Good morning. And welcome to the CNX Resources' Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] 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.

Thank you and good morning to everybody. Welcome to CNX's third quarter conference call. We have in the room today, Nick DeIuliis, our President and CEO; Alan Shepard, our Chief Financial Officer; Navneet Behl, our Chief Operating Officer; and Ravi Srivastava, President of our New Technologies Group. Today, we will be discussing our second quarter results. This morning, we posted an updated slide presentation to our website. Also detailed third quarter earnings release data such as quarterly E&P data, financial statements and non-GAAP reconciliations are posted to our website in a document titled 3Q 2023 Earnings Results and Supplemental Information of CNX Resources. As a reminder, any forward-looking statements we make or comments about future expectations are subject to business risks, which we have laid out for you in our press release today as well as our previous Securities and Exchange Commission filings. We will begin our call today with prepared remarks by Nick followed by Alan, and then we will open the call for Q&A where Nav and Ravi will participate as well. With that, let me turn the call over to you, Nick.

Thanks, Tyler. Good morning, everybody. Third quarter of 2023, marks our 15th consecutive quarter of free cash flow generation, despite experiencing what I would call, extremely challenging in basin pricing, and our continued execution of our long-term strategy, which started back in 2020. It's generated approximately $1.8 billion in free cash flow. It's reduced outstanding debt by approximately $385 million. And it's allowed us to repurchase and retire 31% of our outstanding shares at deeply discounted prices. It remain on pace to exceed our original goals supported by our sustainable business model that has and will continue to generate significant long-term per share value for our owners. And all that might sound like a broken record, because we've been stringing out this theme for these metrics for a couple of years now, which is sort of the point. And that's the consistent execution and clinical capital allocation, these things drive the creation of meaningful for share value over the long-term. During the quarter, our operations team, it continued to execute efficiently. In fact, the team has been successful in further improving cycle times and accelerating activity, and Alan will go into some more of those details in a minute and how it impacts our full year production outlook and capital timing. More specifically, one thing I'd like to highlight during the quarter, is that we brought online four new wells beneath the Pittsburgh International Airport's runway. And these latest wells highlight our public-private partnership with the airport. And we achieved this by the way with zero safety incidents and zero environmental impacts. These four new wells are projected to generate almost $70 million in royalty revenue for the airport through 2042, and about $20 million of that will be over the next four years. And this is on top of…

Thanks, Nick and good morning to everyone. As Nick mentioned, this quarter represents the 15th consecutive quarter of free cash flow generation through the execution of our sustainable business model and long-term strategic plan. The quarter we generated approximately $19 million in free cash flow, despite the challenging price environment. As we initially laid out our free cash flow plan in the first quarter of 2020, this brings our cumulative free cash flow to approximately $1.8 billion, or around 50% of our current market cap. Looking ahead, we expect this quarter to mark the trough of our free cash flow generation, as the confluence of lower capital, higher expected gas pricing and growth in our New Tech cash flows, solidifies our confidence in achieving robust free cash flow generation in the quarters ahead. We continue to believe that our shares traded at a significant discount to their intrinsic value and as such during the quarter bought back an additional 2.4 million or 1% of shares outstanding and an average price of $19.50 per share. And after the close of the quarter through October 12, we bought back an additional 1 million shares and an average price of $22.20. Since the third quarter of 2020, we'd have now bought back approximately 31% of our total shares outstanding at an average price of $15.58. An exceptional result not just in our industry anywhere in the capital markets, and we believe those results will only become more impressive as we're well positioned to continue to take advantage of this opportunity moving forward. Turning briefly to the balance sheet, our significant maturity runway and robust hedge book continue to be key components that underpin our capital allocation flexibility. Given these two elements, combined with our low-cost position, we remain comfortable with our current leverage…

Thanks, Alan. Operator if you can please open the call for questions at this time.

Hi, good morning, guys. Thanks for taking my question. On the New Tech front, would you say the $75 million to $100 million ranges is kind of the low hanging fruit. I know you mentioned, there's the potential for meaningfully higher free cash flow. Just wonder expand if that next leg up, requires government legislation or new partnerships or anything like that, or if the $75 million to $100 million can stair step quickly to that meaningfully higher free cash flow?

Hey, Bert. This is Ravi. So the $75 million to $100 million that we guided to we have a good line-of-sight on what we can accomplish next year. We're not making, like government legislations and all those uncertainties into that guidance for next year. However, like, depending on how some of these things come out, there's an opportunity to grow that beyond 2024. And as we talked about our Adams Fork project, their CCS opportunities, low feedstock sale opportunities, all that stuff is contingent on how that project progresses. So all that stuff adds to that meaningful growth opportunities in '25 onwards, but next year, we have good line-of-sight on what we need to do to get to that $75 million to $100 number.

Okay. And then could you break out, maybe where you've, you've gotten so far, that $75 million to $100 million between -- I think there's three buckets that you kind of, you put that in and maybe the year-to-date range, whether or not that is you know which bucket that falls into and then just little small ones here. But does some of that have a macro pricing supply demand baked into it? Like if we saw a better environment for that, would that free cash flow range move? Or is the $75 million to $100 million more of a fixed outcome? Thanks.

Yeah, to your first question that's primarily associated with the free cash flow as you're kind of seeing generated being less two quarters, which is the environmental attributes. They make up the bulk of that expectation for next year. And, that's the range we given there kind of includes some of the subjectivity to the pricing and those regulatory pathways that we already have line of sight on to Ravi's points. So ---

Right. I think some of that $75 million to $100 million is contemplated on where we see where the market is today. But just like any, if you're in tune with, where some of these environmental attributes, pricing and all that stuff is, there is some level of fluctuation volatility in it. But we think that $75 million to $100 million is still achievable.

Got you. Thanks, guys.

The next question comes from Zach Parham with JPMorgan. Please go ahead.

Yes, thanks for taking my question. Can you give us a little more color on the trajectory of the free cash flow from New Tech going forward? Do you expect another increase in 4Q? And does that get you to a '24 run-rate? Or do you expect New Tech free cash flow to kind of continue to ramp through '24? And then maybe based on what you see now, assuming no more governmental regulations or anything that come in, is that $75 million to $100 million a good run-rate for 2025?

Good question. What I would say is, I think it'd be easier, it's better to guide on some of the stuff on an annual basis. There is some seasonality aspects of it that some quarter might be better, some quarter might be worse in terms of how, how it kind of ends up. So we're going to try and stick to an annual guidance on this until there's better clarity on how everything shakes out. There's the different pathways that we're pursuing, I think we'll have much better clarity on this in the coming days. But at this point in time, our annual number is what we can best articulate. And, again, like based on the pathways that's already created, 75 to 100, on an annual basis is something that we have a good line-of-sight on. And the goal for the team would be to continue to grow that in '25 and beyond.

Got it. Thanks for that color. I guess just one follow up also on New Tech. I know you mentioned most of the free cash flow at this point is coming from the methane capture and the environmental attributes associated with that. I think most of that's coming from the Buchanan met coal mine. What's the future runway on capturing gas there? I guess, do those gas volumes decline overtime? And maybe on the other side of that, are there still gas, is there still gas volumes that are being invented, that you could capture and potentially generate even more credits?

So I think that's where some of the, when I talked about an annual guidance on some of these things. Those are some of the uncertainty factors on the mining base and some of their stuff that dictates what the volumes are. But I think there is -- as for the runway for the mine, the mine has been operational for decades, and it has been in room for several more decades to go so and we have a capital invest infrastructure in place to continue to do that. So part of the $75 million to $100 million is consistent contingent on capturing that methane, that having a certain mining base that we have seen over the over the last several years. And there's opportunity to do more beyond that particular mine itself. But that's not contemplated in 2024.

Got it. I guess, just one clarification there. The gas that you're capturing now, we think about shale gas, shale gas declines overtime. Does the gas that you're capturing now does it have a base decline rate? Is it pretty flat? Just trying to get a sense of, of the opportunities out there?

It's a different play all together, so to speak. I think it's more a function of, of mining pace and how fast the mine is operating as opposed to the decline from the well itself.

Got it. Thanks, guys. Appreciate the color.

The next question comes from Leo Mariani with ROTH MKM. Please go ahead.

Yeah, just a quick follow up here on the New Tech business. So maybe just kind of looking at it a little different way. So we think about the $75 million to $100 million of New Tech free cash flow next year. Is that sort of contractually kind of underpinned for you folks? Are you selling, these credits kind of on a long-term basis. And maybe that, volume and this sort of price is kind of locked in. Or is this maybe just more, your own internal prediction of what you expect for next year?

Yeah. It's more of our internal production of what we expect the pricing to be. There's a mix of long-term contracts in certain arenas. And then there's certain other programs where the pricing and volume kind of fluctuate in some of the arenas. It's a mixed bag of those kinds of opportunities. But it's -- our $75 million to $100 million is based on where we see, how the different opportunities kind of shake out.

Okay, that's helpful. And then just on, kind of the remainder of the year. I guess you guys are saying that CapEx in production are at the higher end here. As I'm looking at kind of year-to-date CapEx for the first three quarters. And I look at this right that you've got about $100 million left to spend in 4Q, which is kind of roughly half of what third quarter levels are. So are you seeing just limited operational activity in the fourth quarter? And similar question on the production. I mean, I can get kind of the, the high-end of the guide, but I guess that assumes that production can even come down a little bit in 4Q versus 3Q. I just want to verify that I'm kind of looking at these numbers, right, that you'd expect, like CapEx to be kind of cut in half in 4Q and any production tails off a little this quarter?

Yeah, that's right. You're going to see a significant decline in CapEx in Q4. What we talked about there during the commentary was the completion team, it's just been so efficient that we pulled basically 11 of the 13 remaining fields in the second half the year came into Q3, that's also driving kind of the production bump. But if you think about it, basically, we got one rig running. And we've kind of had to slow down to almost idle to frack crew, because we've been had a schedule. And we don't want to push volumes into this market, given current prices. So we are just way ahead of schedule and you will see a big drop in Q4 capital next quarter.

Okay, now, that's very helpful guys. And then just on the production, just to follow up there. So if I look at third quarter production, I mean, it looks like it's around a 570 Bcf annual run-rate in 3Q, a little bit lower than your '24 guide, of 580 Bcf. And I guess, production is coming down slightly here in fourth quarter. What's the kind of plan? Is there a plan for early '24, where you call this make it up but you're ramping up activity on January 1st to try to get those volumes up to that 580 B level? Is that kind of the high level operating plan here to kind of get back after it right when the year turns?

And so if you think about the operating plan that we mentioned, we have a continuous drilling program ongoing, right. And it's really just timing on the fracks, fracks is kind of biggest spend on the D&C side. So right now, we slowed down the completion activity, because we're ahead of schedule. And next year, the 580 is going to come and go for the year. We're not going to providing specific volume guidance quarter-by-quarter, but the way to think about it now, is we we've mentioned before, we're trying to get to kind of this 1.59-1.6 run-rate, that's where we're at, and that's where you should roughly expect to see volumes through next year.

Okay, thanks, guys.

The next question comes from Michael Scialla with Stephens. Please go ahead.

Yeah, hi. Good morning. Just one on the New Tech. Just trying to understand the revenue generation there. Most of the revenues or I guess, maybe all the revenues be, are they generated with the alternative energy credits associated with the power plant? Or are there any other credits that you are able to generate by abating the methane?

So this is Ravi. The EA opportunity that they're pursuing, they are a combination of voluntary and compliance offset -- compliance utility programs and AEPs. So there's more to that. And then we expect to add forestry, carbon credits and wetland mitigation, a lot of other EAs to it. So there's, it's not just coming from one source. We have like pathways into multiple opportunities.

Okay, got it. And are you sharing any of those credits with anybody else or is it solely CNX that is getting those credits at this point?

I mean, those credits are monetized. I'm not -- we're not consuming them ourselves. I don't understand the question.

Sorry, I just wondering if you are the only one abating the methane [multiple speakers] mine. So yeah, if you've generated the credits, I mean you can monetize them with another party. But you're the only one that is abating methane at the plant?

Right? If you're asking who the like there's only working, one working interest partner in the project. That's us.

Got it. Got it. Okay, very good. Looks like you've sold some production or sold some assets. I assume there was some production associated with that. Can you say what, what that was for the $19 million that you generating asset sales for the quarter?

Yeah. The bulk of that of selling spare parts. So again, we really do you guys, we have a deep inventory of leases throughout Appalachian. We're to the point now where folks come to us for a lot of unit fill in, so we're able to monetize some of these non-core assets acreage at pretty attractive prices. And we saw an upsurge of that in Q3. So it wasn't production related. We did have the second part of the close on our assets sale for the non-up sale we did, but that was about $3 million in the 19. But the bulk of that is just from selling, selling from our deep inventory of leases.

No, good. Okay. And just last one for me, I wonder, any insight on what you think well cost might look like for '24, relative to where they were this year?

I think if you're asking about sort of oilfield services, inflation, things like that, we're modeling everything to be pretty flat. We expect way downstream is going to we'll see some operational efficiencies, improve cost, but we're not modeling or thinking about any sort of major downdraft in oilfield service costs for next year.

Got it. Thank you.

The next question comes from Jacob Roberts with TPH. Please go ahead.

Good morning.

Good morning.

Just the effect of Buchanan Power facility. I'm curious if you could let us know how to think about the uptime of that plant or the runtime of that plant relative to the power pricing in the region?

I mean, that's a peaker plant, right? It runs as called upon the PJM. So ---

Okay, but no, no guardrails in terms of what PJM pricing is, and when that is on or off?

That's it's all dictated by and sparked economics, right, like with the power prices relative to flowing gas to the plant to turn it on. So it's just a traditional peaker plant, nothing unique about it.

And then, relative to that feed gas. Is CNX the sole supplier of gas to the plant, and then longer term where the plant increased utilization, can CNX provide that supply in totality?

CNX is the sole supplier of gas to that facility at this point in time.

There's volumes produced in that field beyond what that plant consumes.

Perfect, appreciate the time.

The next question comes from John Abbott with Bank of America. Please go ahead.

Hey, good morning, and thank you for taking our questions. So with the New Technology business in the free cash flow guide that you provided here, I mean, how do you think about the potential impact to your credit rating going forward?

Yes, we've had those discussions yet. It's not being incorporated. I think that probably credit guys usually wait for some more quarters on our belt before we give us credit for it. I think the one thing we did want to point out was that it will create some natural deleveraging, even before considering reductions in absolute debt.

Very, very helpful. And then also, again, with the free cash flow outlook that you provided there. I mean, it doesn't seem like there's any incremental CapEx spend on there. Is there incremental CapEx that we should be thinking about related to New Technology guide, as relates to copay methane abatement in 2024 and 2025?

Yeah, on '24-'25, we do expect to spend some capital on the New Tech Group front, but not necessarily on the COVID coal mine methane abatement side of things.

I guess I guess you will get further clarity on that probably at year-end results here. But any idea in terms of what how should we should think about other capital for 2024?

Yeah. I mean, we'll provide the full guidance breakout when we get to Q1, or sorry, January of 2024. But you should expect to see everything kind of decline from this year as we make our way towards that $500 million a year.

All right, great, helpful. Thank you very much.

The next question comes from Brian Velie with Capital One Securities. Please go ahead.

Good morning, everybody really appreciate all the detail on New Tech. I have a couple of other questions that maybe to be able to answer and help me out a little bit. Just wondering if you can help me understand how much methane do you capture to earn one of the credits, like a single credit?

Not sure how to answer that question. But I think what I can tell you is, and we've provided details in our CSR, and our in our quarterly updates on we're capturing out 6 million tonnes of CO2E of methane. And the different programs have different ways of monetizing that. So that's why it's difficult to answer specifically what your question was.

Okay, I understand. So it sounds like just different conversion rates, depending on the program. And then I guess, probably answers, the next question. I was going to ask was, what was the credit price that you could sell these credits at that was assumed in the $75 million to $100 million budget, or I'm sorry, free cash flow range for next year. But I assume that those price assumptions vary also by program?

That's correct.

Okay, one last question --

That's based on kind of the current market.

I'm sorry, say that one more time. Apologies.

That's why we provided the range and then the expected range is based on kind of the current market condition. Yeah.

Perfect. And then last question, this is pretty very interesting stuff. I don't know anybody else is talking about this in the E&P space, I assume maybe the way you're able to do this is, your past experience in the coal industry and relationships that you have there, is that a unique strategic advantage that you expect really only you will be able to exploit? Or is that something you expect other people to kind of follow on and start doing similar things?

I think it's a combination of both. I think there's other people who can do this. But we have developed some technology around capturing waste methane most effectively. Like there's some skill that goes into it. And we think we have the upper hand there.

Got it. Thanks very much for the color. Really appreciate all the details on New Tech. All the best.

The next question comes from Nitin Kumar with Mizuho. Please go ahead.

Hey, good morning, guys. Obviously, a lot of interest in the New Tech, and deservedly. So I guess my question is are the current free cash flows, are they only from Pennsylvania credits? Or are you getting anything from other states? And is it all kind of current time or are you monetizing any cruel credits from your past activities?

So I think I already answered this question, where not all the revenues coming from Pennsylvania program that you mentioned. And on the accrual side of things, I think most of these programs where they have a timeline on how much you can accrue? So there is -- it's not from previously accrued, whatever is permitted by the program.

Generally concurrent, the way to think about it. Yeah.

Okay. That's helpful. And then I guess we're going back to the regular gas side of things. My question was really around, it seems like you're dropping a little activity. I know, you put some CapEx into third quarter. Not looking for formal guidance, but there is a pretty significant step up in production in in 2024, based on the outlook that you've provided. So I'm just curious, is this -- is there any sort of cadence of activity that you expect for '24? Is it going to be front half weighted or back half weighted? Just looking at strip and trying to understand how you're planning for the year in terms of timing?

Yeah, I mean, like I mentioned earlier. There's nothing in particular worth highlighting regarding like the quarter-to-quarter cadence. The way to think about just that we're doing 580. And we've targeted this sort of run-rate we're at so it should just fluctuate around that a little bit. And, in this year, you know, we had a lot of capital to build up from called the 555 to the 580 next year. So once we're back to that maintenance production of 580, that's going to be the driver of the capital declining, right.

Okay, I'm going to sneak one more, and I'm sorry. But for some of those who are following for a while you're coming I think you've highlighted you're in the fourth year of your maintenance of production plan, that this is a concentrated plant in the specific area. When you start expect to start unlocking the other inventory in your portfolio and start spending some of the midstream CapEx that was associated with that?

Yeah, we're still a few years out from unlock anything, we still have a nice chunk of Southwest VA to develop. I think you can see in the program we are lacing in kind of a CPA [ph] Utica well here in there. As those results become available, we'll highlight those in the materials moving forward. But we're still a few years after meeting any sort of major infrastructure investment in a new area.

Thanks, guys.

This concludes our question-and-answer session. I would like to turn the conference back over to Tyler Lewis, for any closing remarks.

Great. Thank you, everyone, for joining this morning and thank you for your interest in CNX. Please feel free to reach out if anyone might have any additional questions. Thanks.

Thank you. The conference has now concluded. You may now disconnect.