential and proprietary information” include information and material concerning National Fuel which is not generally known to the public, including but not limited to, any and all memoranda, software, data bases, computer programs, interface systems, pricing and client information, and records pertaining to National Fuel’s methods or practices of doing business and marketing its services and products, whether or not developed or prepared by Agent during the term of his employment with National Fuel or in connection with his providing consulting service to National Fuel. National Fuel’s trade secrets and confidential and proprietary information also include “writing” or “writings” which shall mean and include all works, expressed in words, numbers or other verbal or numerical symbols, regardless of the physical manner in which they are embodied, including, but not limited to, books, articles, manuscripts, memoranda, computer programs, computer software systems, maps, charts, diagrams, technical drawings, manuals, video and audio tape recordings, and photographs, whether or not developed or prepared by Agent during the term of his employment with National Fuel or in connection with his providing consulting services to National Fuel. National Fuel’s trade secrets and confidential and proprietary information do not include any information or material which is or becomes generally known to the public (other than by act of Agent or his representatives in breach of this Agreement).

15. BOARD APPROVAL. This Agreement is made subject to approval and ratification by the Board of Directors of National Fuel Gas Company, to whom it will be presented and favorably recommended by management at the next meeting of that Board, scheduled for September 8, 2005. If this Agreement is not so approved and ratified, then the parties will negotiate in good faith to restore the parties as nearly as possible to the positions in which they would have been if this Agreement had never been executed, or to reach some other mutually agreeable arrangement.

16. COMMUNICATIONS. All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, to the appropriate party at the addresses specified below or at such other addresses as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee.

(a)

With respect to Agent:

Bruce H. Hale
247 Brantwood Road
Snyder, New York 14226

(b)

With respect to Horizon:

P.C. Ackerman, President
Horizon Energy Development, Inc.
6363 Main Street
Williamsville, NY 14221

17. AUDIT. Horizon shall have the right, upon reasonable notice, to examine and audit all of Agent’s billings and all of the backup support data for those billings. Agent shall make available said information to Horizon, upon request, at the offices of National Fuel.

18. SOCIAL SECURITY AND FAIR LABOR STANDARDS . Agent covenants and agrees that it is bound by and will observe and perform all duties required under the Social Security Act and the United States Fair Labor Standards Act, and all other applicable local, state, and federal laws, ordinances, and regulations.

19. EQUAL EMPLOYMENT OPPORTUNITY . The Equal Opportunity clause in Section 202, Paragraphs 1 through 7 of Executive Order 11246, as amended; and Section 503 of the Rehabilitation Act of 1973, 29 U.S.C. §793, as amended; and Section 402 of the Vietnam Era Veterans Readjustment Assistance Act of 1974, 38 U.S.C. §§42l1-12; and the Americans with Disabilities Act of 1990, 42 U.S.C. §12101, et . seq ., as amended, relating to equal employment opportunity; and the implementing Rules and Regulations of the Office of Federal Contracts Compliance Programs as set forth in 41 C.F.R. Chapter 60 are incorporated herein by specific reference.

20. NON-WAIVER. Failure of either party to act or exercise its rights under this Agreement upon the breach of any of the terms hereof by the other party shall not be construed as a waiver of such a breach or prevent said party from thereafter enforcing strict compliance with any or all of their terms hereof.

21. NON-ASSIGNABILITY. The obligations of Agent hereunder are personal and cannot be assigned or delegated to subcontractors or employees except as provided in this paragraph 21. Agent may assign this Agreement to a limited liability company or other entity wholly owned by Agent (“Assignee”), effective upon notice to Horizon signed by both Agent and the Assignee, which notice must include:

	(a)		the full legal name, address and state of organization of the Assignee;

	(b)		evidence of Agent’s sole ownership of the Assignee; and

	(c)		the Assignee’s commitments that (i) the Assignee assumes all rights and obligations under this Agreement, and (ii) all the Assignee’s services under this Agreement must be performed by Agent individually unless Horizon expressly consents otherwise in writing.

Upon the effective date of such an assignment, Agent shall individually be relieved of all direct obligations under this Agreement, which shall become the direct obligations of the Assignee (although Agent as an officer/employee of Assignee will continue to comply and help Assignee comply with the confidentiality provisions of paragraph 14 of this Agreement). Horizon may not assign this Agreement without the express written consent of Agent. Said consent shall not be unreasonably withheld.

22. GOVERNING LAW. This Agreement shall be governed by the laws of the State of New York without giving effect to the conflict of laws provisions thereof.

23. SEVERABILITY. If any clause, sentence, paragraph, provision or other part hereof shall be adjudged by any court of competent jurisdiction to be invalid, the remainder hereof shall be interpreted so as to achieve as closely as possible the intent of the parties as originally expressed in this Agreement.

24. CAPTIONS AND HEADINGS . The captions and headings herein are for convenience only and are not to be construed as a part of this Agreement, nor shall the same be construed as defining or limiting in any way the scope or intent of the provisions hereof.

25. ENTIRE AGREEMENT . This Agreement contains and states the entire agreement of the parties hereto and supersedes and cancels all prior written and oral agreements and understandings with respect to the subject matter of this Agreement. Any modification to this Agreement must be agreed upon in writing and signed by both parties.

26. BINDING CONSIDERATION. Agent understands, represents, warrants, and agrees that the consideration provided under this Agreement is in addition to anything of value to which he is entitled.

27. BINDING AGREEMENT . This Agreement is and shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, executors, administrators and assigns. Agent represents, warrants and agrees that he has read, understands and intends to be bound by this Agreement and its recitals, terms, conditions and representations.

IN WITNESS WHEREOF, the parties hereto have made and entered into this Agreement as of August 1, 2005.


HORIZON ENERGY DEVELOPMENT, INC.		BRUCE H. HALE

By:	/s/ P. C. Ackerman	/s/ Bruce H. Hale

Name: P. C. Ackerman
Title: President

EXHIBIT 12

COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
UNAUDITED


	Fiscal Year Ended September 30
	2005			2004			2003			2002			2001

EARNINGS:

Income from Continuing Operations	$	153,515		$	154,265		$	181,067		$	113,502		$	60,663
Plus Income Tax Expense		92,978			94,590			124,150			69,944			33,433
Less Investment Tax Credit (1)		(697	)		(697	)		(693	)		(702	)		(353	)
(Less Income) Plus Loss from Unconsolidated Subsidiaries (3)		796			(805	)		(535	)		14,943			(1,794	)
Plus Distributions from Unconsolidated Subsidiaries		1,990			785			1,238			585			595
Plus Interest Expense on Long-Term Debt		73,244			82,989			91,381			88,646			78,297
Plus Other Interest Expense		9,069			6,763			11,196			15,109			25,294
Less Amortization of Loss on Reacquired Debt		(1,066	)		(1,350	)		(2,078	)		(1,927	)		(1,927	)
Plus (Less) Allowance for Borrowed Funds Used in Construction		201			298			(102	)		446			438
Plus Rentals (2)		3,554			4,286			4,573			4,906			4,893


	$	333,584		$	341,124		$	410,197		$	305,452		$	199,539


FIXED CHARGES:

Interest & Amortization of Premium and Discount of Funded Debt	$	73,244		$	82,989		$	91,381		$	88,646		$	78,297
Plus Other Interest Expense		9,069			6,763			11,196			15,109			25,294
Less Amortization of Loss on Reacquired Debt		(1,066	)		(1,350	)		(2,078	)		(1,927	)		(1,927	)
Plus (Less) Allowance for Borrowed Funds Used in Construction		201			298			(102	)		446			438
Plus Rentals (2)		3,554			4,286			4,573			4,906			4,893


	$	85,002		$	92,986		$	104,970		$	107,180		$	106,995


RATIO OF EARNINGS TO FIXED CHARGES		3.92			3.67			3.91			2.85			1.86


(1)		Investment Tax Credit is included in Other Income

(2)		Rentals shown above represent the portion of all rentals (other than delay rentals) deemed representative of the interest factor.

(3)		Fiscal 2002 and 2005 include the Impairment of Investment in Partnership of $15,167 and $4,158, respectively.

Exhibit 23.1

CONSENT OF ENGINEER

We hereby consent to the reproduction of our audit report for Seneca Resources Corporation dated October 14, 2005, and to the reference to our estimate dated September 30, 2005, appearing in this National Fuel Gas Company Annual Report on Form 10-K.

We also consent to the incorporation by reference in (i) the Registration Statement (Form S-8, No. 2-94539), as amended, relating to the National Fuel Gas Company 1983 Incentive Stock Option Plan and the National Fuel Gas Company 1984 Stock Plan, and in the related Prospectuses, (ii) the Registration Statements (Form S-8, Nos. 33-28037, 333-3055 and 333-102220, and Nos. 2-97641, 33-17341, 333-03057 and 333-102211), as amended, relating to the National Fuel Gas Company Tax-Deferred Savings Plan and the National Fuel Gas Company Tax-Deferred Savings Plan for Non-Union Employees, respectively, and in the related Prospectuses, (iii) the Registration Statement (Form S-3, No. 333-03803), as amended, relating to $500,000,000 of National Fuel Gas Company debentures and/or medium term notes and, in the related Prospectus, (iv) the Registration Statements (Form S-3, No. 33-51881 and Form S-3D, No. 333-51769), as amended, relating to the National Fuel Gas Company Dividend Reinvestment and Stock Purchase Plan, and in the related Prospectuses, (v) the Registration Statement (Form S-3, No. 33-36868), as amended, relating to the National Fuel Gas Company Customer Stock Purchase Plan, and in the related Prospectus, (vi) the Registration Statements (Form S-8, Nos. 33-49693 and 333-117132), as amended, relating to the National Fuel Gas Company 1993 Award and Option Plan, and in the related Prospectus, and (vii) the Registration Statements (Form S-8, Nos. 333-51595, 333-55124 and 333-117131), relating to the National Fuel Gas Company 1997 Award and Option Plan, and in the related Prospectus, (viii) the Registration Statement (Form S-3, No. 333-83497), as amended, relating to $625,000,000 of National Fuel Gas Company debentures and/or common stock, and in the related Prospectus, (ix) the Registration Statement (Form S-3, No. 333-102200), as amended, relating to $800,000,000 of National Fuel Gas Company debt securities, common stock, stock purchase contracts and stock purchase units, and in the related Prospectus, and (x) the Registration Statements (Form S-3, Nos. 333-85711 and 333-123654), as amended, relating to the National Fuel Gas Company Direct Stock Purchase and Dividend Reinvestment Plan, and in the related Prospectuses, of the reproduction of our report dated October 14, 2005, appearing in this National Fuel Gas Company Annual Report on Form 10-K.


		RALPH E. DAVIS ASSOCIATES, INC.
		/s/ Larry A. Barnett

		Larry A. Barnett, P.E. Senior Vice President

Houston, Texas
October 18, 2005

1717 St. James Place, Suite 460 Houston, Texas 77056 Office 713-622-8955 Fax 713-626-3664 www.ralphedavis.com

Worldwide Energy Consultants Since 1924

Exhibit 23.2

CONSENT OF ENGINEER

We hereby consent to the reproduction of our audit report for Seneca Energy Canada, Inc. dated October 14, 2005, and to the reference to our estimate dated September 30, 2005, appearing in this National Fuel Gas Company Annual Report on Form 10-K.


	RALPH E. DAVIS ASSOCIATES, INC.
	/s/ Larry A. Barnett
	Larry A. Barnett, P.E.
	Senior Vice President

Houston, Texas
October 18, 2005

1717 St. James Place, Suite 460 Houston, Texas 77056 Office 713-622-8955 Fax 713-626-3664 www.ralphedavis.com

Worldwide Energy Consultants Since 1924

Exhibit 23.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (Nos. 333-123654, 333-85711, and 333-102200) and Form S-8 (Nos. 2-94539, 33-49693, 333-03055, 333-51595, 333-55124, 333-102211, 333-102220, 333-117131 and 333-117132) of National Fuel Gas Company of our report dated December 12, 2005 relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
Buffalo, New York
December 12, 2005

Exhibit 31.1

CERTIFICATION

I, P. C. Ackerman, certify that:

1. I have reviewed this annual report on Form 10-K of National Fuel Gas Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 8, 2005

/s/ P. C. Ackerman
P. C. Ackerman
Chairman of the Board, President
and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, R. J. Tanski, certify that:

1. I have reviewed this annual report on Form 10-K of National Fuel Gas Company;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 8, 2005

/s/ R. J. Tanski
R. J. Tanski
Treasurer and Principal Financial Officer

Exhibit 32

NATIONAL FUEL GAS COMPANY

Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

Each of the undersigned, P. C. ACKERMAN, the Chairman of the Board, President and Chief Executive Officer, and R. J. TANSKI, the Treasurer and Principal Financial Officer, of NATIONAL FUEL GAS COMPANY (the “Company”), DOES HEREBY CERTIFY that:

	1.		The Company’s Annual Report on Form 10-K for the year ended September 30, 2005 (the “Annual Report”) fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended; and

	2.		Information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this statement this 8th day of December, 2005.

/s/ P. C. Ackerman
Chairman of the Board, President and
Chief Executive Officer

/s/ R. J. Tanski
Treasurer and Principal Financial Officer

Exhibit 99.1

RED
RALPH E. DAVIS
ASSOCIATES, INC.

October 14, 2005

Seneca Resources Corporation
1201 Louisiana, Suite 400
Houston, Texas 77002

Gentlemen:

At your request, the firm of Ralph E. Davis Associates, Inc. has audited an evaluation of the proved oil, condensate and natural gas reserves on leaseholds in which Seneca Resources Corporation has certain interests. This report presents a summary of the Proved Developed (producing and non-producing) and Proved Undeveloped reserves anticipated to be produced from Seneca Resources’ interest.

The reserves associated with these estimates have been classified in accordance with the definitions of the Securities and Exchange Commission as found in Rule 4-10(a) of regulation S-X of the Securities Exchange Act of 1934. We have also estimated the future net revenue and discounted present value associated with these reserves as of September 30, 2005, utilizing a scenario of non escalated product prices as well as non escalated costs of operations, i.e., prices and costs were not escalated above current values as detailed later in this report. The present value is presented for your information and should not be construed as an estimate of the fair market value.

The summarized results of the reserve audit are as follows:

1717 St. James Place, Suite 460 Houston, Texas 77056 Office 713-622-8955 Fax 713-626-3664 www.ralphedavis.com
Worldwide Energy Consultants Since 1924

RALPH E. DAVIS
ASSOCIATES. INC.

Seneca Resources Corporation
Oil, Condensate and Natural Gas Reserves
Mr. James A. Beck

October 14, 2005
Page 2

Estimated Proved Reserves
Net to Seneca Resources Corporation
As of September 30, 2005


	Proved Developed				Proved
Division:	Producing		Non Prod		Undeveloped		Total Proved
EAST COAST:
Oil/Condensate: MBbls		134.0		43.4		0.0		177.4
Gas: MMcf		81,621.3		1,503.8		0.0		83,125.1

GULF COAST:
Oil/Condensate: MBbls		906.0		322.7		66.4		1,295.1
Gas: MMcf		9,447.2		13,661.1		15,362.0		38,470.3

WEST COAST:
Oil/Condensate: MBbls		41,519.8		181.0		15,383.5		57,084.3
Gas: MMcf		58,277.8		414.1		11,766.8		70,458.7

TOTAL COMPANY:
Oil/Condensate: MBbls		42,559.8		547.1		15,449.9		58,556.8
Gas: MMcf		149,346.2		15,579.1		27,128.8		192,054.1

Liquid volumes are expressed in thousands of barrels (MBbls) of stock tank oil. Gas volumes are expressed in millions of standard cubic feet (MMSCF) at the official temperature and pressure bases of the areas wherein the gas reserves are located.

DISCUSSION:

The scope of this study was to audit the proved reserves attributable to the interests of Seneca

RALPH E. DAVIS
ASSOCIATES. INC.

Seneca Resources Corporation
Oil, Condensate and Natural Gas Reserves
Mr. James A. Beck

October 14, 2005
Page 3

Resources Corporation. Reserve estimates were prepared by Seneca using acceptable evaluation principals for each source. The quantities presented herein are estimated reserves of oil, condensate and natural gas that geologic and engineering data demonstrate can be recovered from known reservoirs under existing economic conditions with reasonable certainty.

Ralph E. Davis Associates, Inc. has audited the reserve estimates, the data incorporated into preparing the estimates and the methodology used to evaluate the reserves. In each of Seneca’s producing divisions all current year additions and those properties of significant value were reviewed by Ralph E. Davis. Reserve estimates of current producing zones, productive zones behind pipe and undrilled well locations were reviewed in detail. Certain changes to either individual reserve estimates or the categorization of reserves were suggested by Ralph E. Davis Associates, Inc. and accepted by Seneca Resources. It is our opinion that the reserves presented herein meet all the criteria of Proved Reserves.

Neither Ralph E. Davis Associates, Inc. nor any of its employees have any significant interest in Seneca Resources Corporation or the properties reported herein. The employment and compensation to make this study are not contingent on our estimate of reserves.

We appreciate the opportunity to be of service to you in this matter and will be glad to address any questions or inquiries you may have.


		Very truly yours,
		RALPH E. DAVIS ASSOCIATES, INC.


		Allen C. Barron, P. E.
		President

Exhibit 99.2

RED
RALPH E. DAVIS
ASSOCIATES, INC.

October 14, 2005

Seneca Energy Canada, Inc.
550 6 ^th Avenue SW
Suite 1000
Calgary, Alberta T2P 0S2

Gentlemen:

At your request, the firm of Ralph E. Davis Associates, Inc. has audited an evaluation of the proved oil, condensate and natural gas reserves on leaseholds in which Seneca Energy Canada, Inc. has certain interests. This report presents a summary of the Proved Developed (producing and non-producing) and Proved Undeveloped reserves anticipated to be produced from Seneca Energy Canada’s interest.

The reserves associated with these estimates have been classified in accordance with the definitions of the Securities and Exchange Commission as found in Rule 4- 10(a) of regulation SX of the Securities Exchange Act of 1934. We have also estimated the future net revenue and discounted present value associated with these reserves as of September 30, 2005, utilizing. a scenario of non escalated product prices as well as non escalated costs of operations, i.e., prices and costs were not escalated above current values as detailed later in this report. The present value is presented for your information and should not be construed as an estimate of the fair market value.

1717 St. James Place, Suite 460 Houston, Texas 77056 Office 713-622-8955 Fax 713-626-3664 www.ralphedavis.com
Worldwide Energy Consultants Since 1924

RALPH E. DAVIS
ASSOCIATES, INC.

Seneca Energy Canada, Inc.
Oil, Condensate and Natural Gas Reserves
Mr. Jeff Campbell

October 14, 2005
Page 2

The summarized results of the reserve audit are as follows:

Estimated Proved Reserves
Net to Seneca Energy Canada, Inc.
As of September 30, 2005


	Proved Developed
	Producing		Non Producing		Undeveloped		Total Proved
TOTAL COMPANY

Oil: MBbls		1,243.02		252.84		0.00		1,495.9
NGL/Condensate: MBbls		173.85		30.32		0.00		204.2
Gas: MMcf		37,561.12		6,418.34		2,106.30		46,085.8

DISCUSSION:

The scope of this study was to audit the proved reserves attributable to the interests of Seneca Energy Canada, Inc. Reserve estimates were prepared by Seneca Energy Canada using acceptable evaluation principals for each source. The quantities presented herein are estimated reserves of oil, condensate and natural gas that geologic and engineering data demonstrate can be recovered from known reservoirs under existing economic conditions with reasonable certainty.

Ralph E. Davis Associates, Inc. has audited the reserve estimates, the data incorporated into preparing the estimates and the methodology used to evaluate the reserves. In each of Seneca Energy Canada’s producing areas all current year additions and those properties of significant value were reviewed by Ralph E. Davis. Reserve estimates of current producing zones, productive zones behind pipe and undrilled well locations were reviewed in detail. Certain changes to either individual reserve estimates or the categorization of reserves were suggested by Ralph E. Davis Associates, Inc. and accepted by Seneca Energy Canada. It is our opinion that the reserves presented herein meet all the criteria of Proved Reserves.

RALPH E. DAVIS
ASSOCIATES, INC.

Seneca Energy Canada, Inc.
Oil, Condensate and Natural Gas Reserves
Mr. Jeff Campbell

October 14, 2005
Page 3

Neither Ralph E. Davis Associates, Inc. nor any of its employees have any significant interest in Seneca Energy Canada, Inc. or Seneca Resources Corporation or the properties reported herein. The employment and compensation to make this study are not contingent on our estimate of reserves.

We appreciate the opportunity to be of service to you in this matter, and will be glad to address any questions or inquiries you may have.


		Very truly yours,
		RALPH E. DAVIS ASSOCIATES, INC.


		Allen C. Barron, P. E.
		President

EXHIBIT 99.3

Exploration and Production

Pipeline and Storage

Utility

Timber

Energy Marketing


JPMORGAN CHASE BANK, N.A., as Administrative Agent
By:	/s/ Thomas C. Lillis
	Name:	Thomas C. Lillis
	Title:	Senior Vice President


JPMORGAN CHASE BANK, N.A., as Lender
By:	/s/ Thomas C. Lillis
	Name:	Thomas C. Lillis
	Title:	Senior Vice President


HSBC BANK USA, NATIONAL ASSOCIATION, as Lender
By:	/s/ John G. Tierney
	Name:	John G. Tierney
	Title:	Vice President


MANUFACTURERS AND TRADERS TRUST COMPANY, as Lender
By:	/s/ Susan Freed-Oestreicher
	Name:	Susan Freed-Oestreicher
	Title:	Vice President


BANK OF TOKYO-MITSUBISHI TRUST COMPANY, as Lender
By:	/s/ James A. Profesta
	Name:	James A. Profesta
	Title:	Assistant Vice President


THE NORTHERN TRUST COMPANY, as Lender
By:	/s/ Chris McKean
	Name:	Chris McKean
	Title:	Vice President


NATIONAL CITY BANK OF PENNSYLVANIA, as Lender
By:	/s/ William A. Feldmann
	Name:	William A. Feldmann
	Title:	Vice President


PNC BANK, NATIONAL ASSOCIATION, as Lender
By:	/s/ James F. Stevenson
	Name:	James F. Stevenson
	Title:	Vice President


BANK OF AMERICA, N.A. as Lender
By:	/s/ Colleen O’Brien
	Name:	Colleen O’Brien
	Title:	Vice President


THE BANK OF NEW YORK, as Lender
By:	/s/ John N. Watt
	Name:	John N. Watt
	Title:	Vice President