CNX Resources - Earnings Call - Q2 2025

Executive Summary

• CNX delivered a strong Q2 2025, with adjusted EPS of ~$0.58 versus ~$0.45 consensus and revenue of ~$541.9M versus ~$478.9M consensus; GAAP results were boosted by a $456M unrealized derivative gain, driving diluted EPS to $2.53. Consensus: EPS beat ~$0.13 and revenue beat ~$63M. Bold beat catalyst: production outperformance and hedging tailwinds. EPS/Revenue estimates and actuals from S&P Global: $0.44806 vs $0.5823*, $478.9M vs $541.9M*.
• Production rose 13% q/q to 167.6 Bcfe, with shale volumes up 16% q/q; management cited strong Apex Marcellus wells, deeper Utica performance slightly above expectations, and base uptime/efficiency as drivers.
• Guidance tweaks: 2025 production raised at the low end (615–620 Bcfe vs 605–620), NYMEX price assumption reduced ($3.59 vs $3.76), differential widened (−$0.67 vs −$0.59), environmental attribute FCF impact cut to ~$65M (from ~$75M), and FCF/share increased to ~$4.07 (from ~$3.97) due to lower share count; total FCF unchanged at ~$575M.
• Near-term setup: Q3 and Q4 volumes to sequentially decline ahead of next batch of TILs in late Q4; Capex lighter in Q3 then re-accelerates in Q4. Narrative catalysts: AI/data center demand in Appalachia and monetization pathways for remediated mine gas (RMG) under PA Tier 1 RECs and 45Z, with potential incremental value from voluntary markets.

What Went Well and What Went Wrong

What Went Well

• Production outperformance: 167.6 Bcfe in Q2 (+13% q/q), driven by Apex Marcellus and deep Utica wells slightly above expectations, base production efficiency gains, and higher uptime.
• Adjusted EBITDAX stability: $332M in Q2 vs $325M in Q1, with operating margin holding in the mid-30% range despite price volatility; cash from operations increased to $282M.
• Strategic positioning for AI demand and RMG monetization: “Offering the RMG product… to get… data centers down to a zero carbon profile,” with ongoing discussions and third-party marketing; management views RMG as a premium pathway recognized across manufacturing, power (PA PUC), hydrogen (45E), and transportation fuels (45Z).

What Went Wrong

• Environmental attributes FCF impact revised down: 2025 impact lowered to ~$65M (from ~$75M), reflecting mid-20s $/MWh pricing in PA Tier 1 strips and market conditions.
• Differential widened in guidance: 2025 natural gas differential assumption moved to −$0.67 (from −$0.59), offsetting some NYMEX changes and affecting realized pricing.
• Derivatives’ volatility: While Q2 booked a $456M unrealized gain, the hedge book remains exposed to basis movements; management projects realized losses on hedges year-to-date and forward periods under current strip, underscoring earnings variability tied to hedge marks.

Transcript

Speaker 4

Good day and welcome to the CNX Resources Second Quarter 2025 Q&A conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the STAR key followed by zero. After today's presentation, there will be an opportunity 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.

Speaker 6

Thank you and good morning to everybody. Welcome to CNX Resources' second quarter Q&A conference call. Today we will be answering questions related to our second quarter results. This morning we posted to our investor relations website an updated slide presentation and detailed second quarter earnings release data such as quarterly E&P data, financial statements, and non-GAAP reconciliations, which can be found in a document titled "2Q 2025 Earnings Results and Supplemental Information of CNX Resources." Also, we posted to our investor relations website our prepared remarks for the quarter, which we hope everyone had a chance to read before the call, as the call today will be used exclusively for Q&A. With me today for Q&A are Nick DeIuliis, our Chief Executive Officer, Alan Shepard, President and Chief Financial Officer, and Navneet Behl, our Chief Operating Officer.

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. These statements are not guarantees of future performance and our actual results may differ materially as a result of many factors. A discussion of risks and uncertainties related to those factors in CNX Resources' 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 for Q&A at this time?

Speaker 4

Certainly. We will now begin the question and answer session. As a reminder, to ask a question, you may press Star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at 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, and your first question comes from Zachary Parham with JPMorgan Chase & Co. Please go ahead.

Speaker 6

Hey, thanks for taking my questions.

Speaker 0

Wanted to ask on the 45Z tax credit.

Speaker 6

Credit, could you just give us a.

Speaker 0

Little detail on the timing and ability.

Speaker 6

To claim those credits? As the rules are laid out today, would those credits just run through 2029?

Speaker 0

Yeah. Hi Zach, good question. The way the program is set up currently, right, as the initial rule guidance, as you point out, there needs to be final rulemaking. As long as everything comes in line with initial guidance, the first year eligibility to claim credits would be in 2025. You saw in our materials we were talking about 2026 would be the first potential opportunity to get some of that $30 million a year run rate. The program got extended under the OBB through 2029. It'd be the first time that it'd be up for re-extension.

Speaker 5

Thanks.

Speaker 0

I also just wanted to ask on.

Speaker 6

Activity levels at the E&P business, any plans to grow volumes here?

Speaker 0

I know at one point you all talked about having optionality to add some.

Speaker 6

Some activity back in the second half of the year. If not, can you talk about what a maintenance program might?

Speaker 0

Look like in 2026?

Speaker 6

Would that be flattish CapEx year over year? Just trying to get a sense of.

Speaker 5

What activity levels may look like.

Speaker 0

Yes. Maybe on the first one, we were positioned with some optionality. Had we seen sort of the end of year storage level stay low, at this point it's pretty clear that we're going to creep towards kind of 4 TCF in storage. Under that scenario, we're just going to maintain the initial set activity that we'd planned for the beginning of the year. No changes expected at the current time. When we think about sort of capital efficiency levels, I think the way to do that is to tie back to what we guided to a few years back or a few quarters back. The two numbers that stand out are the 580 million of production or 580 Bcfe of production over the $500 million CapEx. That ratio is about $0.85 per Mcfe in terms of capital efficiency.

I think moving forward, if you set aside the actual production we'll target, which we always talk about as being a function of optimizing free cash flow per share, that's the right ratio to think about the business as capital efficiency moving forward, kind of that mid-80s range. It'll wiggle plus or minus a little bit any given quarter just with the lumpiness with the one-rig drilling program, but that's the right way to think about it moving forward. Thanks, Alan.

Speaker 6

Appreciate the COVID color.

Speaker 0

Yep.

Speaker 4

Your next question comes from Leo Paul Mariani with ROTH Capital Partners. Please go ahead.

Yeah, good morning. Here wanted to see if you can get a little bit more color on, you know, drilling and completion activity levels in the second half. I know y'all had said that CapEx was pretty front half weighted in 2025, but just looking at your turn-in-line schedule, the vast majority of turn-in-lines, I think they happen here in 1Q. If you could kind of maybe speak to whether or not there's a bit of a lull in activity here in the second half and maybe that activity kind of picks up a little.

Speaker 5

Bit in the winter.

Could you also kind of relate that to CapEx trends? It looks like CapEx is down a little bit in 2Q versus 1Q, but maybe just kind of help a little bit with the trajectory on CapEx in the second half.

Speaker 0

Yeah, sure. Sort of similar to what we talked about last time, Leo. Basically, the bulk of the tills were weighted towards the front half of the year. Our next batch of tills would be towards the latter part of Q4. What you'll see on the production front is kind of sequential decline. We'll be lower in Q3 and then lower in Q4 until that next batch of tills comes on. CapEx will track that. CapEx will be lighter in Q3 and then pick back up in Q4 when we get back to it on the activity front.

Okay, so it sounds like there's a bit of a hiatus in activity, then it kind of picks up late this year to get you all ready for kind of the winter in 2026. Is that kind of way to think about it?

Yeah, that's the right way to think about it. You know, we're going to continue to run the one-rig drilling program on the drilling side, and then completion activities will hit a bit of a lull, and then those will pick back up in the fall as we get ready for the tills that I talked about in the December timeframe.

Speaker 5

Okay, that's helpful.

On the Utica, obviously you all seem excited about that. It sounds like the costs are already below your target here on the wells. It's nice to see at this point, given you've beaten the target. Do you think there's more room to go on the cost side or maybe that can kind of come down? Apart from the cost, could you kind of speak to the actual well results, production performance, how are the results trending versus your expectations? Maybe just overall, how do you see this kind of competing with the Marcellus?

Speaker 1

Good morning, this is Navneet. Just wanted to kind of outline on the Utica. We've done a really, you know, team's done a really great job over on optimizing our, you know, drilling and completion operation over the last, you know, couple of years. We're really pleased with the performance so far, but we're not satisfied yet. We are aggressively trying to improve the performance over the next few quarters. Stay tuned on where we can get down, increase our operational efficiency and reduce our costs. That's one. Second, on the performance, all our Utica wells performance are within our expectations and our latest tilts that we got in Q2 are slightly above our expectation. We are really excited about the deep Utica play and we look forward to kind of continuing to get more wells in there.

Speaker 0

Leo, maybe I'll address the last part of your question on how we think about the Utica and the Marcellus sort of mix. We've been very intentional in giving Nav and the operating team a nice runway here to really demonstrate their prowess in being able to drive these costs down. Moving ahead, obviously we're going to continue to develop our core Southwest PA field over the next few years, but we also, as Nav pointed out, want to keep getting him reps at the Utica wellhead there so he can continue to work on cost efficiencies.

Okay, appreciate all the detail.

Speaker 5

Thank you.

Speaker 0

Thank you.

Speaker 4

Your next question comes from Noah B. Hungness with BofA Securities. Please go ahead.

Speaker 5

Morning.

Speaker 6

I was hoping to ask on 45Z.

Again.

When do you think you'd be able to reach that $30 million a year run rate, and when you do realize the full $30 million of additional free cash flow from 45Z, should we think that all of your remediated mine gas would be sort of shifted to qualify for this 45Z opportunity, or will some of it still be used to qualify for the Pennsylvania Alternative Energy Credit Tier 1 credit?

Speaker 0

Yeah, the way to think about timing is like I said, 2025 is the first year of eligibility for the program, but the cash associated with that wouldn't occur until you file your tax return for 2025 in 2026. Right. That's when you would create the tax credit that would be fungible and you could convert that to cash in the market. In terms of volumes that qualify, our initial read on the guidance is that it's stackable, so you are able to take advantage of both programs in terms of 45Z and the Pennsylvania Alternative Energy Credit (PA AEC) Tier 1 credits. There are volumes that don't qualify one for one, so some volumes might qualify under Tier 1 credits and some volumes might qualify under 45Z. It's a blend of which ones do and which ones don't. At this time, it's all still subject to that final rule.

We're optimistic as long as things follow the initial guidance. There's still a bit of wait and see on that.

Speaker 4

Gotcha. That's helpful.

Color.

Speaker 6

For my second question, could you maybe talk about what credit price is underwriting the revised environmental attribute free cash flow guide of $65 million?

Speaker 0

Yeah, it's sort of where the market's at now. We treat it very similar to how we report kind of the open prices for the rest of the year. Just kind of look at the PA or one strip, and that's in the mid-20s right now for the megawatt hour.

Speaker 4

next question comes from Jacob Phillip Roberts with Tudor, Pickering, Holt & Co. Securities. Please go ahead.

Speaker 5

Good morning.

Speaker 0

Good morning. Maybe a bit of a follow on to that last question. Should we be thinking about the $30 million as a function of the RMG input or the result of some sort of downstream output? The tax credit is for incentivizing the collection of waste gas off the backside of coal mines and creating a saleable product into the pipeline, if that makes sense. That's why it's thought about more as remediating or abating an emission source. Okay, that's helpful. I just wanted to give you guys the opportunity to talk a little bit about the AI and Energy Summit. I know you mentioned it in the release and specifically we're wondering, you know, how much the RMG product is factoring into those conversations with any counterparties, maybe in particular the tech guys.

Ultimately, do you think there is a pathway for RMG to get better economics on some of the potential deals there relative to the current pathways you've laid out? Yeah, great question. We're super excited. Our mantra around here is Appalachia first. All of this AI stuff is going to be great for the region, great for the industry. In particular, you nailed kind of our lane that we're super focused on right now, which is offering the RMG product to the market as a true sustainable kind of energy solution to get the folks that are using natural gas down to a zero carbon sort of profile on these new data centers.

Obviously we've been having discussions with folks, we have third party marketers having discussions with folks and we're excited to see that develop, and not just on the existing volumes, but enough incentive from the voluntary markets to go out and gather some additional volumes, hopefully.

Speaker 5

Jacob, this is Nick. Just to sort of follow up with Alan. The way we look holistically at the AI opportunity and remediated mine gas, RMG, it's another industry pathway, whatever you'd want to call it, to get the value of it recognized and utilized. We started with manufacturing and arm's length transactions that recognized it for manufacturing downstream products. We've got it recognized, of course, in the power grid under the Pennsylvania PUC. We then were able to get it recognized in the hydrogen economy with 45E. Now transportation of alternative fuels with 45Z. This would be another critical pathway that I think makes a whole bunch of sense and has a certain level of inevitability to it. The timing and the magnitude of it, it's still a TBD. Great.

Speaker 0

Appreciate the time, guys.

Speaker 4

Your next question comes from Michael Stephen Scialla with Stephens Inc. Please go ahead.

Speaker 5

Hi, good morning everybody. Just to follow on the AI topic, there is obviously a lot of news recently on gas providing power for data centers in the region. Just wanted to get your updated thoughts on AI-driven demand and does that have.

Speaker 6

Any impact on your long-term view?

Speaker 5

Of natural gas prices in your hedging strategy?

Speaker 0

Yeah, I don't think it has the impact on our hedging strategy in the short term. Our hedging strategy is a function of how we manage the balance sheet and how we manage our overall capital allocation program. I think long term it's absolutely going to be bullish. Anything that creates invasive demand, given our kind of interstate pipe restrictions that we've experienced over the last decade, is going to help everyone in basin. We're more of a wait and see mode. From our position, we have the depth of inventory, we have the ability to deliver gas. It's just now wait and see which projects come online and how we can benefit from that.

Speaker 5

Yeah, Michael, I think to the prior experiences that we've had and similar types of opportunities for the industry and for the region. When you're looking at potentially new demand being created, that journey to where we end up actually versus what we're hearing and what people are projecting today, it's obviously going to be very different. There are going to be all kinds of factors and changes and twists and turns as to which plants get built and when they're online and what the timing of all that is. There's just a lot of things to be figured out between today and then the future. That's why, and I think you saw that too since the summit with what's going on with volatility on pricing.

That's why we basically love the opportunity and the developments that it would mean for demand for natural gas and what it could mean for the region in terms of sort of a reindustrialization, a revitalization of a lot of these communities. In terms of taking positions today in speculation of what that's specifically going to mean when it comes to things like hedge book and capital allocation, our playbook, our philosophy, our approach remains exactly the same.

Speaker 6

Yep, makes sense.

Speaker 5

Want to get your thoughts on the seven quarter production surprise?

Speaker 0

A little bit.

Speaker 5

I wanted to see if you could pinpoint where that came from.

Speaker 0

Was it new wells outperforming expectations, base decline, anything else?

Speaker 5

Hi.

Speaker 1

Our production outperformance was basically like, you know, four things coming together for us. The first one is our new TIL performance, the Apex Marcellus wells and our Utica wells, and they've done really well. The second part is our operational execution, which has given us opportunity to kind of move some of this forward. The third part is our production efficiency gains on our base production, so we are doing really well there. The last part is like our uptime on base production. All four combined led to this result.

Speaker 5

Sounds good. Thank you very much, guys.

Speaker 4

Your next question comes from Betty Zhang with Barclays Bank PLC. Please go ahead.

Good morning. Thank you for taking my question. I want to go back and ask about the deep Utica result again. In your view, how much do you think costs will have to come down for the deep Utica to compete with Marcellus returns? Broadly speaking, from what we can tell, the Utica wells are fairly concentrated right now. We'd love to get your thought about the consistency of Utica performance. Ira acreage.

Speaker 0

Yeah, I would say on the first question, where we're at right now on sort of the cost structure, we think that makes those wells competitive with kind of best in basin opportunities, even on the Southwest Pennsylvania sort of Marcellus stuff. The longer term, we're going to step out from where we're at now. Our expectation is that there's a pretty long runway across our field up there to make these results repeatable.

Okay, thanks. A follow up on the new tech. Just as related to the gas power for AI, when you think about your value recognition for the gas, is it fair to think about it from a voluntary carbon credit perspective where you're selling the attributes to tech companies looking to reduce their carbon footprint, or is it through compliance, market, or other channels?

Yeah, on the remediated mine gas front we're going to sell to whichever market recognizes the highest value. Right. I mean, currently that is the latter, the one that you pointed out, kind of the renewable energy credit markets for the existing RPS programs. There is a finite amount of this resource that's available, and we think the environmental attributes should result in some voluntary pricing that rivals the regulatory pathways in the long term.

Speaker 5

Betty, you also bring up another good point with the question, which is the focus currently has really shifted with the opportunity of AI in places like Appalachia to natural gas demand and the construction of the data centers and power plants to power them, etc. There's also another issue that's been there from the get-go that will remain. It just maybe has perhaps fallen a bit below the radar, which is the sustainability solution or the sustainability path to making all this growth occur, and the ultimate sort of clients and drivers of that.

The tech industry hasn't sort of backed up with regard to sustainability or carbon goals one step since they originally set them, and now this new growth option for them is going to make that even more of a heightened challenge. I think remediated mine gas playing a role in how this ultimately plays out has never been in more demand. To your point, I think the tech industry will play a key role in that.

Sorry, if I could just follow up on that. Thank you. In the voluntary carbon markets perspective, would that be incremental to PA AEC market or 45Z?

Speaker 0

At some point you can only sell into one market. Traditionally, the voluntaries, depending on which pathway you're using, might not be stackable. It is all very facts and circumstances dependent. I hesitate to give a general answer, but the way to think about it is you can generally get maybe one to two stacking, but you're not going to get beyond that.

Speaker 5

I think of it as another pathway that would compete with your other alternatives. Generally not stackable.

Got it. Thanks.

Again.

Speaker 4

If you have a question, please press star then one. Your next question comes from David Adam Deckelbaum with TD Cowen. Please go ahead.

Thanks Nick and Alan and team for taking my questions today. I just wanted to follow up on the Utica mix you talked about, just giving more at bats next year as we think about the general activity level that you guys have laid out. Should we think about the Utica taking more share of the program over the next couple years, or is there still some more headway to make on the cost side before it becomes a larger contribution?

Speaker 0

No, I would go back to what I said on one of the earlier questions. I think at this point in the cost structure these wells are in the mix in terms of IRR competitiveness. You're going to see them in the program moving forward. What we're really trying to do is balance the harvesting of the Southwest Pennsylvania sort of field that's fully developed with any potential kind of step out in the new CPA area. We look at every project on a kind of full-cycle IRR basis and that's how we determine the mix. Like I said, we've been very intentional recently and just given Navneet Behl lots of at bats to demonstrate repeatability. Moving forward I think we're comfortable that we can be super focused on just the best projects at the right time.

Appreciate that. Just to follow up on conversations around marketing and obviously in-basin demand, as you said, today we go until winter. You guys talked about before, kind of hitting tank tops or so as we get into fall and then sort of setting up for 2026. There's been a lot of contracts that seem like they're in the early days of being signed right now. From where you sit, do you think it's best to see this market get appreciably tight over the next few years and see in-basin demand increase before signing long-term agreements, or is that something that you think is going to be in your relative near future?

Yeah, I think the first signal you want to see is an actual data center connected to some of the natural gas projects. I think once you see the first sort of data center sign up for electricity offtake here in Appalachia, that will give folks a real sense of how the value is going to get distributed across the chain. Until you see that, you're a little bit hesitant to lock in your respective ownership of that economics. As Nick DeIuliis pointed out, there's still a lot of innings here. We're still very early, but there's some definite value in the wait and see how this plays out before locking up anything long term.

Speaker 4

Appreciate it. Best of luck, guys. This concludes our question and answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks.

Speaker 6

Thank you again for joining us this morning. Please feel free to reach out if anyone has any additional questions. Otherwise, we'll look forward to speaking with everyone again next quarter. Thank you.

Speaker 4

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