Q4 2023 CNX Resources Corporation Earnings Call

Okay.

Good morning, and welcome to the <unk> resources fourth quarter 2023, Q&A Conference call. All participants will be in listen only mode should you need assistance. Please signal and conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportune.

T to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Tyler Lewis Vice President of Investor Relations. Please go ahead.

Thank you and good morning, everybody welcome to <unk> fourth quarter Q&A Conference call.

Today, we will be answering questions related to our fourth quarter and full year results. This morning, we posted to our Investor Relations website, an updated slide presentation and detailed fourth quarter earnings release data such as quarterly E&P data financial statements and non-GAAP reconciliations, which can be found in the.

Entitled for Q2 thousand 23 earnings results and supplemental information <unk> resources.

Also as previously announced we posted to our Investor Relations website, our prepared remarks for the quarter.

This is a new format to better streamline the earnings process and dissemination of information.

So we hope that everyone had a chance to read the prepared remarks before the call is the call today will be used exclusively for Q&A.

With me today for Q&A, our Nicki Oes are president and CEO.

Alan Shepard, our Chief Financial Officer.

We feel our chief operating officer, and Ravi Srivastava, President of our New technologies group.

Please note that the company's remarks made during this call including answers to questions include forward looking statements, which are subject to various risks and uncertainties.

Payments are not guarantees of future performance and our actual results may differ materially as a result of many factors.

Ravi Srivastava: A discussion of risks and uncertainties related to those factors in <unk> business is contained in its filings with the Securities and Exchange Commission and in the release issued today.

With that thank you for joining us this morning, and operator can you. Please open the call up for Q&A at this time.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

Any time your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Ravi Srivastava: The first question comes from Bertrand Donuts with Truest. Please.

Please go ahead.

Hey, good morning, guys I just wanted to start off on the new tax free cash flow guidance.

Maybe could you talk about specifically what's changed over the past three months to kind of impact your outlook and then I you know I suspect, it's probably pricing but.

Secondly is it a matter of IRR when you when you discussed in your prepared remarks about the incentive for new expansion is it is it IRR is not meeting some sort of internal threshold or is it maybe that the projects are actually flipped to a negative free cash flow territory right.

Hey, Bhavan this is Ravi.

Ravi Srivastava: And Oh.

On the although the new tech the cash flow side, I think you're right.

The way what was going to impact the cash goes when you Tech has to think the volume that qualifies for different programs and I think the team's done a great job of maximizing what those volumes can be we provided the guidance up about 15 to 18 Bcf to qualify these bodies programs and we're focused on getting all of that volume.

Kind of turned in lines. So that's that's happened there we're pretty excited about that that that part of it.

The second thing that that impacts what the free cash flow is gonna be as what the pricing is and I will be happy and some softening of our pricing.

Specifically in the ABS market for the tier one racks and and and that's driven the cash most out but oh, but there was some seasonality. There is some volatility that kind of comes in and do that with what the pricing that we were seeing in Q3 Q4 up last year. There's no reason why we could not go back to those types of pricing late in the year.

But what we're trying to do is providing.

Guidance is based on the information that you have available at this point in time, and that's that's where that market stands at this point in time and are on the on the future investment standpoint, that's correct. I think we have a portfolio of opportunities that we can invest our capital into and Oh, we do have opportunity to build and capture more gas, but at this point in time, but the incentive structure that's available.

Through the programs that we have access to at this point in time.

We're limited in terms of how much more capital we could invest to capture this oh more.

My thing.

That makes sense and then just shifting gears, a little bit but it looks like that does the footnote on full year 'twenty four cash unit costs ticked up a little bit versus the <unk> 23 disclosure is there any color on which bucket it may be going up and does that reverse if you.

Ravi Srivastava: Ramp up your production.

So the way to think about those quarterly quarterly.

Quarter to quarter kind of unit cost numbers may fluctuate based on kind of the production volumes for the quarter and central maintenance projects that slide around between quarters. The way to think about it as always to look to be sort of annual guidance that we provide.

Then you'll see the.

Kind of the way you should think about modeling that on an annual basis, because there is noise in quarter to quarter.

Okay. So there's nothing specifically going up.

Gotcha.

Okay got it.

Thanks, guys.

Okay.

The next question comes from Zach <unk> with J P. Morgan. Please go ahead.

Hey, guys. Thanks for taking my questions I.

I guess first another one on new Tech in December you announced you were no longer partnering with the Adams four project, which was one of the potential drivers of future New Tech free cash flow growth can you talk a little bit about the drivers.

Do you expect to you talked about growing new tack from here, maybe what what drives that higher than the 75 billion in 2024, as we go out into 2020 five in future years.

Exactly it's a great question Bob.

The way I would look at new tech fee cash flow growth.

We could put them into.

Bob: What was it three different buckets.

Ravi Srivastava: One is.

Ravi Srivastava: The environmental attribute opportunities.

Talk about the volume that qualifies for some of these opportunities being 15 to 18 Bcf.

So we can we can grow that volume for that volume to grow theres better incentive that needs to be available for it so where we're looking for other opportunities other incentive.

Programs. There are other pathways that can be created where oh.

The realization please.

Environmental attributes can be Oh, we can realize more value for these so so we're looking at a portfolio of opportunities on that side. So if that happens not only the realizations go up there is opportunity to add more volume to it. So that's that's one pathway to grow new tech free cash flows.

Second part of it but you talked about in the past is we have a technology portfolio that we're trying to to look to create value and I think 24 is going to be the year, where.

They've been in the prototyping testing phase, where a lot of that stuff, but I think this year, we start to see.

Ravi Srivastava: That.

Those opportunities start to take a commercial scale. So we're excited about those I think.

More to come on that front in the coming quarters, but.

We're very excited with the with the with the progress that you've seen on that front and then the third part is this alternate fuel opportunity where.

The hydrogen projects or getting into C. N G LNG market.

Uh huh opportunity it creates opportunity for a new tech to grow its cash flows then and again I think it dovetails with the technology up AR and.

An IP opportunity that we have that creates a C and D and LNG opportunity for us. So so more to come on that front, but we're pretty excited about what we have in our portfolio and and those.

Oh those three.

Different buckets combined is what's going to drive new check cashing those end up in the coming years.

Thanks, Robbie maybe I'll follow up on the E&P business 11 of your 35 planned turn in lines in 2024 will be in the central area versus the southwest VA area, which is up a bit from for 2023 can you just talk a little bit about what your future development split will look like will we see more activity.

The central P a versus a southwest VA overtime.

Yeah, I think as we've talked about historically, we're very focused on continuing to develop that southwest P. A S. It that's where the bulk of our infrastructure is currently in right now.

We assess those opportunities.

NPV kind of total IRR basis.

We did drill some CPA Utica well the.

Wells this year and we've talked about those and we expect those to come online next year and that's some of the chills youre talking about but overall you know in the next few years, a mix should look pretty consistent.

But you've seen historically, but in the longer term you will see us migrate up towards CPA towards the latter part of the decade.

Great. Thanks for the color guys.

The next question comes from Leo Mariani with Ralph M. K M. Please go ahead.

Okay.

Yeah, Hi, just wanted to follow up a little bit on kind of production trajectory here and in 2024.

The only had kind of two tales that in the fourth quarter. So just generally speaking should we expect kind of production to dip a little bit here in the second quarter, and then kind of start kind of moving up as we get to the middle of the year, it's going to hit that guidance range and I know that previously last year, you kind of had that point estimate on guidance and this year you got a little bit of a range. So maybe just.

Provide any kind of color around that would be helpful.

Yeah, you'll see kind of similar to what you saw last year Q1 will probably be the low number for our volumes and that'll build throughout the year and should end the year at the <unk>.

Highest kind of quarterly run rate, but on average you know as we've talked about we're trying to maintain kind of a flat production profile on an annual basis is about 580 bps.

Yeah.

Got it.

Okay.

That's helpful. And then can you just talk a little bit more about.

How you get from 2024 capital to 2025 capitals, So you've got there.

Roughly 600 million this year and it's expected to kind of think stepped down to closer to 500 next year can you, maybe just kind of talk us through a little bit what the kind of delta there is.

Yeah, what you're seeing there what we've kind of set out to achieve right. We're in a whole production flat and focus on capital efficiency and when you do hold production flat you end up needing to turn in line fewer and fewer wells each year. So the 25 plan is gonna Yeah, you should expect to see fewer chills and with that comes lower capital, particularly on the completion side. So that's really the big driver there we're not in.

Modeling any sort of cost reductions or anything about it's truly an activity based reduction.

Got it so I mean I'm, assuming a lot of it is probably just.

Bunching of lower decline rates as you continue to hold production flat or its just taking fewer wells and is there also any kind of component that youre seeing where perhaps the wells. It improved at all I'm just trying to get a sense of you know.

It's a pretty big step down or had gone from 600 to 500, you know call. It 17, 18% less capital. It's a really nice change in efficiency. We just wanted to see if there's any kind of well improvement performance component here.

Yeah, I wouldn't I wouldn't describe it as well improvement performance I mean, we will have the CPA Utica wells in the plan next year and we expect those to be very robust like we saw in prior years.

So really it's just you know the.

To maintain 580, you hit it the production declines are lower the capital intensity on the infrastructure side is lower.

End up with lower completion activity, so that's right, where we want to be.

So we think it's still going to grow production in this basin.

Yeah that makes sense. Thank you.

The next question comes from Michael Schiavone with Stephens. Please go ahead.

Yeah. Good morning, everybody up maybe just to follow up on Neil's question. There too just curious so with that stepped down to $500 million.

Was there anything built in Oh, Capex wise for the Adams four project in that time frame or was that further out.

No that was further out.

Okay got it.

And then.

Your production guidance for this year.

Looks like you're implying.

Implying some mid single digit growth year over year I want to see how you see the in basin fundamentals playing out this year and any concern about potential bottlenecks on storage or export capacity.

No I mean, it's all gonna be weather dependent.

Couple of your peers have been pretty consistent and staying flat so.

We would expect the supply side to remain steady and it's gonna be a demand function.

You know, we'll see how kind of we get through the winter here in the rest of February March and well have a better view on that but.

Where we're protected in any scenario with our hedge book. So we're ready to go for whatever 24 branch.

Got you.

And if I could ask one more for this year's non drilling capex are the $145 million to $175 million you talked about can you give us any rough split on the the land midstream and new tech costs.

Breakout there.

Yeah, the new text in a separate bucket isn't that discretionary line and that's pretty de Minimis.

Ravi Srivastava: That five to 10 million range, but that also includes all of our efforts on the ESG reduction so.

There's two kind of things in that bucket on the land side if.

If you are around the $30 million sort of range and the rest is split between water infrastructure and midstream infrastructure that.

It kind of keeps up with the field development.

Great I appreciate it.

Again, if you have a question. Please press Star then one.

The next question comes from Jacob Roberts with T. P. H. Please go ahead.

Good morning.

Jacob Roberts: We were running we were wondering if youre able to give any insight into the split of the 75 million the new tech in terms of perhaps credits versus private party transactions and then is there any expectation you know given the volatility.

Those markets in terms of how they'll be monetized on a quarterly basis.

So oh.

As we've said in our prepared commentary.

Uh huh.

The sources for that.

The cash flow or in fact is coming from the ATM market. There's some other compliance markets that were a part of and.

Theres some voluntary transactions.

Taken so at this point in time, but we're making some dynamic decisions on where the opportunity is and where to direct those those attributes too. So it's difficult to provide the split on <unk>.

The ongoing basis, but but what I would say is.

That but some of the other transactions on the on the voluntary side and all that stuff, they're all driven by what the what the other opportunity cost out. So the Aps program is probably a good driver for what the what the realization would be.

For for some of this stuff and then the variability is going to come from the volume and what's happening in that market for pricing.

The ABS market.

Okay I appreciate that.

And then my second question.

Jacob Roberts: At a high level, how are you guys thinking about balancing.

Balancing uses of F C up in the coming years between shareholder returns, which have been on a solid pace a potential debt reduction or even maybe how you're planning to handle those maturities into 'twenty six 'twenty seven timeframe.

Yeah. So you know we've been pretty consistent kind of message to the market and the longer term. We are looking to de lever that's going to occur. It's we're kind of absolute debt reduction as well as kind of growth in gas pricing in the new tech revenue side.

We're well positioned right now with where the balance sheet, where the hedge books it to.

We have the luxury to basically deploy you know close to a 100% of free cash flow to shareholder returns.

You know, it's a odd kind of a quarter by quarter decision, though you know if we continue that pace wherever you always talk about following the math and that's what we do right now we still see a lot of opportunity in the undervalued shares to continue where were at.

Great appreciate the time.

The next question comes from John Abbott with Bank of America. Please go ahead.

Hey, good morning.

Probably my question's for you you talked about those three different opportunities.

To grow free cash flow on the new technology side, you talked about these commercial opportunities in bucket number two.

Can you provide any more color on what those are approximate what are you looking at there or do we have to wait and see.

But what I can say is like we oh.

<unk> developed a port you know our portfolio of IP around.

Opportunities that help reduce costs on the on the on the oil and gas.

Flow back completion side of things and reduces emissions on that side of things, it's very exciting and Oh.

And more to come on that front I think.

It's oh, it's been in the in this prototype phase that we've been doing a lot of testing on that but I think we're at a point where it starts to.

To pick some commercial scale so stay.

Stay tuned in Mexico, a couple of quarters will have much better idea of how that shapes out.

And the new Tech free cash flow in the coming years.

I appreciate it and then my other ones just sort of a quick follow up just you know you gave your seven year plan while back now.

Any thoughts about when you may update your longer term guidance.

Yeah, I mean, right now you know we.

Been extremely successful in that plan and now we're at 33% of the share repurchases you still got three years left to go on that plan.

You know when there's a material change to its kind of a strategy that we've laid out that's the appropriate time to update it right now there's nothing that I could point to that is planned to do so.

Alright, Thank you very much.

Yeah.

This concludes our question and answer session I would like to turn the conference back over to Tyler Lewis for any closing remarks.

Great. Thank you again for joining us. This morning, please feel free to reach out if anyone has any additional questions. Otherwise we will look forward to speaking with everyone again next quarter. Thank you.

Jacob Roberts: Yeah.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

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Yes.