CNX Resources Corporation Q3 FY2025 earnings call

• Buyback: Driven by strong free cash flow, with the primary driver being a significant free cash flow generator in the quarter. The business valuation is viewed as attractive relative to its intrinsic value. • Utica Acquisition: When acquiring the Apex acreage, 30,000 Marcellus acres came with about 8,000 Utica rights, and the acquisition secured remaining unleased Utica rights under the footprint, allowing leverage of infrastructure. • 45Z: Waiting for the notice of final rule-making on 45Z, expected before the end of the year, with a comment period and finalization likely in early first half of 2026. Oilfield services operational part outsourced, with progress on rolling out technologies but no material in the current quarter for 2026. • M&A: Open to deals if the math works, with the threshold being acquiring themselves. • Utica Development: Focused on operational efficiency, confident in the geological model, working on reducing drilling days, with cost per foot at around $1,750. • In-basin Demand: Bullish on AI-generated new demand in the basin, but needs additional pipeline infrastructure to get low-cost BTUs to demand centers. • Land Spend: More interest in Central PA deep Utica development, with opportunities to pick up acreage. • Non-D&C Capital: Timing issue, with longer-term need for infrastructure for deep Utica development but not on a large scale.

• Buyback: Pace tied to free cash flow and business valuation. • 45Z: Guidance of $30 million a year run rate expected to be confirmed with the final rule. • Free Cash Flow: Guided to around $575 million pre-asset sale. • 2026 Plans: Maintenance mode for production and spending, with details to be provided in January. • Infrastructure Spend: Need for infrastructure for deep Utica development, but not on a large scale.

Forward-looking statements are subject to various risks and uncertainties, with a discussion of risks and uncertainties related to factors and CNX's business contained in its filings with the Securities and Exchange Commission and the release issued today.

Q: Congrats on retirement and new role, talk about buyback uptick and future pace.

A: Yes. I think the primary driver was a significant free cash flow generator in terms of what we were able to do for the quarter. Our underlying process for evaluating whether or not we're doing buybacks versus other capital allocation opportunities hasn't changed. We continue to view the business valuation very attractive relative to its intrinsic value.

Q: Utica acquisition on Apex acreage, color on Utica rights.

A: Yes. If you recall, when we did that acquisition, there was about 30,000 Marcellus acres kind of the footprint for the whole asset, and it came with about 8,000 Utica rights. So what that transaction represents is we really went out there and got the remaining unleased Utica rights that underlies that footprint for Apex. And now we're able to go back in and leverage all that infrastructure kind of like we envisioned when we did the acquisition.

Q: Update on new tech, 45Z, oilfield services.

A: Yes. So let's start with 45Z. So we're still in the period where we're waiting for the notice of final rule-making on 45Z, and we expect that before the end of the year. And then there'll be a comment period and a finalization of that rule, hopefully in the early first half of 2026. All that's subject to the government reopening and things like that. But once we have that, the expectation is that the guidance we provided last quarter on 45Z, that $30 million a year run rate will be sort of confirmed with that guidance. In terms of oilfield services, we have outsourced sort of the operational part of that to our partner on that, and they're continuing to make progress in rolling out those different technologies, but nothing material in sort of the current quarter for '26 as of yet.

Q: Update on new tech, plans for 2026.

A: Yes. I mean we'll give you the full detail on the guidance when we get to January. But generally, I would expect to see maintenance mode, right? We're still going into winter full storage, and we'll see what kind of weather we get this winter. And we need to see some of these longer-term calls on gas develop before you'd be thinking about doing anything other than that.

Q: M&A appetite, Utica acquisitions.

A: Yes. We look at everything that comes to market, but our threshold is acquiring ourselves, right? So unless there's an opportunity that outcompetes that opportunity, you won't see us do anything, right? So that's sort of how we think about it, but we're certainly open to anything if the math works.

Q: Free cash flow guidance, moving parts.

A: Yes. So the way to think about that is our free cash flow guidance includes all working capital adjustments, right? So if you try to take just EBITDA and CapEx, you got to account for sort of fluctuations in AR and AP. I mean we give you a sort of rough number to target for, and we try not to move that number around a bunch. But you're going to see movements like you see here where we're refining guidance throughout the year. But we're still confident we'll be at kind of the range we guided to, $575 million pre-asset sale number.

Q: Utica acquisition, drilling requirements.

A: Yes. So I mean, we plan to develop the field. Obviously, that's part of the underwriting case for making the investment. The exact timing of that development, I'm not going to get into at this point, but you'll see that fold into our development plan in the years ahead.

Q: Utica development plan, tech update.

A: Yes. I think the plan for next year is really just focused on sort of the operational side of it, right? Nav and team have done a great job sort of driving down costs, and we want to give them a couple more opportunities to do that. We're pretty confident that we have a view on where the fairway is. So I don't think there's a burning desire to do much exploration either north or south. Yes, I think we are pretty confident in our geological model. So our plan is to just step up the development of the play.

Q: Well costs, rigs, efficiencies.

A: Yes. So if you think about -- I'll let Nav get into the details on rigs and things like that, but just at a real high level, the efficiencies are all on the drilling side, right? The completions is sort of pretty well known at this point. So what they're focused on is getting drilling days down. Yes. Like the rigs that we have right now are fully capable of drilling the deep Utica. We don't have any issues with that. And over the last 12 months or so, we have made really huge strides on the drilling side. We've been able to increase the efficiency of drilling the whole well and have cut down the days on the pad pretty much. And basically, on the drilling side, like our drilling operations are pretty steady. They're very repeatable. And best of all, we are improving and making up big efficiency gains to get the well down faster and reduce our cost. And in terms of guidance on the cost per foot, we're still at that sort of $1,750 range for right now. And then just to kind of add to that, like last year, our drilling costs on Utica were like about $2,200 a foot. So we are down almost 20% to $1,750 per foot.

Q: Well outperformance, in-basin demand.

A: Yes. I think for this year, you're seeing 2 things, right? There's some outperformance on the Apex assets that we acquired, in particular, some of the big pad that we brought in right when we acquired it. And then you're seeing outperformance on some of the new products that got converted this year. In terms of long-term performance and capital efficiency ratios and things like that, that remains to be seen. But we're -- our focus is not on that, right? We're still in the sort of flat production mode and focused on generating as much free cash flow as possible. Yes. No, we're still long term, extremely bullish on the prospect for AI generated new demand come in the basin. Obviously, we sit on an enormous resource base here that can be developed. Still in the early innings, still a lot of talk with folks about developing some of these projects, but I can't say exactly when it's going to occur, but it definitely -- all the math suggests that Appalachia and all the gas up here needs to be part of that mix moving forward. And Jacob, just to add to what Alan said, the other issue underneath all of this that sometimes gets lost with the excitement of AI demand and in-basin demand is the increasingly obvious need for additional pipeline infrastructure to get these low-cost BTUs and molecules from this basin, not just within the basin, but to wherever else the demand centers may be. So until that happens, AI sort of demand gets fulfilled in basin from our perspective. And then if that infrastructure gets built, other regions across the nation can start to participate more wholesomely in this AI revolution.

Q: Fourth quarter activity, TIL timing, land spend environment.

A: Yes. So we started the frac crews. I think we mentioned in the prepared remarks, kind of in that October time frame. So the expectation on those TILs would be sometime in December, right? So it'll be later in the quarter. In terms of the macro for '26, things have kind of settled into a trading range, but we're still not to the part of winter yet where you can have a good kind of read on where we're going to exit winter. So we'll see. But I think activity is going to look sort of like it did last year, right? We have a concentration of completion activities in Q4 and Q1, and then you set up yourself to be able to be flexible in '26 to respond to whatever sort of pricing environment develops. Yes. So maybe I'm not going to speak to the activities of some of the peers that happened down in West Virginia and Ohio. But definitely in Central PA, where we're focused on sort of the deep Utica development in the long term, you see more interest as folks start to understand the sort of potential of the reservoir, some of the transactions we've seen up there. You kind of have a moment in time here where there's an opportunity to pick up some of the acreage that still may be open or held by folks that are looking to deal with it to some of the more consolidated players in the area.

Q: Sold Marcellus rights, Utica development.

A: Those would be the Ohio areas where we've already developed the Utica.