Good day, and welcome to the CNX Resources Second Quarter 2025 Q&A Conference Call. [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 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's 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.

[Operator Instructions] And your first question comes from Zach Parham with JPMorgan.

I wanted to ask on the 45Z tax credit. Could you just give us a little detail on the timing and ability to claim those credits. And as the rules are laid out today, would those credits just run through 2029?

Yes. Zach, good question. So the way the program is set up currently, right, as the initial rule guidance, as you point out, there needs to be final rule making. As long as everything comes in, in line with the initial guidance, the first-year eligibility to claim credits would be in 2025. So 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. And then yes, the program got extended under the OBB through '29. It would be the first time that it would be up for re-extension.

And also just wanted to ask on activity levels at the E&P business. Any plans to grow volumes here? I know at one point, you all talked about having optionality to add some activity back in the second half of the year. And if not, can you talk about what a maintenance program might look like in 2026? Would that be flattish CapEx year-over-year? Just trying to get a sense of what activity levels may look like.

Yes. So maybe on the first one, we were positioned with some optionality. Had we seen sort of the end of year storage levels stay low. I mean at this point, it's pretty clear that we're going to creep towards kind of 4 TCF in storage. And under that scenario, we're just going to maintain the initial set of activity that we planned for the beginning of the year. So no changes expected at the current time. When we think about the -- sort of capital efficiency levels, I think the way to do that is to sort of tie back to what we guided to a few years back or a few quarters back. The 2 numbers that standout are sort of the $580 million of production or 580 [ Bs ] of production over the $500 million CapEx, so that ratio is about $0.85 per million in terms of capital efficiency. I think moving forward, if you set aside the actual production well target, which we always talk about as being a function of optimizing free cash flow per share, that's the right ratio to kind of think about the business' capital efficiency moving forward kind of that mid-80s range and middle wiggle plus or minus a little bit in any given quarter, just with the lumpiness with the 1 rig program, but that's the right way to think about it moving forward.

And your next question comes from Leo Mariani with ROTH.

I wanted to see if you could get a little bit more color on drilling and completion activity levels in the second half. I know you all have said that CapEx was pretty front half weighted in '25. But just looking at your turn-in-line schedule, the vast majority of turn in lines, I think they happen here in 1Q. So 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 bit in the winter. And then could you also kind of relate that to CapEx trends? I mean 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.

Yes, sure. Sort of similar what we talked about last time, Leo. Basically, the bulk of the TILs were weighted towards the front half of the year. Our next batch of TILs would be towards the latter part of Q4. So what you'll see on the production front is kind of sequential decline, so it will be lower in Q3 and then lower in Q4 until that next batch TILs comes on. And then CapEx will track that, right? So 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 off late this year to get you all ready for kind of the winter in '26. Is that kind of the way to think about it?

Yes, that's the right way to think about it. We're going to continue to run the 1 rig 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 TILs that I talked about in the December time frame.

Okay. That's helpful. And then just 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? And apart from the cost, could you kind of speak to the actual well results, production performance? How are the results trending versus your expectations? And maybe just overall, how do you see this kind of competing with the Marcellus?

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

And then Leo, maybe I'll address the last part of your question on how we think about the Utica and the Marcellus sort of mix. So we've been very intentional in giving Nav and the operating team a nice runway here to really demonstrate their prowess and 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, we want to keep getting him reps at the Utica wellhead there so we can continue to work on cost efficiencies.

Okay. I appreciate all the detail.

Yes. Thank you.

And your next question comes from Noah Hungness with Bank of America.

I was hoping to ask on 45Z again.

Yes.

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 RMG gas would be sort of shifted to qualify for this 45Z opportunity? Or will some of it still be used to qualify for the PA AEC Tier 1 credit?

Yes. So the way to think about timing, like I said, so '25 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 '25 and '26, right? That's when you would create the tax credit that would be fungible, and you can convert that to cash in the market. In terms of volumes that qualify, I mean, bigger picture, our initial read on the guidance is that it's stackable. So you're able to take advantage of both programs in terms of 45Z and the PA Tier 1 REC. But the volumes don't qualify one for one. So some volumes might qualify under Tier 1 RECs and some volumes might qualify under 45Z. So it's a blend of which ones do, and which ones don't. And at this time, it's all still subject to that final rule. We're optimistic as long as things follow the initial guidance, but there's still a bit of wait and see on that.

Got you. That's helpful color. And then 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.

Yes. It's sort of where the market is at now. We treat it very similar to how we report kind of the open prices for the rest of year. Just kind of look at the PA Tier 1 strip, and that's in the mid-20s right now for the megawatt hour. Yes.

And your next question comes from Jacob Roberts with TPH.

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 the incentivizing the collection of waste gas off the backside of coal mines and creating a saleable product into the pipeline, if that makes sense. So that's why it's -- it's thought about more is remediating or abating an emission source.

Okay. That's helpful. And then 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 how much the RMG product is factoring into those conversations with any counterparties, maybe in particular, the tech guys. And 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?

Yes, great question. No, we're super excited. Our mantra around here is Appalachia first. All of this AI stuff is going to be great for -- great for the region, great for the industry. And in particular, you nail 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 folks that are using nat gas down to a 0- 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 kind of some additional volumes, hopefully.

And Jacob, this is Nick. Just to sort of follow on with Alan. The way we look holistically at the AI opportunity and remediated mine gas RMG. It's another industry pathway, whatever you want to call it, to get the value of it recognized and utilized. So 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 45V, now transportation of alternative fuels with 45Z, and this would be another critical pathway that I think makes a whole bunch of sense and has a certain level of inevitability to it, but the timing and the magnitude of it, it's still a TBD.

Great. Appreciate the time, guys.

Yes, Rob.

And your next question comes from Michael Scialla with Stephens.

Just to follow-on the AI topic there. Obviously, a lot of news recently on gas providing power for data centers in the region. I just want to get your updated thoughts on in-basin demand. And does that have any impact on your long-term view of natural gas prices and your hedging strategy?

Yes. I don't think it has any 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 in-basin demand given our kind of interstate pipe restrictions that we've experienced over the last decade is going to help everyone in-basin. So it's -- we're more of in 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.

Yes, Michael, I think 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's going to be all kinds of factors and changes and twists and turns. So 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 in the future. And that's why -- and I think you saw that too since the summit with what's going on the volatility on pricing. That's why we basically love the opportunity and the developments it would mean for demand for natural gas and what it could mean for the region in terms of sort of a reindustrialization or revitalization of a lot of these communities. But in terms of taking positions today and 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.

Yes. It makes sense. I want to get your thoughts on the second quarter production surprised a little bit. I just wanted to see if you can pinpoint where that came from? Was it new wells outperforming expectations, base decline anything else?

So our production outperformance was basically like 4 things coming together for us. The first one is our new TIL performance, the Apex Marcellus wells and our Utica wells. They've done really well. So -- and 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. And the last part is like our uptime on base production. So all 4 combined, kind of led to this result.

And your next question comes from Betty Jiang with Barclays.

I want to go back and ask about the deep Utica results again. In your view, how much do you think cost will have to come down for the deep Utica to compete with Marcellus returns? And then broadly speaking, from what we can tell, the Utica wells are fairly concentrated right now. So would love to get your thought about the consistency of Utica performance on our acreage.

Yes. 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 PA sort of Marcellus stuff. The longer term, we're going to step out from where we're at now, but our expectation is that there's a pretty long runway across our field up there to make these results repeatable.

Okay. 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 and 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?

Yes. On the RMG front, we're going to sell to whichever market recognizes the highest value, right? I mean, currently, that is the latter of the one that you pointed out, kind of the renewable energy credit markets for the existing RPS programs. But 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.

Betty, you also bring up another good point with the question, which is the focus currently, right, has really shifted with the opportunity of AI in places like Appalachia to nat gas demand and the construction of the data centers and power plants to power them, et cetera. But 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. So I think RMG playing a role in how this ultimately plays out has never been in more demand. And to your point, I think the tech industry will play a key role in that.

And sorry, if I could just follow-up on that answer. If -- in the voluntary carbon market perspective, would that be incremental to PA REC market or 45Z?

At some point, you can only sell into one market. So traditionally, the voluntaries, depending on which pathway you're using, they might not be stackable. So it's all very facts and circumstances dependent. So I hesitate to give a general answer. But the way to think about it is you can generally get maybe 1 to 2 stacking, but you're not going to get beyond that.

Yes, I think of it as another pathway that we compete with your other alternatives. So not -- generally not stackable.

[Operator Instructions] Your next question comes from David Deckelbaum with TD Cowen.

I just wanted to follow-up on just the Utica mix. You talked about just giving more at Bats next year. As we just 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 of years? Or is there still some more headway to make on the cost side before it becomes a larger contribution?

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

Appreciate that. And then just a follow-up on conversations just around marketing and obviously, in-basin demand. As you sit today, we go into 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 '26. 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 sort of 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?

Yes. I think the first signal you want to see is an actual data center connected to some of the nat 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. And until you see that, you're a little bit hesitant to lock in your kind of respective ownership of that economics. So there's -- as Nick pointed out, there's still a lot of innings here. We're still very early, but there's some definite value and to wait and see how this plays out before locking up anything long-term.

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

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

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