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    CNX Resources (CNX)

    CNX Q3 2024: Drilling Costs Down 38% as CapEx Guidance Deferred

    Reported on Dec 5, 2024
    Pre-Earnings Price$38.25Last close (Dec 4, 2024)
    Post-Earnings Price$36.82Last close (Dec 6, 2024)
    Price Change
    $-1.43(-3.74%)

    What went well

    • Operational Flexibility: CNX retains 11 deferred DUCs that can be deployed flexibly, allowing the company to adjust production based on favorable pricing signals.
    • Improved Drilling Efficiency: The company has achieved significant cost reductions, lowering drilling costs by nearly 38% – from around $1,200/ft to ~$750/ft – which enhances overall profitability.
    • Upside Potential from Tax Incentives: Pending regulatory clarity on 45Q and 45V programs may unlock additional revenue, enhancing the value of CNX's coal mine methane and new technology initiatives.

    What went wrong

    • Capital Guidance Uncertainty: Management removed detailed 2025 capital disclosure and deferred production and CapEx guidance until next quarter, indicating uncertainty about how production volumes and spending will evolve amid volatile gas price conditions.
    • Regulatory Risks: The company expressed significant uncertainty regarding the outcomes of potential federal tax credits programs under 45Q and 45V, noting that final language is pending and that it’s too early to determine how many volumes or what incentives will apply, which could adversely impact future earnings.
    • Unclear Methane Capture Prospects: Ambiguity around the treatment and growth potential of current 17-18 Bcf coal mine methane production—without clear guidelines on capacity expansion—adds risk to future revenue streams if regulatory changes do not materialize favorably.

    Q&A Summary

    1. Capital Guidance
      Q: Is 2025 CapEx target 550 accurate?
      A: Management stated that full 2025 production and CapEx guidance will be provided next quarter, with flexibility driven by gas prices and 11 DUCs maintained for operational options.

    2. 45Q/45V Credits
      Q: What are federal tax credit expectations?
      A: The draft figures indicate roughly $60 per tonne for 45Q and about $3 per kg for hydrogen via 45V, though final details remain pending.

    3. Buyback Strategy
      Q: Is stock buyback still attractive?
      A: Management views buybacks as a long-term opportunity, following a consistent capital allocation process despite share price increases.

    4. Cost Efficiency
      Q: How are drilling costs trending?
      A: Drilling costs have improved significantly, with a reduction of nearly 38% from 2023 and all-in costs down by 31%, enhancing overall efficiency.

    5. CMM Growth
      Q: Can CMM volumes expand beyond 17-18 Bcf?
      A: While current CMM production stands at 17–18 Bcf, any increase will rely on future regulatory incentives and program specifics, with more clarity expected later.

    6. Turn-in-Line Scheduling
      Q: Are turn-in-line schedules being shifted?
      A: The scheduled turn-in-lines originally set for mid-to-late December have shifted into early 2025, reflecting timing adjustments without reducing planned activity.

    7. New Technology Outlook
      Q: Any update on New Tech volumes?
      A: Management deferred detailed guidance on New Tech volumes to next quarter, maintaining that current commentary holds until market clarity improves.

    8. Deep Utica Play
      Q: Any constraints in deep Utica play?
      A: The deep Utica wells continue to perform with high early production, and there are no immediate cost or infrastructure constraints, with further ramp-up dependent on favorable pricing.

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