CNX Resources Corporation

Good day and welcome to CNX Resources' first quarter 2020 earnings 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 touchtone phone. To withdraw your question, please press star then two. Please note, Today's event is being recorded. I would now like to turn the conference over to Tyler Lewis, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good morning to everybody. Welcome to CNX's first quarter conference call. We have on the call today Nick Deolius, our President and CEO, Don Rush, our Executive Vice President and Chief Financial Officer, and Chad Griffith, our Executive Vice President and Chief Operating Officer. Today we will be discussing our first quarter results, and we have posted an updated slide presentation to our website. To remind everyone, CNX consolidates its results, which includes 100% of the results from CNX, CNX Gathering LLC, and CNX Midstream Partners LP. Earlier this morning, CNX Midstream Partners, ticker CNXM, issued a separate press release, and as a reminder, they will have an earnings call at 11 a.m. Eastern today, which will require us to end our call no later than 1050 a.m. The dial-in number for the CNXM call is 1-888-349-0097. 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 in our previous Securities and Exchange Commission filings. We will begin our call today with prepared remarks by Nick, followed by Chad and then Don, and then we will open the call up for Q&A. With that, let me turn the call over to you, Nick.

Thanks, Tyler. Good morning, everyone. Thank you for joining us. Hope that your families and institutions are doing well managing the virus and all the challenges that come with it. And speaking of the virus, as we sit here at the end of April, it's hard not to think back to where we were at the end of January on our last quarterly call and consider just how much the world's changed in three short months. We've learned a lot, confirmed a lot, that we already believed about our team, our company, and our industry during this time. The way in which our team has responded to these unprecedented times, I think it's nothing short of remarkable. They're resilient, creative, they're driven. Our frontline field team welcomed the monikers of essential and life-sustaining, and they never missed a beat. They keep producing and flowing the natural gas that our society and economy relies on in times like these. Similarly, our corporate team transitioned seamlessly to the remote work scenario, and they continue to provide top-notch support to the operations team. I'm tremendously proud of how we've taken our game to another level and answered the call on behalf of our fellow citizens during this time. And I wanted to take just a few minutes at the outset to thank our team and also say a word of thanks to all the other essential employees and businesses out there who are on the front lines doing their best to keep us all safe and healthy through the crisis. So thank you. We start going through some of the key highlights. I'm going to refer to the slide deck. I'm going to start with slide four in the deck that we posted this morning. I think slide four highlights important points that much of the additional items we're going to discuss will flow from. Those points on slide four, they're simple, but they're crucial. CNX is about optimizing the long-term NAV per share, and the single biggest financial tool that we have at our disposal to do that is to generate free cash flow across our companies on a consolidated basis. And then we place that cash flow that we generate in the right places at the right times. So if we do those three things, focus on NAV per share, generate free cash flow, and then allocate that cash flow at the places and during the right times to count, we're going to have our owners placed in a position to succeed. And this morning, we're providing a multi-year, seven-year plan that demonstrates CNX and CNX Midstream are going to generate free cash flow year in and year out. Slide five, that's another important piece of the puzzle because it shows the CNX approach is not just talk, but it is a functioning business model. There's a pretty extensive data set of accomplishments or actions standing behind it to back it up. Slide five shows that CNX has been in front of and leading on a lot of issues surrounding EMP for some time now. We executed a number of strategic transactions where we streamlined our business lines, divesting what was non-core and investing in what was core. We have been programmatically hedging for years. That has paid off. We, from day one, were very wary of committing to long-term take-or-pay onerous FT that would hobble cash flows and balance sheet. We reduced our overhead spend significantly before it was a necessity or too late. We were the first in Basin to adopt technology like electric frac fleets. We've been obsessing on being a low-cost producer for a number of years now. We realize the strategic importance of retaining control of our midstream assets. And last but not least, we've been reducing debt and deleveraging for some time now. Slide five, it shows how active Q1 and early Q2 have been on keeping our approach in action. There are a lot of items on slide five for Q1 and Q2. Don and Chad are going to discuss many of them in a few minutes, but I just wanted to mention a couple now. First and most important, slide seven I think shows this. CNX was free cash flow positive. to the tune of $129 million in Q1, and we anticipate that's going to be prelude for great things to come in the next few years. Now, what drove the free cash flow for Q1? A lot of things, many of which I just mentioned, all of which manifest into our approach and action. Another key accomplishment in the quarter was our ability to tap capital markets at very attractive rates. That's evidenced on slide eight with the Cardinal States Gathering project financing where we raised $175 million at a 6.5% interest rate. We talked about project financing in our prior earnings call, and you saw this deal secured despite a really challenging environment overall. I think that shows the depth of our asset base and the strong position it occupies in the competitive commodity business that we operate within. Q1 also gave us a chance to show our capital allocation of free cash flow abilities. That's summarized on Slide 9. We retired almost $80 million in 2022 notes at a significant bargain discount to par. This shows how powerful free cash flow can be in down cycles or chaotic times when short-term market pricing and market valuations disconnect from intrinsic value. Before I turn things over to Don and Chad, I did want to hit on two items. For the first, I'm going to ask you to flip back to Slide 5. and specifically take a look at the three items that are listed at the bottom half of the slide. Today we roll out a seven-year business plan that shows the power of this company and its approach and action. The key result to focus on of this plan is consolidated free cash flow across both CNX and CNX Midstream. That is the essence of how we drive our NAV per share and how we're able to effectively allocate capital. And just a couple of cliff notes on the seven-year look before the team goes deeper into it. First, CNX and CNX Midstream, they are substantial free cash flow generators each and every year of the seven-year plan. That's true for the front year, 2020, where we expect to generate $300 million of free cash flow. That's true for next year, 2021, where we expect to generate $400 million of free cash flow. And that's true for 2022 and beyond, where we expect to generate, on average, $500 million per year of free cash flow. And that is certainly true cumulatively when we look to generate over $3 billion of free cash flow across the two companies in the next seven years. Another point, this plan substantially delevers our balance sheet. That has already been in progress, as you know, but it's only going to continue through the rest of 20, 21 and onward. This plan over seven years has a very manageable and very modest activity pace tied to it. It's a maintenance of production plan for 22 and beyond, requires about 25 tills and $300 million and consolidated CapEx each year to achieve. Another key point, this plan and that modest pace, it leaves plenty of inventory in our Southwest PA Marcellus and leaves virtually untouched our Central Pennsylvania Utica inventory. So the core inventory is going to be extensive at the end of this seven-year plan. And last, the plan is based on the reality of the forward strip when it comes to natural gas pricing. If gas prices rally in the interim, the ability to throttle up is there if and when we choose. So, again, these are sort of the cliff notes of the seven-year plan, and the team's going to go into much more detail in a few minutes, and the slide deck holds much of that information in it. The second and last thing I wanted to touch upon is summarized in the deck towards the back end of the slides. It starts on slide 29 and beyond, and that's basically the chapter on how CNX is uniquely positioned and different. And I think the differentiation pops out across all kinds of different metrics. First, we're the most hedged and the most protected in this down cycle. You can see that summarized on slide 31. If you go to slide 32, the next one, our cash costs, they're base and leading, especially when you recognize that we control our midstream business, again, as summarized on slide 32. The balance sheet, I mentioned its strength. It's very strong, particularly when counting not just debt, but also debt-like and onerous FT obligations. We illustrate that in slides 33 and 34. That balance sheet is only going to get stronger with over $3 billion of free cash flow projected over the next seven years. And then the last point, that free cash flow generation year in and year out, it delivers very impressive free cash flow yields for CNX, and we highlight that on slide 37. Impressive not just within Appalachian EMP and impressive not just for all of EMP, but But I think impressive when you compare us to other industries such as industrials, utilities, and consumer staples. I think those cash yields show how CNX is more of a capital allocation firm than an E&P firm in some ways, and that CNX is a great investment opportunity for investors beyond traditional energy investors. Now, with that, I'm going to turn things over to Chad, who's going to go over some of the operational details.