CNX Resources Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• New Technologies: Validated CMM as a low carbon intensity feedstock for hydrogen production via the 45V rule, but rules have restrictions. Working on multiple sectors (manufacturing, power generation, hydrogen) to optimize CMM portfolio. AutoSep deployed on CNX's footprint, seeing cost, safety, and operational efficiency benefits.
• E&P: Activity set is positioned with production flat in 2024, capital weighted to Q1. Legacy assets expected to have a sub-500 run rate spending. Apex TILs will come online, with production levels on Apex tied to market pricing later in 2024.
• Business Phases: AutoSep and CNG/LNG are in early commercialization, with expansion beyond CNX's footprint anticipated in 2025.
• Apex Acquisition: 8,600 net acres of undeveloped Utica, with TILs online being Marcellus. Utica has developable acreage, and cost efficiency is seen in Utica wells.

Segment Performance

• New Technologies: Fourth quarter free cash flow was $30 million. The run rate for free cash flow in this segment is expected to be approximately $75 million per year, driven by CMM monetization in the ATS program. AutoSep and CNG/LNG businesses are in early commercialization phase, with AutoSep fully deployed on CNX's footprint showing cost, safety, and operational efficiency benefits. Expansion beyond CNX's footprint is expected in 2025.
• E&P: Production is expected to be flat in 2024, with capital heavily weighted to the first quarter. The goal is a sub-500 run rate spending on legacy assets, driven by efficiencies from Utica CPA development and low decline PDP base. Apex TILs are set to come online, with production levels on this asset tied to market pricing later in 2024.

Guidance

• E&P: Production is expected to be flat in 2024, with capital weighted to Q1. Need to observe industry production post-winter to assess potential acceleration of activity; could accelerate if prices remain high or increase.
• New Technologies: New Tech free cash flow run rate is expected to be approximately $75 million per year from CMM monetization in the ATS program, with possible ebbs and flows based on volume monetization timing.

Risks

• Unclear 45V rules with restrictions on book and claim methods, facility qualification. Lack of clarity on how rules will be revised and their impact on capital investments.

Question and Answer

• Q: Walk through interpretation of 45V guidance and KeyState partnership?

A: Ravi discussed 45V validation of CMM but rules have restrictions, looking forward to new administration to clarify rules for scaling the hydrogen economy.

• Q: 2025 E&P capital and production?

A: Alan said activity is weighted to Q1, wait to see industry production post-winter, potential acceleration if prices high.

• Q: 2025 budget run rate and Apex?

A: Alan said sub-500 run rate on legacy assets, Apex TILs to come online, production tied to market pricing.

• Q: Other CMM credit pathways?

A: Ravi said CMM has multiple sectors (manufacturing, power, hydrogen) with validation opening monetization opportunities.

• Q: New Tech free cash flow 2025 and business?

A: Ravi said New Tech free cash flow run rate ~$75M, AutoSep in early commercialization, expansion in 2025.

• Q: New admin impact on 45V?

A: Ravi said too early to tell, continue advocating for CMM benefits.

• Q: Apex acquisition Utica details?

A: Alan said 8,600 net acres undeveloped Utica, TILs are Marcellus, Utica has developable acreage.

• Q: Utica spacing and costs?

A: Navneet said BP6 wells at 1,300 ft spacing, more tests at 1,500 ft; Alan said capital efficiency on Utica wells.

• Q: Cash taxes 2025?

A: Alan said de minimis cash taxes until 2026/2027.

• Q: Coal mine methane volumes and mines?

A: Ravi said primarily Buchanan mine, work with operators on mining plans.

• Q: Marketing sales points?

A: Alan said marketing is optimized daily, no new FT contracts changing market split.