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    CNX Resources (CNX)

    CNX Q2 2024: 4.5Bcf output supports $75M free cash flow forecast

    Reported on Jul 25, 2024 (Before Market Open)
    Pre-Earnings Price$24.89Last close (Jul 24, 2024)
    Post-Earnings Price$25.75Open (Jul 25, 2024)
    Price Change
    $0.86(+3.46%)

    What went well

    • Strong Q2 Operational Performance: Q2 production of 4.5 Bcf supports their full‐year production range of 15–18 Bcf and backs their free cash flow guidance of about $75 million for the year.
    • Promising New Technology Initiatives: Their AutoSep and CNG solutions are already deployed on internal pads and with early third‐party engagements, setting the stage for material revenue contributions starting 2025.
    • Effective Cost and Production Management: Consistent well performance and a controlled hedging strategy—with no additional production curtailment—demonstrate operational discipline and margin stability.

    What went wrong

    • Slower near-term revenue growth: The new technology offerings, including AutoSep and CNG, are expected to be immaterial to 2024 revenue, with meaningful contributions pushed into 2025, suggesting near-term revenue may lag expectations.
    • Capital investment requirements: Both new technology initiatives will require additional capital expenditures, which could depress free cash flow and delay profitability improvements.
    • Dependence on external market and policy factors: Future production, cash flow performance, and project advancement hinge on uncertain market pricing, hedge book adjustments, and tax policy guidance (e.g., for coal mine methane projects), which introduces further risk.

    Q&A Summary

    1. Hedge Book
      Q: Future hedge levels compared to past?
      A: Management emphasized targeting about 80% hedging for upcoming years while shortening hedge duration beyond that, indicating a deliberate, risk-managed approach.

    2. Tier 1 Credits
      Q: What are current Tier 1 prices?
      A: They reported stable Tier 1 credit values in the $33–$36 per MWh range, reflecting consistent market pricing.

    3. Revenue Increase
      Q: What drove the $23M revenue boost?
      A: The $23M increase was driven by stronger environmental attribute sales and solid water revenue performance, showcasing operational efficiency.

    4. New Tech Division
      Q: How is the new tech ramp performing?
      A: With 4.5 Bcf in Q2, the division exceeded expectations and is poised to contribute more significantly from 2025, despite minimal current revenue impact.

    5. Production Levels
      Q: Is production being curbed now?
      A: Management confirmed no additional curtailment, maintaining production slightly above the hedge book levels as a safety measure.

    6. Tax Credit Timeline
      Q: When will the coal mine methane credit guidance come?
      A: They expect guidance on the coal mine methane tax credit in Q3–Q4, with project progress tied to favorable policy developments.

    7. Service Costs
      Q: Are service costs shifting notably?
      A: Service costs have held flat through the first half and are projected to remain steady, reflecting stable operating expenses.

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